<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 26, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CSK AUTO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5531 86-0221312
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
CSK AUTO, INC. 645 E. MISSOURI JAMES G. BAZLEN CSK AUTO, INC. 645 E.
AVENUE PHOENIX, ARIZONA 85012 (602) MISSOURI AVENUE PHOENIX, ARIZONA 85012
265-9200 (602) 265-9200
(ADDRESS, INCLUDING ZIP CODE, AND (NAME, ADDRESS, INCLUDING ZIP CODE,
TELEPHONE NUMBER, INCLUDING AREA CODE, AND TELEPHONE NUMBER, INCLUDING AREA
OF REGISTRANT'S PRINCIPAL EXECUTIVE CODE, OF AGENT FOR SERVICE)
OFFICES)
----------------
COPIES TO:
MARK S. HIRSCH, ESQ. PARKER CHAPIN MARK R. SAUNDERS, ESQ. BROWN & WOOD
FLATTAU & KLIMPL, LLP 1211 AVENUE OF ONE WORLD TRADE CENTER NEW YORK, NEW
THE AMERICAS NEW YORK, NEW YORK 10036 YORK 10048 (212) 839-5300
(212) 704-6000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
----------------
If any securities being registered on this form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
of the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value per share........ 7,705,000 $16.00 $123,280,000 $42,510
</TABLE>
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- -------------------------------------------------------------------------------
(1) Includes 1,005,000 shares that the Underwriters have the option to
purchase from the Company to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) and based on a bona fide estimate of the maximum
offering price.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
CSK AUTO, INC.
CROSS REFERENCE SHEET
----------------
Cross Reference Sheet Pursuant to Item 501(b) of Regulation S-K Showing
Location in Prospectus of Information Required by Items of Part I of Form S-1.
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
----------------------- ---------------------------------
<S> <C>
1.Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus.......................... Outside Front Cover Page of
Prospectus
2.Inside Front and Outside Back Cover
Pages of Prospectus................. Inside Front Cover Page of
Prospectus; Outside Back Cover Page
of Prospectus; Additional
Information
3.Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges.. Prospectus Summary; Risk Factors
4.Use of Proceeds....................... Use of Proceeds; Management's
Discussion and Analysis of
Financial Condition and Results of
Operations
5.Determination of Offering Price....... Outside Front Cover Page of
Prospectus; Underwriting
6.Dilution.............................. Dilution
7.Selling Security Holders.............. Not Applicable
8.Plan of Distribution.................. Outside Front Cover Page of
Prospectus; Underwriting
9.Description of Securities to be
Registered.......................... Prospectus Summary; Description of
Capital Stock
10.Interests of Named Experts and
Counsel............................. Not Applicable
11.Information with Respect to the
Registrant.......................... Outside Front Cover Page of
Prospectus; Additional Information;
Prospectus Summary; Risk Factors;
Use of Proceeds; Dividend Policy;
Capitalization; Dilution; Selected
Consolidated Financial Data;
Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions;
Principal Stockholders; Shares
Eligible for Future Sale; The
Merger; Description of Capital
Stock; Legal Matters; Experts;
Consolidated Financial Statements
12.Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities......................... Not Applicable
</TABLE>
<PAGE>
EXPLANATORY NOTE
The term "Company" when used in this Prospectus includes CSK Auto, Inc. and
its wholly owned subsidiaries, after giving effect to the merger with and into
CSK Auto, Inc. (prior to or concurrent with the completion of this offering)
of Northern Automotive Corporation, an Arizona corporation ("NAC"), which
currently operates the Company's automotive parts retailing business. CSK
Auto, Inc. is a Delaware corporation recently formed for the sole purpose of
consummating the merger and effecting the reincorporation of NAC as a Delaware
corporation.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 26, 1996
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
6,700,000 SHARES
CSK AUTO, INC.
[LOGO]
COMMON STOCK
-----------
All of the 6,700,000 shares of Common Stock offered hereby (the "Offering")
are being sold by CSK Auto, Inc. (the "Company").
Prior to the Offering, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be
between $14.00 and $16.00 per share. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price of the
Common Stock.
Application will be made to have the Common Stock offered hereby listed on
under the symbol " ."
SEE "RISK FACTORS," BEGINNING ON PAGE 9, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share..................................... $ $ $
- --------------------------------------------------------------------------------
Total (3)..................................... $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deduction of expenses payable by the Company estimated at $ .
(3) The Company has granted the Underwriters an option, exercisable within 30
days, to purchase up to 1,005,000 additional shares of Common Stock on the
same terms as set forth above, solely to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
-----------
The shares are offered by the several Underwriters, subject to prior sale,
when, as and if delivered to and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters. The Underwriters reserve
the right to withdraw, cancel or modify such offer and to reject orders in
whole or in part. It is expected that delivery of the shares will be made in
New York, New York on or about , 1996.
-----------
MERRILL LYNCH & CO. DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
-----------
The date of this Prospectus is , 1996
<PAGE>
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON , IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting requirements of
the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). The
Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include any
amendments thereto) on Form S-1 under the Securities Act of 1933, as amended
(the "Securities Act") with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock, reference is made to the Registration Statement,
including the exhibits and schedule thereto, copies of which may be examined
without charge at the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and the regional offices of the Commission located at 7
World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, 14th Floor, Chicago, Illinois 60661-2511. Copies of
such materials may be obtained from the Public Reference Section of the
Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at its public reference facilities in New York, New York, and Chicago,
Illinois, at prescribed rates. This Registration Statement has been filed
electronically through the Electronic Data Gathering, Analysis, and Retrieval
system (EDGAR) and is publicly available through the Commission's web site
(http://www.sec.gov). Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each statement
being qualified in all respects by such reference.
Immediately following the Offering, the Company will become subject to the
periodic reporting and other informational requirements of the Exchange Act.
As long as the Company is subject to such periodic reporting and information
requirements, it will file with the Commission all reports, proxy statements,
and other information required thereby. The Company intends to furnish holders
of the Common Stock with annual reports containing financial statements
audited by an independent certified public accounting firm and quarterly
reports containing unaudited financial information for the first three
quarters of each fiscal year.
The Company owns the federally-registered service mark "Schuck's" for use in
connection with the automotive parts retailing business and owns rights to use
the tradenames "Checker" and "Kragen". This Prospectus also includes product
names and other tradenames and service marks of the Company and of other
companies.
2
<PAGE>
PROSPECTUS SUMMARY
This summary should be read in conjunction with and is qualified in its
entirety by the more detailed information and Consolidated Financial
Statements, including the Notes thereto, appearing elsewhere in this
Prospectus. As used in this Prospectus unless otherwise indicated, the
"Company" refers to CSK Auto, Inc. and its subsidiaries (after giving effect to
the merger referred to below), and references to the Company's fiscal year mean
the fiscal year ended on the Sunday nearest January 31 of the following
calendar year (e.g., fiscal 1995 means the fiscal year ended January 28, 1996).
Except as otherwise noted, as used in this Prospectus all share and per share
data and information relating to the number of shares of common stock, par
value $.001 per share, of the Company (the "Common Stock") outstanding (i) have
been adjusted to give effect to the merger to be consummated prior to or
concurrent with the completion of the Offering whereby Northern Automotive
Corporation ("NAC"), which currently operates the Company's automotive parts
retailing business, will merge with and into the Company (the "Merger") and
(ii) assume no exercise of the Underwriters' over-allotment option. See
"Capitalization," "The Merger" and "Underwriting." Investors should carefully
consider the information set forth under "Risk Factors" prior to making a
decision to purchase any shares of Common Stock offered hereby.
THE COMPANY
CSK Auto, Inc. (the "Company") is the largest retailer of automotive parts
and accessories in the Western United States and one of the largest such
retailers in the United States. As of April 28, 1996, the Company operated 569
stores as a fully integrated chain under three tradenames, each of which at one
time represented a separate retail chain: Checker Auto Parts, founded in 1968
and operating in the Southwestern and Rocky Mountain states; Schuck's Auto
Supply, founded in 1917 and operating in the Pacific Northwest; and Kragen Auto
Parts, founded in 1947 and operating primarily in California. As such, each has
a long operating history, established name recognition and customer loyalty in
its respective markets. Based on store count, the Company believes it is the
largest retailer of automotive parts and accessories in 18 of its 24 markets.
The Company is a consumer-oriented, specialty retailer primarily servicing
the do-it-yourself ("DIY") customer, with an increasing emphasis on the
commercial customer. The Company offers a broad selection of national brand
name and private label automotive products for domestic and imported cars, vans
and light trucks, including new and remanufactured automotive hard parts,
maintenance items and accessories. The Company's operating strategy is to offer
these products at generally the lowest prices in each of its markets and at
conveniently located and attractively designed stores, supported by
knowledgeable and courteous customer service personnel. As a specialty
retailer, the Company has chosen not to sell tires or perform automotive
repairs.
In order to improve the efficiency of its operations, enhance customer
service and position the Company for future growth, the Company began in fiscal
1994 to implement a sophisticated, centralized infrastructure and to install
various store-based information systems. At the same time, the Company
initiated its Commercial Sales Program. Implementation of these strategies
involved large expenditures and adversely impacted operations, resulting in
substantially increased operating costs during fiscal 1995. In addition, during
this period, the Company accelerated its store expansion and repositioning
program to increase penetration of its existing markets. These initiatives
provided significant momentum to the Company's operations as reflected in the
first quarter of fiscal 1996, with operating profit increasing to $6.0 million
from $0.4 million during the first quarter of fiscal 1995.
3
<PAGE>
Several of the Company's key initiatives that have been implemented beginning
in fiscal 1994 are summarized below.
. Commercial Sales Program--The Company formalized and expanded its
marketing efforts to the commercial segment of the automotive
aftermarket, which the Company believes constitutes in excess of 50% of
the approximately $75 billion of annual sales for this market. The
Company increased the number of stores with Commercial Sales Centers
from five at September 30, 1994 to 189 at April 28, 1996. Principally as
a result of this expansion, the Company's sales to commercial accounts
(including sales by stores without Commercial Sales Centers) grew to
$60.8 million in fiscal 1995 from $32.6 million in fiscal 1994 and to
$20.3 million in the first quarter of fiscal 1996 from $12.4 million in
the first quarter of fiscal 1995. The Company's Commercial Sales Program
became profitable in the first quarter of fiscal 1996. Based on the
success of this program, the Company expects to continue to assess
opportunities to add Commercial Sales Centers to its existing and new
stores.
. Customer Service Culture--The Company increased its focus on formal
classroom training and on-the-job training, customer service measurement
systems and incentive programs for its district managers, store
managers, sales associates and other employees in order to encourage
development of technical expertise and customer service skills. To
further encourage superior performance by its employees, the Company has
recently adopted a variety of stock based plans, pursuant to which more
than 1,000 employees have been granted stock options. The Company
believes these programs have resulted in an increased level of customer
service and store-level efficiency.
. Warehouse and Distribution--The Company completed the conversion of its
warehouse and distribution facilities from a manual, labor intensive,
paper-based system to a technologically advanced, fully integrated
system, which has reduced warehouse and distribution costs while
providing the Company with sufficient capacity to meet the requirements
of its growth plans for the foreseeable future. This new system became
fully operational during the fourth quarter of fiscal 1995.
. Store-Based Information Systems--The Company installed a new Point-of-
Sale system ("POS"), integrated the POS with the Company's Electronics
Parts Catalog, implemented its Retail Paperless Management System and
installed a store-wide satellite communications network. Each of these
systems developments has improved store labor productivity and enhanced
customer service.
. Priority Parts--The Company expanded its Priority Parts operation by
improving its delivery system and adding seven strategically located
parts depots to its two existing locations. This expansion has enabled
the Company to better serve its customers by making available to more
than 400 of its stores, on a same day delivery basis, an additional
200,000 stock keeping units not regularly stocked in its stores and has
also enabled it to increase sales to commercial accounts due to the
broader availability of automotive hard parts. Prior to this expansion,
this same day delivery service was available to only 80 of the Company's
stores. The Company believes that its Priority Parts operation provides
it with an important competitive advantage.
. Call Center--The Company completed the installation of a centralized
Call Center that handles the overflow of customer calls during the
stores' busiest hours of operation. Use of the Call Center allows sales
associates to give undivided attention to customers at the store, while
customers who call the store are serviced directly by Call Center
operators who are dedicated to such callers. As a result, the Call
Center has enhanced customer service while improving store labor
productivity. At April 28, 1996, over 200 of the Company's stores had
access to the Call Center and additional stores will continue to be
added.
. Store Expansion and Repositioning--The Company has accelerated the
relocation of smaller stores to larger stores at better locations, the
expansion of certain other stores and the opening of new stores
primarily in existing markets. During fiscal 1995, the Company opened a
total of 54 new stores (of which 30 resulted from relocations of
existing stores) and expanded 9 stores.
4
<PAGE>
The focus of the Company's expansion strategy is to open, relocate or expand
stores primarily in existing markets in order to further increase its name
recognition and market penetration while benefiting from economies of scale in
advertising, management and distribution costs. The Company plans to open,
relocate or expand approximately 75 stores in fiscal 1996 (compared to 63
stores in fiscal 1995) and approximately 100 to 125 stores in fiscal 1997. The
Company opened, relocated or expanded 11 stores during the first quarter of
fiscal 1996, currently has executed purchase contracts or leases for 56
additional stores and is in various stages of negotiation for 58 more sites.
The Company has also identified numerous potential additional sites for future
expansion.
The Company believes that its recent financial performance demonstrates the
effectiveness of the Company's investments in its corporate infrastructure and
store-based information systems, its focus on commercial customers and its
store repositioning program. The Company believes these initiatives have
positioned it for future growth in sales and profitability. During the first
quarter of fiscal 1996, the Company's total sales and comparable store sales
increased 10% and 7%, respectively, over the comparable period in fiscal 1995,
while its operating profit improved to $6.0 million from $0.4 million and net
income increased to $1.5 million from a net loss of $1.8 million.
The Company's executive offices are located at 645 E. Missouri Avenue,
Phoenix, Arizona 85012 and its telephone number is (602) 265-9200.
5
<PAGE>
THE OFFERING
Common Stock offered................ 6,700,000 shares of Common Stock
Common Stock to be outstanding 37,021,700 shares of Common Stock(1)
after the Offering.................
Use of proceeds..................... The net proceeds from the Offering will
be used to repay indebtedness incurred
under the Company's existing credit
agreement. See "Use of Proceeds."
Proposed symbol.................
- --------
(1) Excludes options to purchase 3,584,052 shares of Common Stock granted to
certain officers, a former officer, directors and certain employees of the
Company at an exercise price of $12.75 per share, of which options to
purchase 2,118,000 shares of Common Stock are currently exercisable. Also
excludes an additional 1,265,948 shares of Common Stock reserved for
issuance pursuant to employee benefit plans, which, if issued, will be
subject to certain restrictions included in such plans. See "Management--
Stock Based Plans."
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary consolidated statement of operations,
balance sheet and operating data of the Company. The summary financial data for
each of the three fiscal years during the period ended January 28, 1996 are
derived from the Consolidated Financial Statements of the Company, which have
been audited by Price Waterhouse LLP, independent accountants, and appear
elsewhere herein. The summary financial data for the thirteen weeks ended April
30, 1995 and April 28, 1996 have been derived from the Company's unaudited
consolidated financial statements and include, in the opinion of the Company's
management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the data for such periods. The results for the
thirteen weeks ended April 28, 1996 are not necessarily indicative of the
results to be expected for the fiscal year ending February 2, 1997 or for any
future period. The data presented below should be read in conjunction with the
Consolidated Financial Statements, including the related Notes thereto, the
other financial information included herein, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "The Merger."
<TABLE>
<CAPTION>
PRO FORMA(2)
--------------------------------
THIRTEEN WEEKS FISCAL YEAR THIRTEEN WEEKS
FISCAL YEAR ENDED(1) ENDED ENDED ENDED
---------------------------- -------------------- ----------- --------------------
JAN. 30, JAN. 29, JAN. 28, APRIL 30, APRIL 28, JAN. 28, APRIL 30, APRIL 28,
1994 1995(3) 1996(4) 1995 1996 1996 1995 1996
-------- -------- -------- --------- --------- ----------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND PER SQUARE FOOT DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $645,426 $688,135 $718,352 $172,301 $189,185 $718,352 $172,301 $189,185
Cost of sales.......... 397,565 410,358 433,817 103,712 113,709 433,817 103,712 113,709
Operating and
administrative
expenses.............. 237,311 258,600 284,697 68,199 69,450 284,697 68,199 69,450
-------- -------- -------- -------- -------- -------- -------- --------
Operating profit
(loss)................ 10,550 19,177 (162) 390 6,026 (162) 390 6,026
Interest expense....... 11,731 10,343 14,379 3,270 3,595 4,997 1,287 1,220
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
taxes and
extraordinary gain.... (1,181) 8,834 (14,541) (2,880) 2,431 (5,159) (897) 4,806
Income (loss) before
extraordinary gain.... (650) 8,038 (9,094) (1,798) 1,499 (3,173) (547) 2,947
Extraordinary gain..... -- 97,186 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $ (650) $105,224 $ (9,094) $ (1,798) $ 1,499 $ (3,173) $ (547) $ 2,947
======== ======== ======== ======== ======== ======== ======== ========
Per share amounts:
Net income (loss) per
common share before
extraordinary gain.... $ (0.02) $ 0.26 $ (0.29) $ (0.06) $ 0.05 -- -- --
Extraordinary gain..... -- 3.15 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) per
share................. $ (0.02) $ 3.41 $ (0.29) $ (0.06) $ 0.05 -- -- --
======== ======== ======== ======== ======== ======== ======== ========
Pro forma net income
(loss) per share...... -- -- -- -- -- $ (0.08) $ (0.01) $ 0.08
======== ======== ========
Weighted-average common
and common equivalent
shares outstanding (in
thousands)............ 30,860 30,860 30,860 30,860 30,860 37,446 37,492 37,560
======== ======== ======== ======== ======== ======== ======== ========
SELECTED ADDITIONAL
OPERATING DATA:
Warehouse and
distribution
expense(5)............ $ 25,599 $ 29,827 $ 34,860 $ 7,676 $ 7,424 -- -- --
Occupancy expense(6)... 29,286 32,232 35,357 8,406 9,405 -- -- --
Depreciation and
amortization expense.. 12,175 12,972 16,125 3,474 4,810 -- -- --
Average net sales per
store(7).............. 1,215 1,272 1,294 314 333 -- -- --
Average net sales per
store square foot(7).. 223 226 224 55 56 -- -- --
Percentage increase in
comparable store net
sales(8).............. 9.9% 5.2% 2.1% 2.9% 7.3% -- -- --
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
THIRTEEN WEEKS
FISCAL YEAR ENDED(1) ENDED
------------------------- -------------------
JAN. 30, JAN. 29 JAN. 28, APRIL 30, APRIL 28,
1994 1995(3) 1996 1995 1996
-------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
SELECTED STORE DATA:
Beginning Stores................ 524 538 544 544 566
New Stores...................... 15 10 24 10 3
Relocated Stores................ 25 12 30 5 6
Closed Stores (including
relocated stores).............. (26) (16) (32) (5) (6)
----- ----- ----- ----- -----
Ending Stores................... 538 544 566 554 569
===== ===== ===== ===== =====
Expanded Stores................. 13 5 9 2 2
Stores with Commercial Sales
Centers........................ 5 59 176 183 189
Total store square footage (at
period end)(000s)(7)........... 2,992 3,097 3,329 3,161 3,377
</TABLE>
<TABLE>
<CAPTION>
AT APRIL 28, 1996
-----------------------------
ACTUAL AS ADJUSTED(9)
------------ ----------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.................................. $ 82,052 $ 82,158
Total assets..................................... 398,949 395,165
Long-term debt:
Credit Agreement................................. 92,671 --
Capital leases................................... 18,941 18,941
Stockholder's equity(10)......................... 61,496 153,740
</TABLE>
- --------
(1) The Company's fiscal year consists of 52 or 53 weeks ending on the Sunday
nearest to January 31. All fiscal years presented are 52 weeks.
(2) The Pro Forma statement of operations and net income per common share data
give effect to the completion of the Offering and the application of the
estimated net proceeds therefrom as if the same had occurred at the
beginning of the periods indicated.
(3) The extraordinary gain represents a gain resulting from cancellation of a
portion of the Company's long-term debt. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Notes 4 and
9 to Consolidated Financial Statements.
(4) Includes in cost of sales pre-opening expenses of $1.6 million associated
with the opening of the new distribution center in Phoenix, Arizona.
Includes in operating and administrative expenses $5.1 million of non-
recurring software development costs and $1.9 million of depreciation and
amortization expense relating to equipment associated with the new store-
based information systems. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(5) Warehouse and distribution expense is included in cost of sales.
(6) Occupancy expense is included in operating and administrative expenses.
(7) Total store square footage is based on the Company's actual store formats
and includes normal selling, office, stockroom and receiving space.
Average net sales per store and average net sales per store square foot
are based on the average of beginning and ending number of stores and
store square footage and are not weighted to take into consideration the
actual dates of store openings, closings or expansions.
(8) Comparable store net sales data is calculated based on the change in net
sales commencing after the time a store has been opened twelve months. The
first twelve months are not included in the comparable store calculation.
(9) Gives effect to the sale of 6,700,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $15.00 per share and
the application of the estimated net proceeds therefrom and includes an
aggregate of 21,700 shares of Common Stock issued to certain executive
officers of the Company at a price of $12.75 per share. See "Use of
Proceeds," and "Capitalization" and "The Merger."
(10) Excludes the effect of equity participation agreements under which certain
current officers and a former officer of the Company have been granted
participation interests equal in the aggregate to 6.4% of the Common Stock
held by CSK Holdings, Ltd. immediately prior to the Offering. Pursuant to
these agreements, these individuals are entitled to a cash payment by the
Company equal to the product of their vested participation interest and
the consideration received (up to a maximum of $12.75 per equity
participation share equivalent) in respect of one or more of the
following: (i) a sale of substantially all of the assets of the Company;
(ii) the merger of the Company; and (iii) the sale of Common Stock by CSK
Holdings, Ltd. (in which case the payment will be adjusted based upon the
percentage of such stockholder's holdings being sold). See "Management--
Equity Participation Agreements."
8
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be carefully considered in evaluating the Company and its
business before purchasing the Common Stock offered hereby.
UNCERTAINTY OF GROWTH STRATEGY
The Company's expansion strategy is based, in part, on expanding successful
stores at existing locations, relocating existing stores in the same markets
and adding new stores primarily to markets currently served by the Company.
The future growth and financial performance of the Company is, therefore,
dependent upon a number of factors, including the Company's ability to locate
and obtain acceptable store sites, negotiate favorable lease terms, complete
the construction of new and relocated stores in a timely manner, hire, train
and retain competent managers and associates, and integrate new stores into
the Company's systems and operations. There can be no assurance that the
Company will be able to continue to increase sales in existing stores or that
opening new stores in markets already served by the Company will not adversely
affect existing store profitability or comparable store sales. There also can
be no assurance that the Company will be able to manage its growth
effectively. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and "Business--
Store Development and Expansion Strategy."
COMPETITION
The retail sale of automotive parts and accessories is highly competitive.
The Company competes primarily with national and regional retail automotive
parts chains, wholesalers or jobber stores (some of which are associated with
national automotive parts distributors or associations), automobile dealers
that supply manufacturer parts and mass merchandisers that carry automotive
replacement parts and accessories. Some of the Company's competitors are
larger and have greater financial resources than the Company. See "Business--
Competition."
DEPENDENCE ON VENDOR RELATIONSHIPS
The Company's business is dependent upon developing and maintaining close
relationships with its vendors and its ability to purchase products from these
vendors on favorable price and other terms, including obtaining financial
incentives, such as cooperative advertising arrangements and other marketing
incentive programs, and non-financial benefits such as improved packaging and
distribution accommodations. A disruption of these vendor relationships, or a
material reduction in any of these advertising, incentive or other programs,
could materially adversely affect the Company's business. The Company believes
that alternative sources of supply could be obtained for all of its products,
if necessary, on generally comparable terms. See "Business--Purchasing."
DEPENDENCE ON KEY INDIVIDUALS
The Company is dependent, in large part, on its ability to retain the
services of certain key personnel. While the Company believes that it has
assembled an effective management team, the loss of a number of individuals
who are considered key personnel could have an adverse impact on the Company.
The Company's continued success will also be dependent upon its ability to
retain existing and attract additional qualified personnel to meet the
Company's needs. See "Management."
ECONOMIC AND WEATHER CONDITIONS; REGIONAL CONCENTRATION
All of the Company's stores are located in the Western United States. As a
result, the Company's business is sensitive to the economic and weather
conditions of that region. In recent years, certain parts of that region have
experienced economic recessions and extreme weather conditions. Temperature
extremes tend to enhance
9
<PAGE>
sales by causing a higher incidence of parts failure and increasing sales of
seasonal products. However, unusually severe weather can reduce sales by
causing deferral of elective maintenance. No prediction can be made as to
future economic or weather conditions in the regions in which the Company
operates.
CONTROL BY PRINCIPAL STOCKHOLDER
Upon completion of the Offering, CSK Holdings, Ltd. ("Holdings"), a holding
company, the only asset of which is the Common Stock of the Company, will own
directly or indirectly approximately 81.8% of the Company's Common Stock.
Holdings is, in turn, wholly-owned by the Carmel Trust ("Carmel"), as more
fully described under "Principal Stockholders." As a result, Carmel, through
Holdings, can control the management and policies of the Company, and will
have, without limitation, the power to elect or remove the Company's Board of
Directors. Carmel also may exercise control over the business, policies and
affairs of the Company, may determine (without the consent of the Company's
other stockholders) the outcome of any matter submitted to the stockholders
for approval, including any merger, consolidation or sale of all or
substantially all of the Company's assets, and may prevent or cause a change
in control of the Company. See "Principal Stockholders" and "Description of
Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock or the availability of such shares for future sale will
have on the market price of the Common Stock prevailing from time to time.
Sales of substantial amounts of Common Stock in the public market, or the
perception that such sales could occur, could adversely affect prevailing
market prices for the Common Stock. Upon consummation of the Offering, only
the 6,700,000 shares of Common Stock sold pursuant to the Offering will be
freely tradeable under the Securities Act, unless and to the extent purchased
by "affiliates" of the Company, as that term is defined in Rule 144
promulgated under the Securities Act (sales by whom would be subject to
certain volume limitations and other restrictions). All of the remaining
shares of Common Stock are subject to an agreement with the Underwriters
pursuant to which the holders have each agreed not to sell or dispose of any
such shares for a period of 180 days from the date of this Prospectus. Upon
the expiration of such 180-day period, such shares will continue to be
"restricted" securities, which may be sold in the public market only pursuant
to an effective registration statement under the Securities Act or an
exemption therefrom. See "Shares Eligible For Future Sale" and "Underwriting."
DILUTION
The initial public offering price is substantially higher than the net
tangible book value per share of Common Stock. The purchasers of the Common
Stock offered hereby will experience immediate and substantial dilution in net
tangible book value per share of Common Stock from the initial public offering
price. See "Dilution."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK AND POSSIBLE VOLATILITY OF STOCK PRICE
There has been no public market for the Common Stock prior to the Offering.
Although application will be made to list the Common Stock on , there can
be no assurance that an active public market for the Common Stock will develop
or be sustained. The price of the Common Stock offered hereby has been
determined through negotiation between the Company and the Underwriters and
may not necessarily reflect the market price of the Common Stock after the
Offering. See "Underwriting." Additionally, the market price of the Common
Stock could be subject to significant fluctuations and trade below the initial
public offering price in response to variations in quarterly operating
results, general trends in the retail automotive aftermarket parts industry, a
decrease in stock prices generally and other factors.
10
<PAGE>
USE OF PROCEEDS
Based on an assumed initial public offering price of $15.00 per share, the
Company will receive approximately $92.5 million from the sale of the
6,700,000 shares of Common Stock offered hereby (approximately $106.5 million
if the Underwriters' over-allotment option is exercised in full) after
deducting the underwriting discount and estimated expenses payable by the
Company in connection with the Offering. The Company intends to use the net
proceeds from the Offering to partially repay certain indebtedness plus
accrued interest thereon incurred under the Credit Agreement referred to
below. Any balance remaining due under the Credit Agreement after giving
effect to such use of the net proceeds will be repaid upon completion of the
Offering from existing cash balances and the Credit Agreement will be
terminated. Upon the completion of the Offering, the Company intends to obtain
a new credit facility to fund, in part, its continued expansion and working
capital requirements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The indebtedness to be repaid is secured and consists (as of April 28, 1996)
of a term loan in the principal amount outstanding of $2.7 million and a
revolving credit loan in the principal amount outstanding of $91.0 million,
plus accrued interest, under the Company's existing credit agreement entered
into in February 1995 with a group of lending institutions for which
Transamerica Business Credit Corporation acts as agent (the "Credit
Agreement"). The principal outstanding under the Credit Agreement bears
interest at LIBOR plus 3.0% with an option to use the prime rate plus 1.0%. As
of April 28, 1996, the average interest rate under the Credit Agreement was
8.56%. The term loan and revolving credit loan under the Credit Agreement
mature on February 15, 1997, subject to certain rights that the Company has to
extend the term for up to four additional one-year terms if the conditions
specified for such extensions are then satisfied.
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock and currently
intends to retain all earnings for working capital to support growth and for
general corporate purposes. The Company, therefore, does not anticipate paying
any dividends in the foreseeable future.
11
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of April 28, 1996, after giving effect to the Merger, and as
adjusted to reflect (i) the issuance of 21,700 shares of Common Stock to
certain executive officers of the Company at a price of $12.75 per share and
(ii) the sale by the Company of the 6,700,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $15.00 per share and the
application of the estimated net proceeds therefrom to repay a portion of the
Company's outstanding debt under the Credit Agreement. See "Use of Proceeds"
and "The Merger." The Company intends to apply a portion of its existing cash
balance to repay the remaining balance, if any, under the Credit Agreement.
<TABLE>
<CAPTION>
AS OF APRIL 28, 1996
---------------------------
AS
ACTUAL ADJUSTED
------------ -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Cash and cash equivalents.......................... $ 4,708 $ 1,798
============ ============
Current portion of long-term debt.................. $ 1,000 --
============ ============
Long-term debt:
Credit Agreement................................. $ 92,671 --
Capital leases................................... 18,941 $ 18,941
Stockholders' equity:
Preferred Stock, $.001 par value, 10,000,000
shares authorized, no shares issued and
outstanding..................................... -- --
Common Stock, $.001 par value, 75,000,000 shares
authorized, 30,300,000 shares issued and
outstanding, actual; 37,021,700 shares
issued and outstanding, as adjusted(1).......... 30 37
Additional paid-in capital--
Common Stock................................... 87,093 179,863
Accumulated deficit.............................. (25,627) (26,160)
------------ ------------
Total stockholders equity...................... 61,496 153,740
------------ ------------
Total capitalization......................... $ 173,108 $ 172,681
============ ============
</TABLE>
- --------
(1) Excludes options to purchase 3,584,052 shares of Common Stock granted to
certain current and former officers and directors and certain employees of
the Company at an exercise price of $12.75 per share, of which options to
purchase 2,118,000 shares of Common Stock are currently exercisable. Also
excludes 1,265,948 shares of Common Stock reserved for issuance pursuant
to employee benefit plans, which, if issued, will be subject to certain
restrictions included in such plans. Also excludes the effect of equity
participation agreements under which certain current officers and a former
officer of the Company own a maximum participation interest equal in the
aggregate to 6.4% of the Common Stock held by CSK Holdings, Ltd.
immediately prior to the Offering. Pursuant to these agreements, these
individuals are entitled to a cash payment by the Company equal to the
product of their vested participation interest and the consideration
received (up to a maximum of $12.75 per equity participation share
equivalent) in respect of one or more of the following: (i) a sale of
substantially all of the assets of the Company; (ii) the merger of the
Company; and (iii) the sale of Common Stock by CSK Holdings, Ltd. (in
which case the payment will be adjusted based upon the percentage of such
stockholder's holdings being sold). See "Management--Stock Based Plans and
Equity Participation Agreements."
12
<PAGE>
DILUTION
The net tangible book value available to holders of Common Stock (tangible
assets less liabilities) of the Company at April 28, 1996, after giving effect
to the Merger and the issuance of 21,700 shares of Common Stock to certain
executive officers of the Company at a price of $12.75 per share, was
approximately $46.9 million or $1.55 per share of Common Stock. After giving
effect to the sale of 6,700,000 shares of Common Stock offered hereby at an
assumed initial public offering price of $15.00 per share and the application
of the net proceeds therefrom (after deducting the underwriting discount and
the estimated expenses of the Offering), the adjusted net tangible book value
of the Company at April 28, 1996 would have been $139.4 million or $3.77 per
share of Common Stock. This represents an immediate increase in net tangible
book value of $2.22 per share to the existing stockholders and an immediate
dilution of $11.23 per share to new investors purchasing shares of Common
Stock offered hereby. The following table illustrates the per share dilution
to new investors:
<TABLE>
<S> <C> <C>
Assumed initial offering price per share................... $15.00
Adjusted net tangible book value per share after giving
effect to the Merger...................................... $1.55
Increase per share attributable to new investors........... 2.22
=====
Pro forma net tangible book value per share after the
Offering.................................................. 3.77(2)
------
Dilution per share to new investors(1)..................... $11.23(2)
======
</TABLE>
- --------
(1) Dilution is determined by subtracting pro forma net tangible book value
per share after the Offering from the amount of cash paid by a new
investor for a share of Common Stock.
(2) Does not give effect to outstanding options to purchase 3,584,052 shares
of Common Stock, pursuant to the Company's Employee Stock Option Plan, of
which options to purchase 2,118,000 shares of Common Stock are currently
exercisable. See "Management--Stock Based Plans--Employee Stock Option
Plan."
The following table summarizes, on a pro forma basis as of April 28, 1996
(after giving effect to the assumed exercise of currently exercisable
outstanding options to purchase 1,916,000 shares of Common Stock and payment
therefore), the total consideration paid and the average price per share paid
by officers and directors with respect to shares of Common Stock purchased
from the Company in the last five years and by investors purchasing the shares
in the Offering at an assumed initial public offering price of $15.00 per
share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Officers and directors........ 1,937,700 22.4% $ 24,705,675 19.7% $12.75
New investors................. 6,700,000 77.6% 100,500,000 80.3% $15.00
</TABLE>
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated statement of
operations, balance sheet and operating data of the Company. The selected
statement of operations and balance sheet data for each of the five fiscal
years during the period ended January 28, 1996 are derived from the financial
statements of the Company, which have been audited by Price Waterhouse LLP,
independent accountants, and which in the case of the three most recent fiscal
years appear elsewhere herein. The selected financial data for the thirteen
weeks ended April 30, 1995 and April 28, 1996 have been derived from the
Company's unaudited Consolidated Financial Statements and include, in the
opinion of the Company's management, all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the data for such
periods. The results for the thirteen weeks ended April 28, 1996 are not
necessarily indicative of the results to be expected for the fiscal year
ending February 2, 1997 or for any future period. The data presented below
should be read in conjunction with the Consolidated Financial Statements,
including the related Notes thereto included herein, the other financial
information included herein, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "The Merger."
<TABLE>
<CAPTION>
THIRTEEN WEEKS
FISCAL YEAR ENDED (1) ENDED
------------------------------------------------- --------------------
FEB. 2, JAN. 31, JAN. 30, JAN. 29, JAN. 28, APRIL 30, APRIL 28,
1992(2) 1993 1994 1995(3) 1996(4) 1995 1996
-------- -------- -------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND PER SQUARE FOOT DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $523,455 $588,984 $645,426 $688,135 $718,352 $172,301 $189,185
Cost of sales.......... 318,431 363,514 397,565 410,358 433,817 103,712 113,709
Operating and
administrative
expenses.............. 240,703 212,496 237,311 258,600 284,697 68,199 69,450
-------- -------- -------- -------- -------- -------- --------
Operating profit
(loss)................ (35,679) 12,974 10,550 19,177 (162) 390 6,026
Interest expense....... 22,004 12,362 11,731 10,343 14,379 3,270 3,595
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
taxes and
extraordinary gain.... (57,683) 612 (1,181) 8,834 (14,541) (2,880) 2,431
Income tax expense
(benefit)............. -- -- (531) 796 (5,447) (1,082) 932
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary gain.... (57,683) 612 (650) 8,038 (9,094) (1,798) 1,499
Extraordinary gain..... -- -- -- 97,186 -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $(57,683) $ 612 $ (650) $105,224 $ (9,094) $ (1,798) $ 1,499
======== ======== ======== ======== ======== ======== ========
Per share amounts:
Income (loss) before
extraordinary gain.... $ (1.87) $ 0.02 $ (0.02) $ 0.26 $ (0.29) $ (0.06) $ 0.05
Extraordinary gain..... -- -- -- 3.15 -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $ (1.87) $ 0.02 $ (0.02) $ 3.41 $ (0.29) $ (0.06) $ 0.05
======== ======== ======== ======== ======== ======== ========
Weighted average common
and common equivalent
shares outstanding (in
thousands)............ 30,860 30,860 30,860 30,860 30,860 30,860 30,860
======== ======== ======== ======== ======== ======== ========
SELECTED ADDITIONAL
OPERATING DATA:
Warehouse and
distribution
expense(5)............ $ 24,248 $ 24,160 $ 25,599 $ 29,827 $ 34,860 $ 7,676 $ 7,424
Occupancy expense(6)... 27,965 27,902 29,286 32,232 35,357 8,406 9,405
Depreciation and
amortization expense.. 13,808 13,372 12,175 12,972 16,125 3,474 4,810
Total store square
footage (at period
end)(7)............... 2,906 2,789 2,992 3,097 3,329 3,161 3,377
Average net sales per
store(7).............. $ 946 $ 1,098 $ 1,215 $ 1,272 $ 1,294 $ 314 $ 333
Average net sales per
store square foot(7).. 182 207 223 226 224 55 56
Percentage increase
(decrease) in
comparable store net
sales(8).............. (9.2%) 14.3% 9.9% 5.2% 2.1% 2.9% 7.3%
<CAPTION>
THIRTEEN WEEKS
FISCAL YEAR ENDED ENDED
------------------------------------------------- --------------------
FEB. 2, JAN. 31, JAN. 30, JAN. 29, JAN. 28, APRIL 30, APRIL 28,
1992 1993 1994 1995 1996 1995 1996
-------- -------- -------- -------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........ $ 72,282 $ 77,528 $ 78,003 $ 77,627 $ 81,048 $ 84,543 $ 82,052
Total assets........... 264,721 275,782 294,806 350,830 391,319 371,600 398,949
Current liabilities.... 114,135 124,688 140,115 174,924 203,754 181,427 214,621
Long-term debt:
Credit Agreement....... 169,611 173,749 177,492 78,284 95,062 92,594 92,671
Capital leases......... 8,714 9,148 7,384 20,832 20,453 22,195 18,941
Stockholder's equity
(deficit)(9).......... (45,238) (44,626) (41,576) 64,376 59,997 62,578 61,496
</TABLE>
14
<PAGE>
- --------
(1) The Company's fiscal year consists of 52 or 53 weeks ending on the Sunday
nearest to January 31. All fiscal years presented are 52 weeks.
(2) Includes non-recurring operating and administrative expenses for the
write-off of excess of cost over net assets acquired in the amount of
$31.8 million. Also includes provision for closed stores in the amount of
$8.2 million.
(3) The extraordinary gain represents a gain resulting from cancellation of a
portion of the Company's long-term debt. See "Management's Discussion and
Analysis of Financial and Results of Operations" and Notes 4 and 9 to
Consolidated Financial Statements.
(4) Includes in cost of sales pre-opening expenses of $1.6 million associated
with the opening of the new distribution center in Phoenix, Arizona.
Includes in operating and administrative expenses $5.1 million of non-
recurring software development costs and $1.9 million of depreciation and
amortization expense relating to equipment associated with the new store-
based information systems. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(5) Warehouse and distribution expense is included in cost of sales.
(6) Occupancy expense is included in operating and administrative expenses.
(7) Total store square footage is based on the Company's actual store formats
which include normal selling, office, stockroom and receiving space.
Average net sales per store and average net sales per store square foot
are based on the average of beginning and ending number of stores and
store square footage and are not weighted to take into consideration the
actual dates of store openings, closings or expansions.
(8) Comparable store net sales data is calculated based on the change in net
sales commencing after the time a store has been opened twelve months. The
first twelve months are not included in the comparable store calculation.
(9) Excludes the effect of equity participation agreements under which certain
current officers and a former officer of the Company have been granted
participation interests equal in the aggregate to 6.4% of the Common Stock
held by CSK Holdings, Ltd. immediately prior to the Offering. Pursuant to
these agreements, these individuals are entitled to a cash payment by the
Company equal to the product of their vested participation interest and
the consideration received (up to a maximum of $12.75 per equity
participation share equivalent) in respect of one or more of the
following: (i) a sale of substantially all of the assets of the Company;
(ii) the merger of the Company; and (iii) the sale of Common Stock by the
CSK Holding, Ltd. (in which case the payment will be adjusted based upon
the percentage of such stockholder's holdings being sold). See
"Management--Equity Participation Agreements."
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Consolidated Financial
Statements of the Company, the Notes thereto and other data and information
appearing elsewhere in this Prospectus. The Company's fiscal year ends on the
Sunday nearest January 31. As used in this section, fiscal 1995 represents the
52 weeks ended January 28, 1996; fiscal 1994 represents the 52 weeks ended
January 29, 1995; fiscal 1993 represents the 52 weeks ended January 30, 1994;
fiscal 1992 represents the 52 weeks ended January 31, 1993; and fiscal 1991
represents the 52 weeks ended February 2, 1992.
GENERAL
The Company is the largest retailer of automotive parts and accessories in
the Western United States and one of the largest such retailers in the United
States. As of April 28, 1996, the Company operated 569 stores as a fully
integrated chain under three tradenames, each of which at one time represented
a separate retail chain: Checker Auto Parts, founded in 1968 and operating in
the Southwestern and Rocky Mountain states; Schuck's Auto Supply, founded in
1917 and operating in the Pacific Northwest; and Kragen Auto Parts, founded in
1947 and operating primarily in California. In December 1986, the Checker Auto
Parts and Kragen Auto Parts chains were acquired from Lucky Stores and merged
in 1987 with Schuck's to form the Company.
From the formation of the Company in 1987 through fiscal 1994, the Company's
results of operations were adversely impacted by a high degree of financial
leverage. As a result, during fiscal 1991, the Company engaged in protracted
negotiations with its then bank lenders because of the potential of a default
under its then existing credit agreement. This, in turn, resulted in the
restriction of shipments by certain of the Company's vendors. These vendor
restrictions resulted in the fill-rate to stores falling from a targeted level
of 90% to as low as 50% during portions of fiscal 1991. These developments
caused further erosion of the Company's results of operations and liquidity,
culminating in a restructuring of the Company's then existing credit agreement
in fiscal 1992 and in the cancellation of indebtedness of $97.2 million in
fiscal 1994. The resulting reduction in financial leverage enabled the
Company, in fiscal 1995, to refinance its remaining bank indebtedness with
proceeds from the Credit Agreement. See Notes 4 and 9 to Consolidated
Financial Statements.
In order to improve the efficiency of its operations, enhance customer
service and position the Company for future growth, the Company began in
fiscal 1994 to implement a sophisticated, centralized infrastructure and to
install various store-based information systems. At the same time, the Company
initiated its Commercial Sales Program. Implementation of these strategies
involved large expenditures and adversely impacted operations, resulting in
substantially increased operating costs during fiscal 1995. In addition,
during this period, the Company accelerated its store expansion and
repositioning program to increase penetration of its existing markets. These
initiatives provided significant momentum to the Company's operations as
reflected in the first quarter of fiscal 1996, with operating profit
increasing to $6.0 million from $0.4 million during the first quarter of
fiscal 1995.
The Company intends to use the net proceeds of the Offering, together with
available cash, to repay the indebtedness outstanding, plus accrued interest
thereon, under its Credit Agreement. In addition, upon completion of the
Offering, the Company intends to terminate the Credit Agreement and to obtain
a new revolving credit facility to fund, in part, its continued expansion and
working capital requirements. Furthermore, due to the deleveraging resulting
from the Offering, the Company believes that it will realize more favorable
pricing and terms from its existing vendors, as well as attract new vendors.
The Company also believes that the deleveraging and increased liquidity will
enable the Company to, among other things, capitalize on cash discounts that
are currently offered by its vendors, but that the Company has not been able
to utilize historically due to cash constraints.
16
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the statement of operations data for the
Company expressed as a percentage of net sales for the fiscal years and periods
indicated.
<TABLE>
<CAPTION>
THIRTEEN WEEKS
FISCAL YEAR ENDED ENDED
--------------------------- -------------------
JAN. 30, JAN. 29, JAN. 28, APRIL 30, APRIL 28,
1994 1995 1996 1995 1996
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales.................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................ 61.6 59.6 60.4 60.2 60.1
----- ----- ----- ----- -----
Gross profit................. 38.4 40.4 39.6 39.8 39.9
Operating and administrative
expenses.................... 36.8 37.6 39.6 39.6 36.7
----- ----- ----- ----- -----
Operating profit (loss)...... 1.6 2.8 0.0 0.2 3.2
Interest expense............. 1.8 1.5 2.0 1.9 1.9
Income tax expense
(benefit)................... (0.1) 0.1 (0.7) (0.7) 0.5
----- ----- ----- ----- -----
Income before extraordinary
gain........................ (0.1) 1.2 (1.3) (1.0) 0.8
Extraordinary gain........... -- 14.1 -- -- --
----- ----- ----- ----- -----
Net income (loss)............ (0.1)% 15.3% (1.3)% (1.0)% 0.8%
===== ===== ===== ===== =====
</TABLE>
Gross profit consists primarily of net sales less the cost of sales and
warehouse and distribution expenses. Gross profit as a percentage of net sales
may be affected by variations in the Company's product mix, price changes in
response to competitive factors and fluctuations in merchandise costs and
vendor programs.
Operating and administrative expenses are comprised of store payroll, store
occupancy, advertising expenses, other store expenses and general and
administrative expenses, including salaries and related benefits of corporate
employees, administrative office occupancy expenses, data processing,
professional expenses and other related expenses.
Thirteen Weeks Ended April 28, 1996 Compared to Thirteen Weeks Ended April 30,
1995
Net sales for the thirteen weeks ended April 28, 1996 increased by $16.9
million, or 9.8%, over net sales for the comparable period in fiscal 1995. This
increase was primarily due to an increase in comparable store sales of 7.3%.
Sales to commercial customers increased to $20.3 million for the thirteen weeks
ended April 28, 1996 from $12.4 million for the thirteen weeks ended April 30,
1995. During the thirteen weeks ended April 28, 1996, the Company opened three
new stores, relocated six stores to larger facilities and expanded two stores
at existing locations.
Gross profit for the thirteen weeks ended April 28, 1996 was $75.5 million,
or 39.9% of net sales, compared with $68.6 million, or 39.8% of net sales,
during the thirteen weeks ended April 30, 1995. The increase in gross profit
percentage resulted primarily from a decline in warehouse and distribution
costs. Warehouse and distribution costs declined by $0.3 million for the
thirteen weeks ended April 28, 1996 compared to the thirteen weeks ended April
30, 1995 and, as a percentage of net sales, declined to 3.9% from 4.5% due to
efficiencies gained from the Company's new distribution systems, which became
fully operational in the fourth quarter of fiscal 1995 (see "Business--
Warehouse and Distribution"). Gross profit was also favorably impacted during
the thirteen weeks ended April 28, 1996 by an increase in the sales of
automotive hard parts. Sales of automotive hard parts generally result in a
higher gross profit percentage than other product categories. The increase in
gross profit was offset in large part by a higher percentage of commercial
sales during the thirteen weeks ended April 28, 1996, which generally result in
a lower gross profit percentage than retail sales.
Operating and administrative expenses for the thirteen weeks ended April 28,
1996 increased by $1.3 million over such expenses during the thirteen weeks
ended April 30, 1995 and, as a percentage of net sales,
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decreased from 39.6% to 36.7%. The decrease in percentage reflects the
Company's ability to leverage its overhead and fixed expenses with higher
sales volume despite an increase of $0.6 million in depreciation and
amortization expense associated with the equipment installed as part of the
investments in store-based information systems. In addition, the percentage
for the thirteen weeks ended April 30, 1995 was higher because of increased
store payroll costs related to the expansion of the Company's Commercial Sales
Centers from 59 stores at January 29, 1995 to 189 stores at April 30, 1995, as
well as the labor cost required to stock the increased number of hard parts
stock keeping units ("SKUs") added to its stores. As a result, store labor as
a percentage of net sales declined to 12.2% from 13.1% during the thirteen
weeks ended April 28, 1996 as compared to the thirteen weeks ended April 30,
1995.
Interest expense for the thirteen weeks ended April 28, 1996 was $3.6
million compared to $3.3 million for the thirteen weeks ended April 30, 1995.
The increase in interest expense was the result of higher average effective
interest rates under the Credit Agreement.
The Company's effective tax rate for the thirteen weeks ended April 28, 1996
was 38.3%. The Company recorded an income tax benefit of $1.1 million for the
thirteen weeks ended April 30, 1995.
As a result of the above factors, net income was $1.5 million for the
thirteen weeks ended April 28, 1996 as compared to a net loss of $1.8 million
for the thirteen weeks ended April 30, 1995.
Fiscal Year Ended January 28, 1996 Compared to Fiscal Year Ended January 29,
1995
Net sales for fiscal 1995 increased by $30.2 million, or 4.4%, over net
sales for fiscal 1994. This increase was due to an increase in net sales from
new stores and an increase in comparable store sales of 2.1%. Comparable
stores sales growth was lower than in previous years primarily because of
difficulties associated with the conversion and automation of the Company's
two distribution centers, which caused fill-rates to decline from targeted
levels of approximately 90% to as low as 65% during portions of fiscal 1995.
This, in turn, resulted in stores being out of stock with respect to certain
products during portions of fiscal 1995. The results were further adversely
impacted by a generally difficult automotive aftermarket in fiscal 1995 and
weak economic conditions in the Company's California markets. Commercial sales
were $60.8 million in fiscal 1995 compared to $32.6 million in fiscal 1994.
During fiscal 1995, the Company opened 24 new stores and relocated 30 stores,
expanded nine stores at existing locations and closed a total of two stores in
addition to relocations.
Gross profit for fiscal 1995 was $284.5 million, or 39.6% of net sales,
compared with $277.8 million, or 40.4% of net sales, during fiscal 1994. The
decrease in gross profit percentage was due primarily to an increase in
warehouse and distribution costs of 0.5% of net sales resulting from the
additional costs incurred (including $1.6 million of pre-opening expenses)
during the automation of the Company's distribution centers and related
difficulties of such automation. The new distribution facilities became fully
operational in the fourth quarter of fiscal 1995 (see "Business--Warehouse and
Distribution"). In addition, oil promotions run by the Company during fiscal
1995, in an effort to increase customer traffic during a difficult market
period, contributed to the decrease in gross profit as a percentage of net
sales.
Operating and administrative expenses for fiscal 1995 increased by $26.1
million over such expenses for fiscal 1994 and, as a percentage of net sales,
increased from 37.6% to 39.6%. The increase in the expense ratio for fiscal
1995 was primarily attributable to the expenses associated with developing and
implementing the store-based information systems, including the new POS
system, integration of the POS with the Electronic Parts Catalog ("EPC"),
implementation of a Retail Paperless Management System and installation of a
store-wide satellite communications network, in the aggregate amount of $7.0
million of which $5.1 million represents non-recurring software development
costs and $1.9 million represents an increase in depreciation and amortization
expense associated with the equipment installed as part of the investments in
store-based systems. In addition to the direct costs incurred by the Company
to develop and implement these new systems, the Company's store associates
were required to spend a significant amount of time off the sales floor being
trained on the use of these systems, resulting in an increase in store labor
during the period. The Company's out-of-stock position
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during periods of fiscal 1995 also contributed to the higher store labor costs
as a percentage of net sales as associates were forced to direct more of their
efforts to outsourcing product. Lastly, during fiscal 1995, the Company
expanded its Commercial Sales Centers from 59 to 176 stores, which caused
store labor with respect to commercial sales to increase as a percentage of
net sales due to the lower level of initial sales generated by new Commercial
Sales Centers. As a result, store labor increased by $9.0 million during
fiscal 1995 over fiscal 1994 and, as a percentage of net sales, increased to
12.7% from 12.0%. The increase in such expenses was offset in part by a
reduction in advertising costs of $4.9 million resulting from the Company
limiting its advertising in response to its reduced in-stock position during
portions of the fiscal year.
Interest expense for fiscal 1995 was $14.4 million compared to $10.3 million
for fiscal 1994. The increase in interest expense was the result of higher
average borrowings and increases in the LIBOR interest rate.
The Company recorded an income tax benefit of $5.4 million in fiscal 1995.
The Company's effective tax rate for fiscal 1994 was 9.0%. See Note 9 to
Consolidated Financial Statements.
As a result of the above factors, the Company incurred a net loss of $9.1
million in fiscal 1995 as compared to net income before extraordinary gain of
$8.0 million in fiscal 1994.
Fiscal Year Ended January 29, 1995 Compared to Fiscal Year Ended January 30,
1994
Net sales for fiscal 1994 increased by $42.7 million, or 6.6%, over net
sales for fiscal 1993. This increase was primarily due to an increase in
comparable store sales of 5.2%, and also an increase in net sales from new
stores. During fiscal 1994, the Company opened 10 new stores, relocated 12
stores, expanded five stores at existing locations and closed a total of 4
stores in addition to relocations.
Gross profit for fiscal 1994 was $277.8 million, or 40.4% of net sales,
compared with $247.9 million, or 38.4% of net sales, for fiscal 1993. The
increase in gross profit as a percentage of net sales was largely due to cost
reductions obtained on merchandise purchases and a relative increase in sales
of higher margin automotive hard parts attributable to the Company's increase
in the number of hard parts SKUs stocked in its stores.
Operating and administrative expenses for fiscal 1994 increased by $21.3
million over such expenses for fiscal 1993 and, as a percentage of net sales,
increased from 36.8% to 37.6%. The increase in the expense ratio was
attributable to the costs associated with the opening of six Priority Parts
depots and the initiation of an investment during the second half of fiscal
1994 in store-based information systems, including the EPC, Retail Paperless
Management System and store-wide satellite communications network. In
addition, store labor increased as the Company formalized and expanded its
marketing efforts to commercial customers, and during fiscal 1994 increased
the number of stores with Commercial Sales Centers from five to 59.
Interest expense decreased by $1.4 million for fiscal 1994 compared with
fiscal 1993 due to a reduction in outstanding indebtedness associated with the
cancellation of $97.2 million of debt, which was offset in part by an increase
in the LIBOR interest rate.
The Company's effective tax rate for fiscal 1994 was 9.0%. The Company
recorded an income tax benefit of $0.5 million in fiscal 1993.
The extraordinary item of $97.2 million in fiscal 1994 represents
cancellation of debt resulting from a restructuring of the Company's long term
debt. See Notes 4 and 9 to Consolidated Financial Statements.
As a result of the above factors, net income before extraordinary gain was
$8.0 million in fiscal 1994 as compared to a net loss of $0.7 million in
fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs have been for the funding of working
capital requirements (primarily inventory) and leasehold improvements
associated with its store repositioning and expansion program, the
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<PAGE>
automation and fixturing of its distribution centers, the development and
roll-out of its store-based information systems and the increase in the number
of hard parts SKUs in its stores. The Company has financed its growth and
infrastructure investments primarily through internally generated funds and
funds borrowed under the Credit Agreement.
For fiscal 1994, net cash provided by operating activities was $15.1
million. For fiscal 1995, net cash used in operating activities was $3.4
million. For the thirteen weeks ended April 28, 1996, net cash provided by
operating activities was $7.0 million.
Historically, the Company has negotiated extended payment terms from
suppliers to finance much of its inventory growth. The Company believes that
it will be able to continue financing much of its inventory growth through
favorable payment terms from suppliers, but there can be no assurance that the
Company will be successful in doing so. Upon completion of the Offering, the
Company expects to obtain better pricing and other terms from its vendors due
to the reduction in its financial leverage. The Company anticipates that
inventory levels will continue to increase primarily as a result of new store
openings.
Capital expenditures were $14.6 million in fiscal 1994 and $11.6 million in
fiscal 1995, and $1.1 million for the thirteen weeks ended April 28, 1996. The
Company opened, relocated or expanded 27 stores during fiscal 1994, 63 stores
during fiscal 1995 and 11 stores during the thirteen weeks ended April 28,
1996. Excluding expenditures for new, expanded and relocated stores, the
Company's capital expenditures during these periods were primarily for
refixturing its stores, automating and fixturing its distribution centers,
opening its Priority Parts depots and upgrading its information systems.
During fiscal 1996, the Company plans to open, relocate or expand
approximately 75 stores. In addition to the 11 stores opened, relocated or
expanded during the first quarter of fiscal 1996, the Company has executed
purchase contracts or leases for 56 stores and is in varying stages of
negotiation for 58 more sites. The Company expects that total capital
expenditures for fiscal 1996 will be approximately $9.2 million, principally
for store development activities. The Company anticipates that approximately
60% of its new and relocated stores during fiscal 1996 will be financed by
sale-leaseback arrangements that require no net capital expenditures by the
Company. For the remaining 40%, the Company expects to spend approximately
$120,000 per store for leasehold improvements. In addition to capital
expenditures, the Company's new stores will require an investment in working
capital, principally for inventories, of approximately $250,000 per new store.
A substantial portion of these inventories will be financed through vendor
payables. Preopening expenses, consisting primarily of store set-up costs and
training of new store associates, average between $35,000 and $40,000 per
store and are expensed during the month in which a store is opened. See Note 1
to Consolidated Financial Statements.
In February 1995, the Company entered into the Credit Agreement with a group
of lending institutions for which Transamerica Business Credit Corporation
acts as agent (the "Lenders"). Under its Credit Agreement, the Company
obtained a term loan in the original principal amount of $5.0 million and
obtained revolving credit loans in an aggregate principal amount of up to
$100.0 million. The Company also has a facility for the issuance of up to $3.0
million in face amount of letters of credit. The term loan is repayable in
monthly installments through February 1997. During fiscal 1995, the Company
defaulted in its compliance with certain then existing financial covenants in
the Credit Agreement, which defaults the Lenders subsequently waived in
connection with their agreement to modify such covenants. The Company is
currently in compliance with the financial covenants contained in its Credit
Agreement. The Credit Agreement, by its terms, expires in February 1997,
subject to certain rights that the Company would have to extend the term for
up to four additional one-year terms if certain conditions are then satisfied.
At April 28, 1996, $93.7 million was drawn under the Credit Agreement and the
Company had $6.3 million of existing availability thereunder. The outstanding
principal amount bears interest at LIBOR plus 3.0% with an option to use prime
plus 1.0%. At April 28, 1996, the average interest rate under the Credit
Agreement was 8.56%.
During fiscal 1995 and the thirteen weeks ended April 28, 1996, certain
affiliates of the Company made available to the Company an aggregate of $24.4
million of funding. The funding consisted of: (i) the purchases from certain
Company vendors of payables owed by the Company (of which approximately $3.7
remained due
20
<PAGE>
to the Company's affiliate as of April 28, 1996), (ii) a capital contribution
and (iii) payments to the Company in the form of sale-leaseback transactions
pursuant to which new and relocated Company stores were purchased by the
affiliate at the Company's cost and are being leased back to the Company. The
Company believes that the terms of such sale-leaseback transactions were at
least as favorable as terms that the Company would have received in similar
transactions entered into with unaffiliated third parties. See "Certain
Transactions" and Note 2 to Consolidated Financial Statements.
The net proceeds from the Offering will be used to repay amounts outstanding
under the Credit Agreement. Any balance remaining due under the Credit
Agreement after giving effect to the Offering and the application of the net
proceeds therefrom will be repaid from existing cash balances. See "Use of
Proceeds." Following completion of the Offering and the application of the net
proceeds therefrom, the Company intends to obtain a new revolving credit
facility to fund, in part, its continued expansion and working capital
requirements. The Company anticipates that funds available under any new
credit agreement, together with internally generated funds, will be sufficient
to finance the Company's anticipated expansion plans for the foreseeable
future.
SEASONALITY
The Company's business is somewhat seasonal in nature, with the highest
sales occurring in the summer months of June through August, in which average
weekly per store sales historically have been approximately 15% higher than in
the slowest months of December through February. The Company's business is, in
addition, affected by weather conditions. While unusually severe weather tends
to soften sales as elective maintenance is deferred during such periods,
extremely hot and cold weather tends to enhance sales by causing parts to fail
and sales of seasonal products to increase.
INFLATION
The Company does not believe its operations have been materially affected by
inflation. The Company believes that it will be able to mitigate the effects
of future merchandise cost increases principally through economies of scale
resulting from increased volumes of purchases, selective forward buying and
the use of alternative suppliers.
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BUSINESS
GENERAL
The Company is the largest retailer of automotive parts and accessories in
the Western United States and one of the largest such retailers in the United
States. As of April 28, 1996, the Company operated 569 stores as a fully
integrated chain under three tradenames, each of which at one time represented
a separate retail chain: Checker Auto Parts, founded in 1968 and operating in
the Southwestern and Rocky Mountain states; Schuck's Auto Supply, founded in
1917 and operating in the Pacific Northwest; and Kragen Auto Parts, founded in
1947 and operating primarily in California. As such, each has a long operating
history, established name recognition and customer loyalty in its respective
markets. Based on store count, the Company believes it is the largest retailer
of automotive parts and accessories in 18 of its 24 markets.
The Company is a consumer-oriented, specialty retailer primarily servicing
the DIY customer, with an increasing emphasis on the commercial customer. The
Company offers a broad selection of national brand name and private label
automotive products for domestic and imported cars, vans and light trucks,
including new and remanufactured automotive hard parts, maintenance items and
accessories. The Company's operating strategy is to offer these products at
generally the lowest prices in each of its markets and at conveniently located
and attractively designed stores, supported by knowledgeable and courteous
customer service personnel. As a speciality retailer, the Company has chosen
not to sell tires or perform automotive repairs or installations.
In order to improve the efficiency of its operations, enhance customer
service and position the Company for future growth, the Company began in
fiscal 1994 to implement a sophisticated, centralized infrastructure and to
install various store-based information systems. At the same time, the Company
initiated its Commercial Sales Program. Implementation of these strategies
involved large expenditures and adversely impacted operations, resulting in
substantially increased operating costs during fiscal 1995. In addition,
during this period, the Company accelerated its store expansion and
repositioning program to increase penetration of its existing markets. These
initiatives provided significant momentum to the Company's operations as
reflected in the first quarter of fiscal 1996, with operating profit
increasing to $6.0 million from $0.4 million during the first quarter of
fiscal 1995.
Several of the Company's key initiatives that have been implemented
beginning in fiscal 1994 are summarized below.
. Commercial Sales Program--The Company formalized and expanded its
marketing efforts to the commercial segment of the automotive
aftermarket, which the Company believes constitutes in excess of 50% of
the approximately $75 billion of annual sales for this market. The
Company increased the number of stores with Commercial Sales Centers
from five at September 30, 1994 to 189 at April 28, 1996. Principally as
a result of this expansion, the Company's sales to commercial accounts
(including sales by stores without Commercial Sales Centers) grew to
$60.8 million in fiscal 1995 from $32.6 million in fiscal 1994 and to
$20.3 million in the first quarter of fiscal 1996 from $12.4 million in
the first quarter of fiscal 1995. The Company's Commercial Sales Program
became profitable in the first quarter of fiscal 1996. Based on the
success of this program, the Company expects to continue to assess
opportunities to add Commercial Sales Centers to its existing and new
stores.
. Customer Service Culture--The Company increased its focus on formal
classroom training and on-the-job training, customer service measurement
systems and incentive programs for its district managers, store
managers, sales associates and other employees, in order to encourage
development of technical expertise and customer service skills. To
further encourage superior performance by its employees the Company has
recently adopted a variety of stock based plans, pursuant to which more
than 1,000 employees have been granted stock options. The Company
believes these programs have resulted in an increased level of customer
service and store-level efficiency.
. Warehouse and Distribution--The Company completed the conversion of its
warehouse and distribution facilities from a manual, labor intensive,
paper-based system to a technologically advanced, fully integrated
system, which has reduced warehouse and distribution costs while
providing the
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Company with sufficient capacity to meet the requirements of its growth
plans for the foreseeable future. This new system became fully
operational during the fourth quarter of fiscal 1995.
. Store-Based Information Systems--The Company installed a new POS,
integrated the POS with the EPC, implemented its Retail Paperless
Management System and installed a store-wide satellite communications
network. Each of these systems developments has improved store labor
productivity and enhanced customer service.
. Priority Parts--The Company expanded its Priority Parts operation by
improving its delivery system and adding seven strategically located
parts depots to its two existing locations. This expansion has enabled
the Company to better serve its customers by making available to more
than 400 of its stores, on a same day delivery basis, an additional
200,000 SKUs not regularly stocked in its stores and has also enabled it
to increase sales to commercial accounts due to the broader availability
of automotive hard parts. Prior to this expansion, this same day
delivery service was available to only 80 of the Company's stores. The
Company believes that its Priority Parts operation provides it with an
important competitive advantage.
. Call Center--The Company completed the installation of a centralized
Call Center that handles the overflow of customer calls during the
stores' busiest hours of operation. Use of the Call Center allows sales
associates to give undivided attention to customers at the store, while
customers who call the store are serviced directly by Call Center
operators who are dedicated to such callers. As a result, the Call
Center has enhanced customer service while improving store labor
productivity. At April 28, 1996, over 200 of the Company's stores had
access to the Call Center and additional stores will continue to be
added.
. Store Expansion and Repositioning--The Company has accelerated the
relocation of smaller stores to larger stores at better locations, the
expansion of certain other stores and the opening of new stores
primarily in existing markets. During fiscal 1995, the Company opened a
total of 54 new stores (of which 30 resulted from relocations of
existing stores) and expanded 9 stores.
The focus of the Company's expansion strategy is to open, relocate or expand
stores primarily in existing markets in order to further increase its name
recognition and market penetration while benefiting from economies of scale in
advertising, management and distribution costs. The Company plans to open,
relocate or expand approximately 75 stores in fiscal 1996 (compared to 63
stores in fiscal 1995) and approximately 100 to 125 stores in fiscal 1997. The
Company opened, relocated or expanded 11 stores during the first quarter of
fiscal 1996, currently has executed purchase contracts or leases for 56
additional stores and is in various stages of negotiation for 58 more sites.
The Company has also identified numerous potential additional sites for future
expansion.
The Company believes that its recent financial performance demonstrates the
effectiveness of the Company's investments in its corporate infrastructure and
store-based information systems, its focus on commercial customers and its
store repositioning program. The Company believes these initiatives have
positioned it for future growth in sales and profitability. During the first
quarter of fiscal 1996, the Company's total sales and comparable store sales
increased 10% and 7%, respectively, over the comparable period in fiscal 1995,
while its operating profit improved to $6.0 million from $0.4 million and net
income increased to $1.5 million from a net loss of $1.8 million.
AUTOMOTIVE AFTERMARKET INDUSTRY
According to industry estimates, the size of the automotive aftermarket for
replacement parts, maintenance items and accessories was approximately $75
billion in sales in 1995. The Company believes that the automotive aftermarket
for parts, maintenance items and accessories is growing because of, among
other things, (i) increases in the size and age of the country's automotive
fleet, (ii) increases in the number of miles driven annually per vehicle,
(iii) the higher cost of new cars as compared to historical costs, (iv) the
higher cost of replacement parts as a result of technological changes in
recent models of vehicles and (v) the increasing labor costs associated with
parts, installation and maintenance.
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<PAGE>
The automotive aftermarket distribution channels are highly fragmented. The
Company believes, however, that the industry is consolidating as national and
regional specialty retail chains gain market share at the expense of smaller
independent operators and less specialized mass merchandisers. Automotive
specialty retailing chains with multiple locations in given market areas, such
as the Company, enjoy competitive advantages in purchasing, distribution,
advertising and marketing compared to most small independent retailers. In
addition, the increase in the number of automotive replacement parts caused by
the significant increase in recent years in the variety of domestic and
imported vehicle makes and models has made it difficult for smaller independent
retailers and less specialized mass merchandise chains to maintain inventory
selection broad enough to meet customer demands. The Company believes this has
created a competitive advantage for those automotive speciality retailing
chains, such as CSK Auto, that have the distribution capacity and sophisticated
information systems to stock and deliver a broad inventory selection.
MARKETING AND MERCHANDISING STRATEGY
The Company's marketing and merchandising strategy is to build market share
by providing a broad selection of national brand name and private label
products at generally the lowest prices in each of its markets at conveniently
located and attractively designed stores, supported by knowledgeable and
courteous customer service personnel.
Customer Service
The Company is a customer-oriented retailer dedicated primarily to DIY
consumers. The Company's sophisticated, centralized infrastructure and store-
based information systems, as well as its extensive training programs, are
designed to enhance customer service.
The Company believes that recruiting, training and retaining high quality
sales associates is a major ingredient of successful retailing. The Company has
implemented training programs and incentives to encourage the development of
technical expertise by its sales associates that enables them to effectively
advise customers on product selection and use. CSK University, the Company's
sales associate development program, is dedicated to the continuous improvement
of store associates through structured on-the-job training and formal classroom
education. The curriculum focuses on four areas of the associates' development:
(i) customer service skills, (ii) basic automotive systems, (iii) advanced
automotive systems and (iv) management development. More than 1,000 associates
have passed the ASEP2 (a nationally recognized diploma for parts technicians)
after completing the Company's automotive system training. Much of the training
is delivered through formal classes in 14 training centers that are fully
equipped with the same systems as are in the Company's stores. The Company also
provides continuing training programs for store managers and district managers
designed to assist them in increasing store-level efficiency and improving
their potential for promotion. The Company believes that its training programs
enable sales associates to provide a high level of service to a wide variety of
customers ranging from less-informed DIY consumers to more sophisticated
purchasers requiring diagnostic advice. In addition, the Company requires
periodic meetings of district and store managers to facilitate and enhance
communications within the organization.
Further customer service initiatives include: free testing of starters,
alternators and batteries; free charging of batteries; installation assistance
for batteries, windshield wipers and other selected products; "no hassle"
return policies; and electronically maintained lifetime warranties, which
eliminate the need for consumer record keeping.
The Company is enhancing its customer service by implementing a program to
measure and improve the level of customer service at each store. The Company
uses its centralized database as a source to make approximately 64,000 calls
annually to customers inquiring as to their overall satisfaction with the
Company's associates, pricing, product selection and quality. A quantified
customer satisfaction index is provided to each store and the appropriate
management personnel to ensure that customer service levels remain a store
focus.
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Product Selection
The Company's objective is to carry a broad selection of national brand name
products that generate customer traffic and have strong appeal to its
commercial customers. In addition, the Company stocks a wide selection of high
quality private label products that appeal to value conscious customers.
Private label products accounted for approximately 25% of total sales in
fiscal 1995. Each store offers an extensive product line, including automotive
hard parts such as starters, alternators, shock absorbers, mufflers, brakes,
spark plugs and batteries, as well as a wide variety of maintenance items,
such as motor oil, lubricants, waxes, cleaners, polishes and antifreeze. In
addition, each store offers general accessories such as car stereos, alarms,
trim, floor mats, tools and seat covers.
The Company's stores, which average 6,000 square feet in size, offer between
13,000 and 16,000 SKUs of well-known, national brand name and private label
automotive products. In the event that a store does not carry a specific part,
associates are able to access the Company's Priority Parts operation.
Beginning in fiscal 1994, the Company expanded its Priority Parts operation by
improving its delivery system, and adding seven strategically located parts
depots to its two existing locations, which has enabled the Company to (i)
better serve its customers by making available to more than 400 of its stores,
on a same day delivery basis, an additional 200,000 SKUs not regularly stocked
in its stores and (ii) increase sales to commercial accounts due to broader
availability of automotive hard parts. Prior to this expansion, this same day
delivery service was available to only 80 of the Company's stores. In
addition, another 500,000 parts can be ordered for delivery within three days.
The Company's Priority Parts operation handles approximately 150,000 inquiries
each week. Store associates are able to electronically inquire on price and
availability and order parts from the Priority Parts operation through the EPC
and receive immediate confirmation of availability without having to make
telephone inquiries. The Company believes that its Priority Parts operation
provides it with an important competitive advantage.
The Company has recently instituted a merchandising program designed to
determine the optimal inventory mix at the individual store level based on
that store's historical sales trends. The Company has classified its product
mix into 91 separate categories and believes that it can improve store sales,
gross profit and inventory turnover by tailoring individual store inventory
mix based on historical sales patterns for each of the 91 product categories.
This program has been implemented for three important product categories (air
conditioning, brakes and internal engine) to date and, based on positive
preliminary results, the Company intends to incorporate 40 additional
automotive hard part product categories into this program in fiscal 1996 with
additional categories incorporated thereafter.
Pricing
The Company's pricing strategy is to generally offer the lowest prices in
each of its markets. The Company offers to beat by 5% any competitor's lower
price. The Company closely monitors its competitors to ensure aggressive
pricing in all markets with merchandise generally priced below manufacturers'
suggested retail prices. The Company maintains numerous pricing zones in order
to maximize margins while maintaining its price competitiveness.
Advertising
The Company supports its marketing and merchandising strategy through print,
radio and television advertising, as well as through in-store promotional
displays. The Company advertises in print through the use of monthly color
circulars. The circulars, which are produced by the Company's in-house
advertising department, emphasize specific products and contain redeemable
coupons. The Company advertises on radio, television and billboards primarily
to reinforce the Company's image and name recognition. Television advertising
is targeted to sports programming and radio advertising primarily is aired
during drive time. The Company's in-store signs and displays are used to
promote products and identify departments, as well as to announce store
specials. The Company also has web sites on the Internet at: (i)
http://www.checkerauto.com, (ii) http://www.schucks.com and (iii)
http://www.kragen.com.
25
<PAGE>
STORE-BASED INFORMATION SYSTEMS
Beginning in fiscal 1994, the Company focused on developing store-based
information systems designed to improve the efficiency of its operations and
enhance customer service. The Company's store-based information systems are
described below.
Point of Sale System
The Company has installed new POS registers and software in all of its
stores. The new POS system, which was rolled-out between June and October
1995, has improved store productivity and customer service by streamlining in-
store procedures. Customer transactions previously requiring handwritten
information have been eliminated as registers are now tied to the EPC and the
central inventory system. This allows for paperless transactions and
electronic maintenance of warranty information. Additionally, the POS software
tracks the history of individual customer purchases, which allows the Company
to monitor customer activity for use in regionalized marketing and
merchandising programs.
Electronic Parts Catalog
The Company has upgraded and expanded the capabilities of its EPC, which is
installed in each of its stores. The EPC is a software based system that
identifies the location and availability of over one million parts. The EPC is
a user-friendly tool that enables the Company's sales associates to assist
customers in parts selection and ordering based on simple input of the year,
model and engine type and application needed. The EPC system covers vehicles
with model years from 1967 through 1996. Once provided with this basic
information, the EPC displays which part is needed and whether it is located
in the store. If the part is not available at the store, the EPC indicates
whether it can be obtained by special order through the Company's Priority
Parts depots or certain warehouse distributors with same day delivery, or
directly from the manufacturer. Information about the customer's car can be
entered into a permanent customer database that can be instantly accessed
whenever the customer visits or phones the store. The EPC also displays
related parts that the sales associates can recommend to the customer for
purchase, and prints parts lists for the customer. In fiscal 1995, the Company
enhanced the effectiveness of the EPC by integrating it with its new POS
system and centralized Company database. This integration improves customer
service by (i) reducing check-out time by fully automating the ordering
process between the parts counter and the POS register, (ii) allowing the
store associate to order parts electronically with immediate confirmation of
availability and/or delivery, and (iii) providing up to the minute pricing of
products.
Retail Paperless Management System
The Company has installed its Retail Paperless Management System ("RPMS"),
which is a store-based software system used to improve store efficiency. The
RPMS provides for interactive store associate development and testing,
communication via Company-wide electronic mail, knowledge-based interviewing
of associate applicants, automated associate time and attendance recording and
forms automation. The Company completed the roll-out of the RPMS in January
1995 and continues to implement new features.
Satellite Communications Network
The Company has established a satellite communications network linking all
of its stores with its corporate office. The satellite network enables the
Company to efficiently obtain and deliver to its stores all file transfers,
including pricing down-loads, sales information updates and interactive
transactions such as electronic parts ordering. The system also broadcasts
common files to all stores simultaneously to update the EPC. Additionally, the
satellite network significantly increases the speed of credit card and check
authorization. The Company completed the roll-out of the satellite network
during the middle of fiscal 1994.
26
<PAGE>
Call Center
The Company has established a centralized Call Center whereby store
personnel have the option to reroute customer calls to a central location
during the store's busiest hours of operation. The Call Center is equipped to
enable Call Center personnel to perform all functions that store personnel
would normally handle, such as store specific parts look-up, price look-up and
inventory availability verification. Associates in the Call Center can take an
order from a customer and transmit it to the store, enabling the order
requested to be picked-up by the customer. Use of the Call Center allows sales
associates to give their undivided attention to customers at the store while
customers who call the store are serviced directly by Call Center operators
who are dedicated to such callers. The Company currently has more than 200
stores with the capability of accessing the Call Center and an additional 100
stores are expected to be added in fiscal 1996.
STORE OPERATIONS
The Company's stores are divided into five geographic regions: Southwest,
Rocky Mountain, Northwest, Southern California and Northern California. Each
region is administered by a regional manager, each of whom oversees seven to
ten district managers. Each of the Company's district managers has
responsibility for between six and 15 stores. As of April 28, 1996, the
geographic distribution of the Company's stores and the tradenames under which
they operate are set forth in the table below.
<TABLE>
<CAPTION>
SCHUCK'S CHECKER KRAGEN COMPANY
AUTO SUPPLY AUTO PARTS AUTO PARTS TOTAL
----------- ---------- ---------- -------
<S> <C> <C> <C> <C>
California............................ -- 1 254 255
Washington............................ 72 -- -- 72
Arizona............................... -- 66 -- 66
Colorado.............................. -- 49 -- 49
Idaho................................. 13 3 -- 16
Oregon................................ 23 -- -- 23
Utah.................................. -- 24 -- 24
New Mexico............................ -- 17 -- 17
Texas................................. -- 17 -- 17
Nevada................................ -- 12 3 15
Montana............................... -- 8 -- 8
Iowa.................................. -- 1 -- 1
Nebraska.............................. -- 3 -- 3
Wyoming............................... -- 3 -- 3
--- --- --- ---
108 204 257 569
=== === === ===
</TABLE>
Stores generally are open seven days a week, with hours from 8:00 a.m. to
9:00 p.m. (9:00 a.m. to 6:00 p.m. on Sundays). Each store employs
approximately 10 to 20 associates, including a store manager, two assistant
store managers and a staff of full-time and part-time associates.
Store Formats
The Company's stores generally are located in high visibility, high traffic
strip shopping centers or in free standing units adjacent to strip shopping
centers. The stores, which range in size from 2,800 to 15,000 square feet,
average approximately 6,000 square feet in size and offer between 13,000 and
16,000 SKUs. More than 150 stores carry expanded product lines representing a
total of approximately 16,000 SKUs. These larger stores carry an expanded mix
of automotive hard parts, including, among others, electrical suspension, fuel
system and brake system parts.
During fiscal 1995, the Company designed three prototype stores of 6,000,
8,000 and 12,000 square feet in size. The store size for a given new location
is selected based upon volume expectations determined through
27
<PAGE>
demographics and other Company studies included in the Company's detailed site
selection process (see "--Store Development and Expansion Strategy"). Prior to
redesign of the current prototype stores, the Company utilized various store
prototype sizes including 5,400 and 7,000 square foot prototypes. The
following table sets forth the Company's stores, by size, as of April 28,
1996:
<TABLE>
<CAPTION>
NUMBER OF
STORE SIZE STORES
---------- ---------
<S> <C>
10,000 sq. ft. or greater......................................... 32
8,000-9,999 sq. ft. .............................................. 51
6,000-7,999 sq. ft. .............................................. 106
5,000-5,999 sq. ft. .............................................. 202
Less than 5,000 sq. ft. .......................................... 178
</TABLE>
Approximately 60% of the Company's stores are freestanding, with the balance
principally located within strip shopping centers. Approximately 85% to 90% of
each store's square footage is selling space, of which approximately 40% to
50% is dedicated to automotive hard parts inventory. The hard parts inventory
area is fronted by a counter staffed by knowledgeable parts personnel and is
equipped with EPCs. The remaining selling space contains gondolas for
accessories and maintenance items, including oil and air filters, additives,
waxes and other parts, together with specifically designed shelving for
batteries and, in many stores, oil products.
STORE DEVELOPMENT AND EXPANSION STRATEGY
In the second half of fiscal 1994, the Company accelerated the repositioning
of its store base primarily through (i) the relocation of existing facilities
to larger facilities at better locations, (ii) the expansion of certain other
existing facilities and (iii) the opening of new stores in existing markets.
During fiscal 1995, the Company opened 24 new stores, relocated 30 stores and
expanded 9 stores. The Company has identified most of its stores smaller than
5,000 square feet as future relocation or expansion priorities.
The following table sets forth the Company's store development activities
during the periods indicated.
<TABLE>
<CAPTION>
THIRTEEN WEEKS
FISCAL YEAR ENDED ENDED
------------------------------------------- --------------
FEB. 2, JAN. 31, JAN. 30, JAN. 29, JAN. 28, APRIL 28,
1992 1993 1994 1995 1996 1996
------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Beginning stores........ 558 549 524 538 544 566
New stores.............. 5 1 15 10 24 3
Relocated stores........ 7 7 25 12 30 6
Closed stores (including
relocated stores)...... (21) (33) (26) (16) (32) (6)
--- --- --- --- --- ---
Ending stores.......... 549 524 538 544 566 569
=== === === === === ===
Expanded stores......... 5 2 13 5 9 2
Total new, relocated and
expanded stores........ 17 10 53 27 63 11
=== === === === === ===
</TABLE>
During fiscal 1994, the Company established its Market Strategy Group as
part of its Real Estate Department. This Group utilizes a sophisticated,
market-based approach that identifies locations based on detailed demographic
and competitive studies, including population density, growth patterns, age,
ethnicity, per capita income, vehicle traffic counts, and the number and type
of existing automotive-related facilities, such as automotive parts stores and
other competitors within a pre-determined radius of the potential new
location. These potential locations are compared to existing Company locations
to determine opportunities for relocating or expanding existing stores and
opening new stores.
28
<PAGE>
The Company is seeking to further penetrate its existing markets in the
Western United States by (i) expanding successful stores at existing locations
and, if necessary, by relocating stores in the same market to maximize sales
volume and profitability at proven sites and (ii) adding new stores primarily
to markets currently served by the Company in order to increase market
penetration, while benefiting from economies of scale in advertising,
distribution and management costs.
The Company plans to open, relocate or expand approximately 75 stores in
fiscal 1996, of which approximately 60% are expected to be relocations or
expansions, and approximately 100 to 125 stores in fiscal 1997, primarily in
its existing markets. During the fiscal quarter ended April 28, 1996, the
Company opened, relocated or expanded 11 stores and currently has executed
purchase contracts or leases for an additional 56 stores. The Company is in
varying stages of negotiations for 58 more sites for relocations or additional
stores and has identified numerous potential additional sites for future
expansion.
COMMERCIAL SALES PROGRAM
In addition to its primary focus on serving the DIY consumer, in late fiscal
1994 the Company increased and formalized its marketing efforts to the
commercial segment of the automotive replacement parts market. The Company
believes that this segment of the market constitutes in excess of 50% of the
approximately $75 billion of annual sales in the automotive aftermarket for
replacement parts, maintenance items and accessories. The Commercial Sales
Program, which is intended to facilitate penetration of this market segment,
is targeted to professional mechanics, auto repair shops, auto dealers, fleet
owners, mass and general merchandisers with auto repair facilities and other
commercial repair outlets located near the Company's stores. Each Commercial
Sales Center has a dedicated in-store salesperson, driver and delivery
vehicle. In addition, the Company employs a District Sales Manager who has
responsibility for servicing existing commercial accounts and developing new
commercial accounts for approximately every five stores that have a Commercial
Sales Center.
In fiscal 1993, prior to the formalization and roll-out of the Commercial
Sales Program, sales to commercial customers were $18.6 million. The Company
has experienced strong growth in sales to commercial customers as a result of
the opening and maturation of its Commercial Sales Centers. At September 30,
1994, the Company operated Commercial Sales Centers in five of its stores and
at April 28, 1996, it operated Commercial Sales Centers in 189 of its stores.
Commercial sales increased to $60.8 million in fiscal 1995 from $32.6 million
in fiscal 1994 and to $20.3 million in the first quarter of fiscal 1996 from
$12.4 million in the first quarter of fiscal 1995. Based on the initial
success of this program, which became profitable in the first quarter of
fiscal 1996, the Company will continue to assess opportunities to add its
Commercial Sales Centers to its existing stores as well as to its new stores.
Based on market demographics, the Company believes that an additional 75 to
100 of its existing stores are candidates for Commercial Sales Centers.
PURCHASING
Merchandise is selected and purchased for all stores by personnel at the
Company's corporate headquarters in Phoenix, Arizona from over 300 suppliers.
No one class of product and no single supplier accounted for as much as 10% of
the Company's total sales or purchases in fiscal 1995.
The Company's inventory management systems include the E-3 Trim Buying
System, which provides inventory movement forecasting based upon history,
trend and seasonality. Combined with service level goals, vendor lead times
and cost of inventory assumptions, the E-3 Trim Buying System determines the
timing and size of purchase orders. Approximately 90% of the dollar value of
transactions are sent via electronic data interchange with the remainder sent
by a computer facsimile interface. The Company's store replenishment system
generates orders based upon store on-hand and store model stock. This incudes
an automatic model stock
29
<PAGE>
adjustment system utilizing historical sales, seasonality and store
presentation requirements. The Company has also recently implemented an
allocation system that enables it to allocate seasonal and promotional
merchandise based upon a store's history for prior promotional and seasonal
sales.
The Company offers products with nationally recognized, well advertised,
brand names, such as Armor All, Autolite, Blue Streak, Castrol, Dayco, Exide,
Federal Mogul, Fel-Pro, Fram, Havoline, Mobil, Monroe, Pennzoil, Prestone,
Quaker State, Slick 50, Stant, Sylvania, TRW, Turtle Wax and Valvoline. In
addition to brand name products, the Company's stores carry a wide variety of
high quality private label products. Because most of such products are
produced by nationally recognized manufacturers that produce similar brand
name products that enjoy a high degree of consumer acceptance, the Company
believes that its private label products are of a quality that is comparable
to such brand name products.
As a result of this Offering and the associated deleveraging and improvement
in the Company's liquidity, the Company anticipates that it will broaden its
vendor base and achieve improved pricing and terms from its existing vendors.
WAREHOUSE AND DISTRIBUTION
The Company has converted its warehouse and distribution system from a
manual, labor intensive, paper-based system to a technologically advanced
fully integrated system, which became fully operational during the fourth
quarter of fiscal 1995. This conversion has reduced warehouse and distribution
costs, while providing the Company with sufficient capacity to meet the
requirements of its growth plans for the foreseeable future. The new system
utilizes bar coding, radio frequency scanners and sophisticated conveyor and
put-to-light systems. As part of the overhaul of its warehouse and
distribution system, the Company consolidated from three to two main
distribution centers and expanded from two to four regional distribution
centers during fiscal 1995.
In June 1995, the Company completed the construction of its main
distribution center in Phoenix, Arizona, which incorporated the new system and
replaced the Company's existing Phoenix distribution center in October 1995.
During the period from June to October 1995, the Company experienced
disruption in the flow of product from the Phoenix distribution centers to its
stores due to the complications of relocating product to the new distribution
center. Additionally, the Company completed the automation of its Dixon,
California main distribution center in January 1995 and consolidated its
Seattle distribution operations into its Dixon distribution center in April
1995. In connection with the automation and consolidation of its distribution
centers, the Company experienced disruption in the Dixon distribution center
attributable to hardware and software problems that were resolved during the
fourth quarter of fiscal 1995. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Both main distribution centers became fully operational during the fourth
quarter of fiscal 1995, and are now operating at significantly improved
productivity levels over those experienced by the pre-existing facilities.
Warehouse and distribution costs, as a percentage of net sales, declined from
4.5% in the first quarter of fiscal 1995 to 3.9% in the first quarter of
fiscal 1996. Each store is currently serviced by one of the Company's two main
distribution centers, with the regional distribution centers handling bulk
materials, such as oil, received directly from vendors. All of the Company's
merchandise is shipped by vendors to the Company's distribution centers, with
the exception of batteries, which are shipped directly to stores by the
vendor. The following table sets forth certain information relating to the
Company's two main distribution centers as of April 28, 1996:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
DISTRIBUTION SIZE STORES FULL-TIME
CENTER AREA SERVED (SQ. FT.) SERVED ASSOCIATES
------------ ----------- --------- --------- ----------
<C> <S> <C> <C> <C>
Phoenix, AZ Arizona, Colorado, Idaho,
Nevada,
New Mexico, California, Texas,
Utah.......................... 273,520 260 216
Dixon, CA California, Nevada, Washington,
Oregon, Idaho, Montana,
Wyoming....................... 325,500 309 300
------- --- ---
599,020 569 516
======= === ===
</TABLE>
30
<PAGE>
MANAGEMENT INFORMATION SYSTEMS
The Company's management information systems constitute an important element
of the Company's operations and growth strategy. The Company uses one Hitachi
Data System EX33 Mainframe, four IBM AS/400's ("AS/400") and over 400 personal
computers which are connected to a local area network. A satellite
communications network provides the connectivity from the centralized Company
database to the stores.
The Company's store-based information systems are on a UNIX based platform
with full connectivity between the EPC and the POS systems. This includes
electronic ordering from the EPC via the corporate office AS/400 to the
Company's Priority Parts depots, third-party warehouse distributors and
directly to vendors.
EMPLOYEES
As of April 28, 1996, the Company employed approximately 5,600 full-time
employees and 2,600 part-time employees. Approximately 83% of these personnel
are employed in store level operations, 10% in distribution and 7% in the
Company's corporate headquarters, including its Call Center and Priority Parts
operation.
The Company has never experienced any material labor disruption and believes
that its labor relations are excellent. Except for certain employees located
at approximately 37 stores in the San Jose, California market, who have been
represented by a union for more than 18 years, none of the Company's personnel
belong to labor unions. The contract between this union and the Company
expired in March 1996. The terms of the expired contract are still in force,
while the union and the Company negotiate the terms of a new contract.
FACILITIES
The following table sets forth certain information concerning the Company's
principal facilities:
<TABLE>
<CAPTION>
SQUARE NATURE OF
PRIMARY USE LOCATION FOOTAGE OCCUPANCY
----------- -------------- ------- ---------
<S> <C> <C> <C>
Corporate office.............................. Phoenix, AZ 98,000 Leased
Distribution center........................... Dixon, CA 325,500 Leased
Distribution center........................... Phoenix, AZ 273,520 Leased
Regional distribution center.................. Auburn, WA 52,400 Leased
Regional distribution center.................. Denver, CO 34,800 Leased
Regional distribution center.................. Salt Lake, UT 32,000 Leased
Regional distribution center.................. Commerce, CA 48,400 Leased
Priority Parts depot.......................... Phoenix, AZ 25,643 Leased
Priority Parts depot.......................... Denver, CO 36,270 Leased
Priority Parts depot.......................... Seattle, WA 16,382 Leased
Priority Parts depot.......................... Union City, CA 17,214 Leased
Priority Parts depot.......................... San Diego, CA 20,000 Leased
Priority Parts depot.......................... El Paso, TX 11,800 Leased
Priority Parts depot.......................... Salt Lake, UT 17,200 Leased
Priority Parts depot.......................... Rialto, CA 21,052 Leased
Priority Parts depot.......................... Sacramento, CA 13,000 Leased
</TABLE>
At April 28, 1996, all but three of the Company's stores were leased. The
expiration dates (including renewal options) of the store leases are
summarized as follows:
<TABLE>
<CAPTION>
YEARS STORES
----- ------
<S> <C>
1996-2000............................................................ 42
2001-2005............................................................ 63
2006-2010............................................................ 74
2011-2020............................................................ 270
2021-2030............................................................ 91
2031-thereafter...................................................... 26
</TABLE>
31
<PAGE>
COMPETITION
The Company competes principally in the DIY segment of the automotive
aftermarket. Although the number of competitors and the level of competition
varies by market area, the DIY market is highly fragmented and generally very
competitive. The Company competes primarily with national and regional retail
automotive parts chains (such as AutoZone, Inc., Chief Auto Parts, Inc. and
The Pep Boys-Manny, Moe and Jack, Inc.), wholesalers or jobber stores (some of
which are associated with national automotive parts distributors or
associations, such as NAPA), automobile dealers, and mass merchandisers that
carry automotive replacement parts, maintenance items and accessories (such as
Wal-Mart Stores, Inc.). The Company believes that chains of automotive parts
stores, such as that operated by the Company, with multiple locations in
regional markets, have competitive advantages in marketing, inventory
selection, purchasing and distribution, as compared to independent retailers
and jobbers that are not part of a chain or associated with other retailers or
jobbers. The Company believes that, as a result of these advantages, national
and regional chains have been gaining market share in recent years at the
expense of independent retailers and jobbers.
The principal competitive factors that affect the Company's business are
store location, customer service, product selection, availability, quality and
price. While the Company believes that it competes effectively in its various
geographic areas, certain competitors are larger in terms of sales volume,
have greater financial and management resources and have been operating longer
in certain geographic areas.
TRADENAMES, SERVICE MARKS AND TRADEMARKS
The Company owns and has registered the service mark "Schuck's" with the
United States Patent and Trademark Office for use in connection with the
automotive parts retailing business. The Company owns the rights to use the
tradenames "Checker" (in connection with the automotive parts retailing
business in the West and Southeast regions of the United States) and "Kragen".
In addition, the Company owns and has registered numerous trademarks with
respect to many of its private label products. The Company believes that its
various tradenames, service marks and trademarks are important to its
merchandising strategy, but that its business is not otherwise dependent on
any particular service mark, tradename or trademark. There are no infringing
uses known by the Company that materially affect the use of such marks.
REGULATION
The Company is subject to various laws and governmental regulations relating
to the operation of its business. The Company does not believe that compliance
with such laws and regulations has had a material impact on its operations to
date. There can be no assurance, however, that compliance with such laws and
regulations in the future will not have a material adverse effect on the
Company or its operations. While the Company does not service automobiles, it
does sublease pre-existing service bays at a small number of its store
locations to third parties. The operators of these service bays are required
to dispose of certain items, including used batteries, lubricants and oils in
accordance with applicable environmental regulations. In addition, the Company
currently provides a recycling program for batteries and for the collection of
used lubricants at certain of its stores as a service to its customers
pursuant to agreements with third party vendors. Pursuant to the agreements,
the batteries and used lubricants are collected and disposed of by the third-
party vendors. The Company's arrangements with such vendors are designed to
limit its potential liability under applicable environmental regulations.
LEGAL PROCEEDINGS
On November 19, 1994, two former employees of the Company filed an action in
the United States District Court in Oregon seeking to recover unpaid overtime
compensation plus an additional equal amount of liquidated damages, costs and
reasonable attorneys' fees under the provisions of the Fair Labor Standards
Act ("FLSA"). The action was commenced as a class action on behalf of all
Company managers and senior assistant managers, but only those who opt into
the class can share in any award. The number of current and former employees
eligible for the class was 2,513; however, as of April 28, 1996, only 211
persons had opted into this class action.
32
<PAGE>
Plaintiffs contend that because certain managers and senior assistant managers
were, as a disciplinary measure, suspended without pay, no managers or senior
assistant managers are exempt from the overtime requirement under FLSA. The
FLSA regulations provide for a "window of correction" that required the
Company both cease the practice and reimburse the suspended individuals to
avoid liability. The Company contends that it has complied with the "window of
correction" and therefore believes that plaintiffs' should ultimately not have
any recovery. Although the lower court has ruled against the Company on this
issue in connection with a motion for summary judgment, the Company intends to
appeal at the appropriate time. Discovery in this case is continuing and a
trial has been scheduled for September 1996.
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business. The damages claimed against the
Company in some of these litigations are substantial. Although the amount of
liability that may result from these matters cannot be ascertained, the
Company does not currently believe that, in the aggregate they will result in
liabilities material to the Company's consolidated financial condition or
results of operations or cash flow.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers, as well as additional
information with respect to those persons, are set forth in the table below:
<TABLE>
<CAPTION>
NAME AGE POSITION AT THE COMPANY
---- --- -----------------------
<S> <C> <C>
Jules Trump............. 52 Co-Chairman of the Board, Chief Executive Officer and Director
Eddie Trump............. 50 Co-Chairman of the Board and Director
James Bazlen............ 46 President, Chief Operating Officer, Chief Financial Officer and Director
Arthur Hicks............ 61 Executive Vice President--Store Operations
Dennis Anderson......... 48 Vice President--Priority Parts
Michael Eldridge........ 46 Vice President--Regional Manager
Martin Fraser........... 41 Vice President--Distribution and Replenishment
Mary Howard............. 41 Vice President--Information Systems Applications Development
Lon Novatt.............. 35 Vice President--Legal, General Counsel and Secretary
Mark Padellford......... 42 Vice President--Commercial Sales
Monty Reese............. 46 Vice President--Advertising
John Saar............... 45 Vice President--Operations Support
Robert Shortt........... 35 Vice President--Marketing and Merchandising
Henry Torres............ 33 Vice President--Information Systems and Re-Engineering
Don Watson.............. 40 Vice President--Finance, Controller and Treasurer
James Lieb.............. 46 Director
Robert Smith............ 58 Director
</TABLE>
All directors are elected annually and serve until the next annual meeting
of stockholders or until the election and qualification of their successors.
Executive officers are elected annually by the Board of Directors and hold
office at the discretion of the Board. There are no family relationships among
the directors or executive officers of the Company, except that Jules Trump
and Eddie Trump are brothers.
The Company will expand its Board of Directors to include two additional
directors who are not affiliated with the Company, one upon completion of the
Offering and the other within twelve months of such date. The Company will
also appoint members of its expanded Board of Directors to an Audit Committee
and a Compensation Committee.
Jules Trump has been Chairman of the Company since December 1986, its Chief
Executive Officer since March 1990 and a director of the Company since
December 1986. Mr. Trump has also served as Chairman of The Trump Group, a
private investment group, since February 1982.
33
<PAGE>
Eddie Trump has been Co-Chairman of the Company since June 1996 and a
director since July 1994. Mr. Trump previously served as a director of the
Company from December 1986 until July 1992. Since February 1982, Mr. Trump has
served as President of The Trump Group.
James Bazlen has been a director of the Company since July 1994. He
previously served as a director of the Company from November 1989 through June
1992. Prior to his June 1994 promotion to President and Chief Operating
Officer, Mr. Bazlen was Vice Chairman and Chief Financial Officer of the
Company from June 1991 and also served as Senior Vice President of The Trump
Group from March 1986. Mr. Bazlen had been the Senior Vice President of the
Company from April 1990 to June 1991. Prior to joining The Trump Group in
1986, Mr. Bazlen served in various executive positions with General Electric
Company for 13 years.
Arthur Hicks has been Executive Vice President--Store Operations of the
Company since October 1990. From July 1989 to October 1990, Mr. Hicks was Vice
President--Regional Manager of Bradlees, Inc., a discount department store
chain. Prior thereto, from February 1975 to January 1989, Mr. Hicks was Senior
Vice President--Regional Manager of the Target Stores division of Dayton
Hudson Corp.
Dennis Anderson has been Vice President--Priority Parts of the Company since
June 1991. From June 1989 to May 1991, he was the Vice President--Information
Systems. Prior thereto, Mr. Anderson was a Director of Information Systems for
Lucky Stores.
Michael Eldridge has been Vice President--Regional Manager of the Company
since July 1992. From July 1987 to July 1992, Mr. Eldridge served as Regional
Manager of the Company. Prior thereto, Mr. Eldridge was the Director of Stores
of Eyeworks-Eyelab, a division of Cole National Corp.
Martin Fraser has been Vice President--Distribution and Replenishment of the
Company since August 1995. From September 1989 to August 1995, he served in
several executive positions with the Company, including Vice President of
Logistics and Vice President--Inventory Management.
Mary Howard has been Vice President--Information Systems Applications
Development of the Company since January 1995. From January 1988 to January
1995, she was the Director of Applications Development of the Company. Prior
thereto, from October 1985 to January 1988, Ms. Howard was a Project Manager
of Allied Signal Inc., a manufacturer of aerospace products.
Lon Novatt has been Vice President--Legal, General Counsel and Secretary of
the Company since December 1995. From March 1994 to November 1995, Mr. Novatt
was Senior Counsel for Broadway Stores Inc., a department store chain. From
October 1985 to February 1994, Mr. Novatt was with the Los Angeles law firm of
Freeman, Freeman & Smiley, where he was a partner from January 1992 to
February 1994.
Mark Padellford has been Vice President--Commercial Sales of the Company
since March 1994. Prior thereto, from November 1989 to February 1994, Mr.
Padellford was Commercial Marketing Manager of Hi-Lo Automotive, Inc., a
wholesaler and retailer of automotive parts and accessories.
Monty Reese has been Vice President--Advertising of the Company since May
1996. From October 1994 to January 1996, Mr. Reese was a Senior Vice
President--Marketing/Advertising of Home/Quarters Warehouse, Inc., a home
improvement retailer. Prior thereto, from February 1988 to October 1994, he
was Senior Vice President--Marketing/Advertising of Ernst Home Centers, Inc.,
a hardware and home improvement retailer.
John Saar has been Vice President--Operations Support since January 1996.
From January 1995 to January 1996, he was Vice President--Regional Manager of
the Company for the Northwest Region. From June 1993 to January 1995, he was
Vice President--Human Resources of the Company and from December 1990 to June
1993, he was the Regional Manager of the Company for the Southwest Region.
Robert Shortt has been Vice President--Merchandising and Marketing of the
Company since April 1996. From April 1995 to April 1996, Mr. Shortt was Vice
President of Marketing for the Price Pfister division of
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Black & Decker Corp. From March 1993 to April 1995, Mr. Shortt was Vice
President of Marketing of the Kwikset division of Black & Decker Corp. Prior
thereto, from March 1991 to March 1993, he was Director of Marketing of
Kwikset division of Black & Decker Corp.
Henry Torres has been Vice President--Information Systems and Re-Engineering
of the Company since February 1996. From September 1995 to February 1996, Mr.
Torres was Vice President of Re-Engineering. From December 1993 to September
1995, Mr. Torres was Director of Re-Engineering of the Company. Prior thereto,
from April 1989 to December 1993, Mr. Torres held various executive positions
for Sam's Club/Wal-Mart Stores, Inc., a discount retailer.
Don Watson has been the Company's Vice President--Finance, Controller and
Treasurer since April 1993. From June 1988 to March 1993, he was Vice
President and Controller of the Company.
James Lieb has been a director of the Company since July 1994. Mr. Lieb
previously served as a director of the Company from March 1992 until June
1992. Since October 1995, Mr. Lieb has served as Executive Vice President of
The Trump Group. From August 1988 to October 1995, Mr. Lieb was Senior Vice
President of The Trump Group.
Robert Smith has been a director of the Company since June 1996. Mr. Smith
is also a Protector of Carmel (see "Principal Stockholders"). Mr. Smith has
served as President of Newmark Capital Limited, a private investment and
consulting company since March 1992. Prior thereto, from August 1989, he
served as Chief Executive Officer of First Hungarian Investment Advisory Rt.,
an investment management company. Mr. Smith also serves as Chairman of Becet
International, a Kazakhstan cellular telephone company, and is on the boards
of directors of a number of other companies, including Rogers Cantel Mobile
Communications Inc. and Petersburg Long Distance Inc.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
or accrued by the Company for services rendered during fiscal 1995 to the
Company's Chief Executive Officer and the Company's four other most highly
compensated executive officers ("Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
NAME AND ------------ ALL OTHER
PRINCIPAL POSITION SALARY COMPENSATION
------------------ ------------ ------------
<S> <C> <C>
Jules Trump.......................................... $350,000 $6,193(1)
Co-Chairman of the Board and Chief Executive Officer
James Bazlen......................................... 350,000 2,399(2)
President, Chief Operating Officer and Chief
Financial Officer(6)
Arthur Hicks......................................... 220,000 1,962(3)
Executive Vice President-Store Operations(6)
William Stapleton.................................... 180,000 2,313(4)
Former Senior Vice President-Information Systems(6)
James Schoenberger................................... 156,000 3,065(5)
Former Vice President-Advertising
</TABLE>
- --------
(1) Represents reimbursement of medical expenses in excess of insurance
coverage provided by the Company and insurance premiums paid by the
Company with respect to term life insurance covering Mr. Trump.
(2) Represents insurance premiums paid by the Company with respect to term
life insurance covering Mr. Bazlen and contributions made by the Company
to its Retirement Program based upon Mr. Bazlen's contributions.
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(3) Represents insurance premiums paid by the Company with respect to term
life insurance covering Mr. Hicks and contributions made by the Company to
its Retirement Program based upon Mr. Hicks' contributions.
(4) Represents insurance premiums paid by the Company with respect to term
life insurance covering Mr. Stapleton and contributions made by the
Company to its Retirement Program based upon Mr. Stapleton's
contributions.
(5) Represents reimbursement of medical expenses in excess of insurance
coverage provided by the Company, insurance premiums with respect to term
life insurance covering Mr. Schoenberger and contributions made by the
Company to its Retirement Program based upon Mr. Schoenberger's
contributions.
(6) See "Management--Equity Participation Agreements."
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Jules Trump,
James Bazlen and Arthur Hicks pursuant to which they are earning annual base
salaries of $400,000, $350,000 and $220,000, respectively. The agreements do
not contain stated termination dates but rather are terminable at will by
either party. If the Company terminates the employment agreements of Messrs.
Trump, Bazlen or Hicks without cause, the agreements provide that the Company
will continue to pay the individual so terminated at a rate equal to his
annual base salary then in effect for a period of one year from the
termination.
RETIREMENT PROGRAM
The Company sponsors the CSK Auto, Inc. Retirement Program (the "Retirement
Program"), a defined contribution plan that is qualified under Section 401(k)
of the Internal Revenue Code of 1986, as amended (the "Code"). Participation
in the Retirement Program is voluntary and available to any employee, after
one year of employment, who is 21 years of age. Each participant can elect to
contribute up to 15% of his compensation on a pre-tax basis, subject to the
legal maximum of $9,500 per individual. In accordance with the provisions of
the Retirement Program, the Company may elect to make matching contributions
to the Retirement Program. For calendar year 1995, the Company matched 20% of
the first 6% of compensation contributed by each participant for the year.
Contributions to the Retirement Program and Retirement Program earnings are
fully vested. The Company made matching contributions of approximately
$267,000 to all Retirement Program participants in fiscal 1995.
INCENTIVE COMPENSATION PLAN
In May 1996, the Company instituted a general and administrative staff
incentive compensation bonus plan (the "Incentive Plan"). The Incentive Plan
is designed to reward eligible Company executives, managers and supervisors
for the achievement of pre-defined Company performance objectives. Generally,
employees at the supervisor level or above are eligible to participate in the
Incentive Plan. At the beginning of the plan period, a financial goal for the
Company is recommended by the Chief Executive Officer. Depending on whether
the financial goal is met, a percentage of each eligible employee's base
salary will be paid as a bonus.
EQUITY PARTICIPATION AGREEMENTS
The Company has, over time, entered into equity participation agreements
with certain of its executives as a form of incentive compensation. As
presently in effect, such agreements provide that Messrs. Bazlen and Hicks, as
well as four other current executive officers and one former officer of the
Company own a maximum participation interest equal, in the aggregate, to 6.4%
of the Common Stock held by Holdings immediately prior to the Offering. The
agreements provide that if the respective individual's participation interest
has vested, such individual would earn a cash payment payable by the Company
equal to the product of their vested participation interest and the
consideration received (up to a maximum of $12.75 per equity participation
share equivalent) in respect of one or more of the following: (i) the sale of
substantially all of the assets of the Company to an unaffiliated entity, (ii)
the merger of the Company with an unaffiliated entity where the stockholders
of the Company prior to the merger are
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not the holders of a majority of the voting stock of the merged entity, or
(iii) a public or private sale of the Company's Common Stock by CSK Holdings,
Ltd. to an unaffiliated entity. Payments to be made pursuant to the agreements
are generally based upon a percentage relating to the individuals' vested
portion of his participation interest. In the event of a sale of Common Stock
by CSK Holdings, Ltd., however, the payments are to be adjusted based upon the
percentage of such stockholder's holdings in the Company that is being sold.
Except in the case of a sale of the Company's Common Stock CSK Holdings, Ltd.,
in which case payments are to be made within 30 days of such sale, all
payments under the agreements are to be made over a one year period from the
date of the event triggering the payments (the "Triggering Event") and are
conditioned upon the individual remaining employed by the Company for at least
one year from the Triggering Event. Mr. Bazlen has a four percent
participation interest and Mr. Hicks has a one percent participation interest,
each of which is fully vested.
STOCK BASED PLANS
The Company has adopted a variety of stock based compensation plans designed
to attract and retain employees (including officers and directors who are
employees), non-employee directors and consultants of the Company, and to
generally encourage superior performance by the Company's management,
employees and consultants at all levels of the Company's organization. These
plans, which include (i) the 1996 Management Stock Purchase Plan (the
"Management Stock Purchase Plan"), (ii) the 1996 Employee Stock Option Plan
(the "Employee Stock Option Plan"), (iii) the 1996 Employee Stock Purchase
Plan (the "Employee Stock Purchase Plan") and (iv) the 1996 Director Stock
Plan (the "Director Stock Plan", and together with the Management Stock
Purchase Plan, the Employee Stock Option Plan and the Employee Stock Purchase
Plan, collectively, the "Stock Based Plans"), are also intended to align the
interests of directors, officers, employees and consultants with those of the
Company's stockholders. The aggregate shares reserved for issuance under the
Company's Stock Based Plans represent approximately 13.1% of the shares of
Common Stock outstanding after the Offering. The number of shares issued
pursuant to such plans will depend upon the degree to which awards are made or
exercised and the degree to which shares are purchased by participants.
Options to purchase 3,584,052 shares of Common Stock granted under the
Employee Stock Option Plan are outstanding, of which options for 2,118,000
shares of Common Stock are currently exercisable at $12.75 per share.
Following the Offering, the Stock Based Plans will be administered by the
Compensation Committee of the Board of Directors, consisting of not less than
two members (the "Committee"). The Committee will comply with the requirements
for an exemption under Rule 16b-3 under the Exchange Act as then in effect.
The Company also intends to comply with the requirements of Section 162(m) of
the Code, as amended, if possible, without limiting the powers granted under
the particular Stock Based Plans, to the extent it is not inconsistent with
the Company's goals. The Committee can make such rules and regulations and
establish such procedures for the administration of each Stock Based Plan as
it deems appropriate. The description of the Stock Based Plans set forth
herein is qualified in its entirety by reference to the texts of the
respective Stock Based Plans, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus forms a part.
Management Stock Purchase Plan. The number of shares of Common Stock
reserved for issuance under the Management Stock Purchase Plan is 250,000
shares, subject to equitable adjustment as set forth in the Management Stock
Purchase Plan.
The participants in the Management Stock Purchase Plan will consist of all
Company officers and such employees of the Company and the Company's
subsidiaries and parent as are participants in the Company's Incentive Plan.
Although the Management Stock Purchase Plan and the Incentive Plan are
separate plans, the same individuals participate in each plan. Each
participant will at his or her election be permitted to receive up to 100% of
the annual incentive bonus, if any, earned by the participant under the
Incentive Plan (less certain payroll deductions) in the form of restricted
shares of Common Stock ("Restricted Shares") under the Management Stock
Purchase Plan at 85% of their fair market value on the date such restricted
shares are issued.
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No shares may be purchased under the Management Stock Purchase Plan prior to
completion of the Offering.
The restricted period for Restricted Shares purchased under the Management
Stock Purchase Plan will be one year from the date of purchase. The Restricted
Shares cannot be sold during the restricted period.
No rights under the Management Stock Purchase Plan are transferable other
than by will or the laws of descent and distribution, and may be exercised
during the holder's lifetime only by him or her. A participant may designate a
beneficiary to receive any payments to be made to the participant which are
due after his or her death.
The Company, its subsidiaries or its parent may withhold cash and/or shares
of Common Stock equal to the amount necessary to satisfy its obligation to
withhold taxes or other amounts. Alternatively, the Company may require the
holder to pay to the Company such amount, in cash, promptly upon demand.
No rights may be granted under the Management Stock Purchase Plan after June
30, 2006. The Committee may at any time terminate or amend the Management
Stock Purchase Plan; provided, however, that without the approval of the
Company's stockholders, no amendment may be made that would (a) except as a
result of equitable adjustments set forth in the Management Stock Purchase
Plan, increase the maximum number of shares for which options may be granted,
(b) materially increase the benefits accruing to participants under the
Management Stock Purchase Plan, or (c) change the eligibility requirements for
persons who may participate. No termination or amendment may materially
adversely affect the rights of a holder of existing rights under the
Management Stock Purchase Plan without such holder's consent.
The following is a general summary of the federal income tax consequences
under current tax law of transactions under the Management Stock Purchase
Plan. It does not purport to cover all of the special rules that may apply, or
the state or local income or other tax consequences inherent in the ownership
and disposition of such shares.
A participant generally must include as ordinary income the fair market
value of the Restricted Shares (less any amount paid for such stock) at the
earlier of the time such Restricted Shares are either transferable or no
longer subject to a substantial risk of forfeiture (the "forfeiture period")
within the meaning of Section 83 of the Code. Any participant can elect
pursuant to Section 83(b) of the Code to include as ordinary income, in the
year of transfer of the Restricted Shares by the Company to such person, an
amount equal to the fair market value of the Restricted Shares (less any
amounts paid for such stock) on the date of such transfer (as if the
Restricted Shares were unrestricted and could be sold immediately); such an
election must be made within 30 days of the date of such transfer. A
participant's tax basis in Restricted Shares is equal to the amount paid for
such stock plus the amount includable in income with respect to such
Restricted Shares. With respect to the sale of Restricted Shares after the
expiration of the forfeiture period, any gain or loss will generally be
treated as long-term or short-term capital gain or loss, depending on the
holding period. The holding period for capital gains treatment will begin when
the forfeiture period expires, unless the participant has made a Section 83(b)
election, in which event the holding period will commence just after the date
of transfer of the Restricted Shares by the Company to such person. The
Company generally will be entitled to a deduction in the amount of a
participant's ordinary income at the time such income is recognized.
Employee Stock Option Plan. The number of shares of Common Stock initially
reserved for issuance upon exercise of options that may be granted under the
Employee Stock Option Plan is 4,300,000 shares, subject to equitable
adjustment as set forth in the Employee Stock Option Plan.
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<PAGE>
Options may be granted to employees (including officers and directors who
are employees) of, and to consultants to, the Company, its subsidiaries or its
parent. Upon expiration, cancellation or termination of unexercised options,
the shares of the Company's Common Stock subject to such options will again be
available for the grant of options under the Employee Stock Option Plan.
Options granted under the Employee Stock Option Plan may either be incentive
stock options ("ISOs"), within the meaning of Section 422 of the Code, or
nonqualified stock options which do not qualify as ISOs ("NQSOs"). ISOs,
however, may only be granted to employees.
Among other things, the Committee is empowered to determine, within the
express limits contained in the Employee Stock Option Plan: the employees and
consultants to be granted options, whether an option granted to an employee is
to be an ISO or a NQSO, the number of shares of Common Stock to be subject to
each option, the exercise price of each option, the term of each option, the
date each option shall become exercisable as well as any terms, conditions or
installments relating to the exercisibility of each option, whether to
accelerate the date of exercise of any option or installment, the form of
payment of the exercise price, the amount, if any, required to be withheld
with respect to an option, and with the consent of the optionee, to modify an
option. The Committee is also authorized to prescribe, amend and rescind rules
and regulations relating to the Employee Stock Option Plan and to make all
other determinations necessary or advisable for administering the Employee
Stock Option Plan, and to construe each stock option contract ("Contract")
entered into by the Company with an optionee under the Employee Stock Option
Plan.
The exercise price of each option will be determined by the Committee;
provided, however, that the exercise price of an ISO may not be less than the
fair market value of the Company's Common Stock on the date of grant (110% of
such fair market value if the optionee owns (or is deemed to own) more than
10% of the voting power of the Company, its subsidiaries or its parent). The
exercise price of each option is payable in full upon exercise or, if the
applicable Contract permits, in installments. Payment of the exercise price of
an option may be made in cash, or, if the applicable Contract permits, in
cash, in shares of the Company's Common Stock or any combination thereof.
Options may be granted for terms determined by the Committee; provided,
however, that the term of an ISO may not exceed 10 years (5 years if the
optionee owns (or is deemed to own) more than 10% of the voting power of the
Company, its subsidiaries or its parent).
The maximum number of shares of the Company's Common Stock for which options
may be granted to an employee in any fiscal year of the Company is 1,250,000.
In addition, the aggregate fair market value of shares with respect to which
ISOs may be granted to an employee which are exercisable for the first time
during any calendar year may not exceed $100,000.
Options may not be transferred other than by will or the laws of descent and
distribution, and may be exercised during the optionee's lifetime only by him
or her.
Except as may otherwise be provided in the applicable Contract, if the
optionee's relationship with the Company, its subsidiaries or its parent as an
employee or consultant is terminated for any reason (other than the death or
disability of the optionee), the option may be exercised, to the extent
exercisable at the time of termination of such relationship, within three
months thereafter, but in no event after the expiration of the term of the
option. However, if the relationship was terminated either for cause ("cause"
being defined generally as fraud, embezzlement or gross negligence with
respect to the participant's duties) or without the consent of the Company,
the option will terminate immediately. In the case of the death of an optionee
while an employee or consultant (or, generally, within three months after
termination of such relationship, or within one year after termination of such
relationship by reason of disability), except as otherwise provided in the
Contract, his or her legal representative or beneficiary may exercise the
option, to the extent exercisable on the date of death, within one year after
such date, but in no event after the expiration of the term of the option.
Except as may otherwise be provided in the applicable Contract, an optionee
whose relationship with the Company, its subsidiaries or its
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<PAGE>
parent was terminated by reason of his or her disability may exercise the
option, to the extent exercisable at the time of such termination, within one
year thereafter, but not after the expiration of the term of the option.
Options are not affected by a change in the status of an optionee so long as
he continues to be an employee of, or a consultant to, the Company, its
subsidiaries or its parent.
The Company, its subsidiaries or its parent may withhold cash and/or shares
of the Company's Common Stock having an aggregate value equal to the amount
which the Company determines is necessary to meet its obligations to withhold
any federal, state and/or local taxes or other amounts incurred by reasons of
the grant or exercise of an option, its disposition or the disposition of
shares acquired upon the exercise of the option. Alternatively, the Company
may require the optionee to pay the Company such amount, in cash, promptly
upon demand.
No ISO may be granted under the Stock Option Plan after June 30, 2006. The
Committee may at any time terminate or amend the Employee Stock Option Plan;
provided, however, that without the approval of the Company's stockholders, no
amendment may be made which would (a) except as a result of equitable
adjustments set forth in the Employee Stock Option Plan, increase the maximum
number of shares available for the grant of options or increase the maximum
number of options that may be granted to an employee in any fiscal year, (b)
materially increase the benefits accruing to participants under the Employee
Stock Option Plan, or (c) change the eligibility requirements for persons who
may participate. No termination or amendment may materially adversely affect
the rights of an optionee with respect to an outstanding option without the
optionee's consent.
The following is a general summary of the federal income tax consequences
under current tax law of NQSOs and ISOs. It does not purport to cover all of
the special rules, including those relating to the exercise of an option with
previously-acquired shares, or the state or local income or other tax
consequences inherent in the ownership and exercise of stock options and the
ownership and disposition of the underlying shares.
An optionee will not recognize taxable income for federal income tax
purposes upon the grant of a NQSO or an ISO.
Upon the exercise of a NQSO, the optionee will recognize ordinary income in
an amount equal to the excess, if any, of the fair market value of the shares
acquired on the date of exercise over the exercise price thereof, and the
Company will generally be entitled to a deduction for such amount at that
time. If the optionee later sells shares acquired pursuant to the exercise of
a NQSO, he or she will recognize long-term or short-term capital gain or loss,
depending on the period for which the shares were held. Long-term capital gain
is generally subject to more favorable tax treatment than ordinary income or
short-term capital gain. Proposed legislation would treat long-term capital
gain even more favorably. There can be no assurance, however, that such
proposed legislation will be enacted.
Upon the exercise of an ISO, the optionee will not recognize taxable income.
If the optionee disposes of the shares acquired pursuant to the exercise of an
ISO more than two years after the date of grant and more than one year after
the transfer of the shares to him or her, the optionee will recognize long-
term capital gain or loss and the Company will not be entitled to a deduction.
However, if the optionee disposes of such shares within the required holding
period, all or a portion of the gain will be treated as ordinary income and
the Company will generally be entitled to deduct such amount.
In addition to the federal income tax consequences described above, an
optionee may be subject to the alternative minimum tax, which is payable to
the extent it exceeds the optionee's regular tax. For this purpose, upon the
exercise of an ISO, the excess of the fair market value of the shares over the
exercise price therefor is an adjustment which increases alternative minimum
taxable income. In addition, the optionee's basis in such shares is increased
by such excess for purposes of computing the gain or loss on the disposition
of the shares for
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alternative minimum tax purposes. If an optionee is required to pay an
alternative minimum tax, the amount of such tax which is attributable to
deferral preferences (including the ISO adjustment) is allowed as a credit
against the optionee's regular tax liability in subsequent years. To the
extent the credit is not used, it is carried forward.
Options to purchase 100,000, 100,000, 1,212,000, 307,000 and 100,000 shares
of Common Stock were issued to Jules Trump, Eddie Trump, James Bazlen, Arthur
Hicks and James Lieb, respectively, during June 1996. An additional aggregate
of 1,563,052 options were issued to other employees of the Company and 202,000
options were issued to a former officer of the Company outside of the Employee
Stock Option Plan to satisfy certain Company obligations under his employment
arrangement. Of the foregoing options, an aggregate of 2,118,000 options
granted to the individuals named above, two additional current officers and
the former officer are currently exercisable. Of the remaining options,
1,339,802 vest over five years commencing three years after the date of their
grant and 126,250 have varying vesting schedules. All outstanding options have
a term of ten years and are exercisable at a price of $12.75 per share (which
represented the fair market value of the Company's Common Stock on the date
such options were granted.)
Employee Stock Purchase Plan. The Employee Stock Purchase Plan is intended
to qualify as an employee stock purchase plan under Section 423 of the Code.
Under the Employee Stock Purchase Plan, the maximum number of shares of Common
Stock for which options may be granted is 250,000 shares, subject to equitable
adjustment as set forth in the Employee Stock Purchase Plan. No shares may be
purchased under the Employee Stock Purchase Plan prior to the completion of
the Offering.
On the first day on which the principal market for the Common Stock is open
(the "Grant Date") in each calendar quarter during the term of the Employee
Stock Purchase Plan commencing on the completion of the Offering (an "Offering
Period"), participants are granted options to purchase such number of full
shares as may be paid for from the participant's payroll deductions pursuant
to the Employee Stock Purchase Plan during such Offering Period, but not in
excess of 1,000 shares in any Offering Period. The exercise price of each
option (the "Option Price") with respect to any Offering Period is equal to
the lower of 85% of the fair market value of the Common Stock subject thereto
on the Grant Date or 85% of the fair market value of the Common Stock subject
thereto on the last day of the Offering Period on which the principal market
for the Common Stock is open (the "Exercise Date"). A participant pays the
Option Price through payroll deductions of 1% to 10% of the participant's
compensation during the Offering Period. For this purpose, "compensation"
includes the gross amount of his salary, wages, commissions, overtime pay and
bonuses (without reduction for withholding, contributions to the Company's
Section 401(k) plan, amounts excludable pursuant to Section 125 of the Code or
non-qualified deferred compensation). Notwithstanding the foregoing, no
employee may be granted an option under the Employee Stock Purchase Plan which
permits him to purchase shares of Common Stock having a fair market value
greater than $25,000 in any calendar year.
The Employee Stock Purchase Plan is open to any employee of the Company, its
subsidiaries or parent on the Grant Date, (a) who has been employed for at
least three months, (b) who does not own (including under certain rules of
constructive ownership) immediately before the Grant Date, shares possessing
5% or more of the total combined voting power or value of all classes of stock
of the Company. An eligible employee becomes a participant by filing the
prescribed election form at least 20 days prior to the beginning of the first
Grant Date for which it is effective electing to become a participant and
authorizing payroll deductions of a whole percentage of his compensation
between 1% and 10%. Participation in the Employee Stock Purchase Plan
continues until the employee withdraws from the Employee Stock Purchase Plan
or ceases to be employed by the Company, its subsidiaries or parent. All
employees have the same rights and privileges under the Employee Stock
Purchase Plan, except that (subject to the foregoing) the number of shares of
Common Stock which may be purchased by a participant bear a uniform
relationship to their compensation.
A participant's option will automatically be exercised on the Exercise Date
by purchasing the number of whole shares that the amount of payroll deductions
for this purpose that were credited to his account will purchase at the Option
Price, subject to the limitations described above. Shares acquired pursuant to
the
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Employee Stock Purchase Plan cannot be sold before the first anniversary of
the Exercise Date with respect to such shares.
Notwithstanding a prior election with respect to a specific Offering Period,
a participant may withdraw from the Employee Stock Purchase Plan at any time
upon at least 20 days notice prior to the Exercise Date. In such event, all of
the participant's payroll deductions under the Employee Stock Purchase Plan
with respect to such Offering Period will be refunded, without interest.
Withdrawal in any Offering Period does not affect the employee's eligibility
to participate in the Employee Stock Purchase Plan in any subsequent Offering
Period, although a new election form must be filed. The termination of a
participant's employment is treated as the participant's withdrawal from the
Employee Stock Purchase Plan effective on such date without regard to the 20-
day notice period. A participant may change the amount deducted from his
compensation for purposes of the Employee Stock Purchase Plan by filing a new
election at least 20 days prior to the first Grant Date for which it is to be
effective.
Any amount deducted from a participant's payroll for purposes of the
Employee Stock Purchase Plan is an asset of the Company subject to the claims
of its creditors. The participant is only an unsecured general creditor with
respect to such amount.
No option or any rights under the Employee Stock Purchase Plan are
transferable other than by will or the laws of descent and distribution, and
may be exercised during the holder's lifetime only by him or her. A
participant may designate a beneficiary to receive any payments to be made to
the participant which are due after his or her death.
The Company, its subsidiaries or its parent may withhold cash and/or shares
of Common Stock equal to the amount necessary to satisfy its obligation to
withhold taxes or other amounts. Alternatively, the Company may require the
holder to pay to the Company such amount, in cash, promptly upon demand.
No option may be granted under the Employee Stock Purchase Plan after June
30, 2006. The Committee may at any time terminate or amend the Employee Stock
Purchase Plan; provided, however, that without the prior approval of a
majority of the Company's stockholders, no amendment may be made which would
(a) except as a result of equitable adjustments set forth in the Employee
Stock Purchase Plan, increase the maximum number of shares for which options
may be granted, (b) materially increase the benefits to participants under the
Employee Stock Purchase Plan, (c) change the eligibility requirements for
persons who may participate in the Employee Stock Purchase Plan or (d) effect
any change inconsistent with Section 423 of the Code or regulations issued
thereunder. No termination or amendment may materially adversely affect the
rights of a holder of an existing option without such holder's consent.
The following is a general summary of the federal income tax treatment under
current law of options under the Employee Stock Purchase Plan and disposition
of the shares acquired pursuant to such Plan. It does not purport to cover all
of the special rules that may apply, or the state or local income or other tax
consequences inherent in the ownership and exercise of options and the
ownership and disposition of the underlying shares.
No income is recognized by a participant upon the grant or exercise of an
option pursuant to the Employee Stock Purchase Plan.
If a participant disposes of shares of Common Stock that were purchased
pursuant to the Employee Stock Purchase Plan and held for at least two years
after the Grant Date and one year after the Exercise Date, or dies holding the
shares (however long they were held), the participant will recognize ordinary
compensation income in the year of disposition or death in an amount equal to
the lesser of (a) the excess of the fair market value of the stock on the date
of disposition or death over the Option Price therefor or (b) the excess of
the fair market
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value of the stock on the Grant Date over the Option Price therefor. Any
additional gain recognized will be long-term capital gain. If the sale price
is less than the Option Price, the participant will not recognize any ordinary
income, and will have a long-term capital loss. The Company is not entitled to
any deduction. However, the participant disposes of such shares within the
required holding period all or a portion of the gain will be treated as
ordinary income and the Company will generally be entitled to deduct such
amount.
Long-term capital gains are generally subject to more favorable tax
treatment than ordinary income or short-term capital gains. Proposed
amendments would make such treatment even more favorable, although there can
be no assurance that any such proposal will be enacted.
Director Stock Plan. The number of shares of Common Stock initially reserved
for issuance under the Director Stock Plan is 50,000 shares, subject to
equitable adjustment as set forth in the Director Stock Plan.
The participants in the Director Stock Plan will consist of all of the
directors of the Company who are not officers or employees of the Company or
any of its affiliates. Each participant will receive all of his or her annual
retainer in the form of Restricted Shares paid in four installments at the
beginning of each calendar quarter and all of his or her meeting fees in the
form of Restricted Shares paid at the end of the calendar quarter in which the
meetings occurred. The restrictions on such Restricted Shares will lapse one
year from the date of grant. The stock cannot be sold during the restricted
period. The total number of Restricted Shares included in each grant will be
determined by dividing one-quarter of the participant's retainer by the fair
market value of one share of Common Stock on the first business day of each
calendar quarter. With respect to the meeting fees, the total number of shares
of Restricted Shares included in each grant will be determined by dividing the
participant's meeting fees for the calendar quarter by the fair market value
of one share of Common Stock on the last business day of the calendar quarter.
No grant can be made under the Director Stock Plan after June 30, 2006.
Holdings of Restricted Shares acquired prior thereto, however, can extend
beyond such date, and the provisions of the Director Stock Plan will continue
to apply thereto. The Board of Directors may at any time terminate or amend
the Director Stock Plan; provided, however, that without the approval of the
Company's stockholders, no amendment may be made that would (a) except as a
result of equitable adjustments set forth in the Director Stock Plan, increase
the maximum number of shares available for purchase, (b) materially increase
the benefits accruing to participants under the Director Stock Plan, or (c)
change the eligibility requirements for persons who may participate. No
termination or amendment may materially adversely affect the rights of a
participant with respect to outstanding rights under the Director Stock Plan
without such participant's consent.
The following is a general summary of the federal income tax consequences
under current tax law of transactions under the Director Stock Plan. It does
not purport to cover all of the special rules that may apply or the state or
local or other tax consequences inherent in the ownership and deposition of
such shares.
A participant generally must include as ordinary income the fair market
value of the Restricted Stock at the earlier of the time such Restricted
Shares are either transferable or no longer subject to a substantial risk of
forfeiture (the "forfeiture period") within the meaning of Section 83 of the
Code (including any period during which such participant will be subject to
potential liability under Section 16(b)). Any participant can elect pursuant
to Section 83(b) of the Code to include as ordinary income, in the year of
transfer of the Restricted Shares by the Company to such person, as amount
equal to the fair market of the Restricted Shares on the date of such transfer
(as if the Restricted Shares were unrestricted and could be sold immediately);
such an election must be made within 30 days of the date of such transfer. A
participant's tax basis in Restricted Shares is equal to the amount includible
in income with respect to such Restricted Shares. With respect to the sale of
Restricted Shares after the expiration of the forfeiture period, any gain or
loss will generally be treated as long-term or
43
<PAGE>
short-term capital gain or loss, depending on the holding period. The holding
period for capital gains treatment will begin when the forfeiture period
expires, unless the participant has made a Section 83(b) election, in which
event the holding period will commence just after the date of transfer of the
Restricted Shares by the Company to such person. The Company generally will be
entitled to a deduction in the amount of a participant's income at the time
such income is recognized.
CERTAIN TRANSACTIONS
In October 1989, the Company entered into a nine year lease for its
corporate headquarters in Phoenix, Arizona, with an unaffiliated landlord. The
lease relates to approximately 78,577 square feet and provides for a current
base rent of $1,377,320 per year. During January 1994, Missouri Falls Holdings
Corp., an affiliate of the Company, acquired an interest in the partnership
("Missouri Falls Partners") which acquired the building and assumed the lease
between the Company and the former landlord. In April 1995, the Company
assumed a lease between a former tenant and Missouri Falls Partners for
approximately 11,680 square feet of additional office space at a current lease
rent of $148,958 per year. Such lease expires in April 1998. Additionally, the
Company rents approximately 7,766 square feet of additional space at these
premises on a month-to-month basis for an annual rental of $97,075.
TransAtlantic Finance, Inc. ("Finance"), an indirect wholly-owned subsidiary
of Carmel, was owed, as of the date hereof, the sum of approximately
$3,703,000 by the Company. The Company's obligation which was incurred in
connection with the purchase of product from two of its vendors was
subsequently transferred. At the time of such transfers, the Company owed the
sum of $16,555,000 (less anticipated discounts of $801,000) to the vendors,
since reduced by prepayments. The Company's obligation to Finance is non-
interest bearing and matures on December 31, 1996. The amount due is to be
reduced, if further prepaid, by an amount equal to $1,038 multiplied by the
number of days prior to December 31, 1996 that payment in full is made to
Finance. See Note 2 to Consolidated Financial Statements.
TransAtlantic Realty, Inc. ("Realty"), another indirect wholly-owned
subsidiary of Carmel, entered into a series of sale-leaseback transactions
with the Company with respect to various real property and fixtures between
October 1995 and June 1996. The total funding provided by Realty in these
transactions was $15,956,000, which represented the cost of such assets to the
Company. The real property leases ($12,057,000) provide for a term of 20 years
(with renewal options for an additional 20 years). The annual rent during the
initial term of each lease is 10% of the sale proceeds paid by Realty and
during any option period is to be fair market rent. The Company has the right
to terminate each lease at the end of its tenth year by purchasing the
property covered by the lease from Realty for fair market value. The fixture
leases ($3,899,000) provide for a term of five years at a 10% rate with an
estimated residual of 10% at the end of the lease. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and Note 2 to Consolidated Financial
Statements.
During November 1993, a former affiliate of the Company was sold by Holdings
to an independent third party. At the time of the sale, the Company was owed
$11.4 million for management and support services provided to the former
affiliate. In connection with the November 1993 sale, Holdings assumed the
$11.4 million obligation owed to the Company of which it subsequently paid
approximately $8.4 million. The Company has since cancelled the balance of
$3.0 million. See Note 2 to Consolidated Financial Statements.
The taxable income and losses of the Company and its subsidiaries (the
"Company Group") will be included in the consolidated federal income tax
returns filed by CSK Group, Ltd. The Company and/or certain subsidiaries may
also be included in certain state income tax returns filed by CSK Group, Ltd.
(or its affiliates). Prior to the completion of the Offering, each member of
the Company Group and CSK Group, Ltd. will enter into a Tax Sharing Agreement
(the "Tax Sharing Agreement") that will require the Company to pay CSK Group,
Ltd. an amount equal to the amount of the federal and state income taxes that
the Company Group would have been required to pay if the Company Group filed
its own separate tax returns and was never part of the CSK Group Ltd. tax
returns. On the other hand, the Company will be paid for any tax attributes of
the Company or its subsidiaries that are used to reduce the tax that would
otherwise be paid by CSK Group Ltd. and its other subsidiaries. See Note 9 to
Consolidated Financial Statements.
44
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information concerning beneficial
ownership of Common Stock as of June 30, 1996, and as adjusted to give effect
to the sale of the shares of Common Stock offered hereby by (i) each person
which is a beneficial owner of more than 5% of the outstanding Common Stock,
(ii) each director of the Company, (iii) each current Named Executive Officer
and (iv) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
BENEFICIAL OWNER PRIOR TO OFFERING AFTER OFFERING
------------------- ----------------------------------------------------------------------
NUMBER PERCENT NUMBER PERCENT
--------------- ---------------------------- -------------
<S> <C> <C> <C> <C>
Carmel Trust............ 30,300,000(1) 99.9% 30,300,000(1) 81.8%
c/o Sonnenschein Nath &
Rosenthal
Suite 8000, Sears Tower
2335 Wacker Drive
Chicago, Illinois 60606
Jules Trump............. 100,000(1)(2) 0.3 100,000(1)(2) 0.3
c/o CSK Auto, Inc.
645 E. Missouri Avenue
Phoenix, Arizona 85012
Eddie Trump............. 100,000(1)(2) 0.3 100,000(1)(2) 0.3
c/o CSK Auto, Inc.
645 E. Missouri Avenue
Phoenix, Arizona 85012
James G. Bazlen......... 1,212,000(2) 3.8 1,212,000(2) 3.1
c/o CSK Auto, Inc.
645 E. Missouri Avenue
Phoenix, Arizona 85012
James Lieb.............. 100,000(2) 0.3 100,000(2) 0.3
c/o CSK Auto, Inc.
645 E. Missouri Avenue
Phoenix, Arizona 85012
Robert Smith............ -- (1) -- -- (1) --
c/o Sonnenschein Nath &
Rosenthal
Suite 8000, Sears Tower
2335 Wacker Drive
Chicago, Illinois 60606
Arthur S. Hicks......... 307,000(3) 1.0 307,000(3) 0.8
c/o CSK Auto, Inc.
645 E. Missouri Avenue
Phoenix, Arizona 85012
All Executive Officers
and Directors as a
Group
(17 persons)........... 1,937,700(1)(4) 6.0 1,937,700(1)(4) 4.9
</TABLE>
- --------
(1) Such shares are directly or indirectly owned of record by CSK Holdings,
Ltd. which is wholly-owned by CSK Group, Ltd., which in turn is wholly
owned by Carmel, the Trustee of which is Cantrade Trust Company Limited.
The Agreement pursuant to which Carmel was established in 1977 (the
"Carmel Agreement") designates certain Protectors who must authorize any
action taken by the Trustee and who have the authority to discharge the
Trustee and to appoint substitute trustees. These Protectors are Saul
Tobias Bernstein, Gerrit Van Reimsdijk and Robert Smith (who is also a
director of the Company). These Protectors are not otherwise associated
with the Company or Carmel. The Carmel Agreement provides that Carmel
shall continue until 21 years after the death of the last survivor of the
descendants of certain persons living on the date it was established (the
"Carmel Term"). Certain members of the families of Jules Trump and Eddie
Trump (Co-Chairmen and directors of the Company) may appoint
beneficiaries, or themselves become beneficiaries (by appointment or at
the end of the Carmel Term without appointment). If there are no such
beneficiaries at the end of the Carmel Term, the assets of Carmel will be
paid out to certain charitable institutions. Jules Trump, Eddie Trump and
Robert Smith each disclaim beneficial ownership of such shares.
(2) Consists of shares issuable upon exercise of currently exercisable stock
options.
(3) Includes 303,000 shares issuable upon exercise of currently exercisable
stock options held by Mr. Hicks.
(4) Includes 1,916,000 shares issuable upon exercise of currently exercisable
stock options.
45
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have outstanding an
aggregate of 37,021,700 shares of Common Stock, assuming (i) the issuance of
6,700,000 shares of Common Stock offered hereby, (ii) the issuance of
30,321,700 shares of Common Stock in the Merger and (iii) no exercise of
outstanding options to purchase Common Stock under any of the Company's
employee benefit plans. Of the total outstanding shares of Common Stock, only
the 6,700,000 shares of Common Stock sold in the Offering will be freely
tradeable without restriction or further registration under the Securities
Act, unless and to the extent purchased by "affiliates" of the Company, as
that term is defined in Rule 144 under the Securities Act (sales by whom would
be subject to certain volume limitations and other restrictions described
below).
The remaining shares of Common Stock held by Holdings and certain officers
and directors of the Company upon completion of the Offering will be
"restricted securities," as that term is defined in Rule 144 under the
Securities Act. In general, under Rule 144 as currently in effect, a person
(or persons whose shares are aggregated), including an affiliate, who has
beneficially owned shares for at least two years (including the holding period
of any prior owner except an affiliate) is entitled to sell in "broker's
transactions" or to market makers, within any three-month period commencing 90
days after the date of this Prospectus, a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock
(370,217 shares immediately after the Offering) or (ii) generally, the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding the filing of a Form 144 with respect to such sale, and subject to
certain other limitations and restrictions. In addition, a person who is not
deemed to have been an affiliate of the Company at any time during the three
months preceding a sale, and who has beneficially owned the shares proposed to
be sold for at least three years, would be entitled to sell such shares under
Rule 144(k) without regard to the volume and other requirements described
above.
The Company, Holdings and each officer and director of the Company owning
shares of Common Stock upon completion of the Offering each have agreed that,
without the prior consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, they will not offer, sell, contract to sell or otherwise dispose
of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock for a period of 180 days after
the date of this Prospectus, other than the sale of 6,700,000 shares of Common
Stock offered hereby (and the 1,005,000 shares which may be issued by the
Company pursuant to the over-allotment option granted to the Underwriters) and
the issuance of 2,118,000 shares upon exercise of currently exercisable stock
options. Upon expiration of such 180-day period, only the 6,700,000 shares of
Common Stock sold in the Offering will be eligible for immediate sale without
restriction under the Securities Act, and the remaining shares of Common Stock
outstanding on the date of this Prospectus will be eligible for sale only upon
compliance with the volume, timing and other requirements of Rules 144 and 145
promulgated under the Securities Act.
Prior to the Offering, there has not been any public market for securities
of the Company. No prediction can be made as to the effect, if any, that
market sales of shares or the availability of shares for sale will have on the
market price prevailing from time to time. Nevertheless, sales of substantial
additional amounts of Common Stock of the Company in the public market, or the
perception that such sales could occur, could adversely affect the prevailing
market price of the Common Stock.
THE MERGER
Prior to or concurrent with the completion of the Offering, NAC will merge
with and into the Company, a Delaware corporation recently formed for the sole
purpose of consummating the Merger and effecting the reincorporation of NAC as
a Delaware corporation, with the Delaware corporation surviving the Merger. As
part of the Merger, all of the outstanding shares of preferred stock and
common stock of NAC will be converted into an aggregate of 30,321,700 shares
of Common Stock of the Company. The 37,021,700 shares of Common Stock to be
outstanding after the Offering include the 30,300,000 shares of Common Stock
issued in the Merger,
46
<PAGE>
the 6,700,000 shares of Common Stock offered hereby and 21,700 shares of
Common Stock issued to certain executive officers of the Company. Such
officers of the Company had purchased shares of common stock of NAC on
June 22, 1996, which shares will be converted into an aggregate of 21,700
shares of Common Stock of the Company pursuant to the Merger at an effective
purchase price of $12.75 per share. In connection with the Merger, the Company
and Holdings will enter into a tax sharing agreement. See "Certain
Transactions."
DESCRIPTION OF CAPITAL STOCK
Upon the consummation of the Offering, the authorized capital stock of the
Company will consist of 75,000,000 shares of Common Stock, $.001 par value per
share and 10,000,000 shares of preferred stock, $.001 par value per share.
Prior to the Offering, Holdings and certain officers of the Company are the
only holders of the Company's Common Stock. The following description
summarizes certain information regarding the capital stock of the Company.
This information does not purport to be complete and is subject to the
applicable provisions of the Delaware General Corporation Law, as amended (the
"DGCL"), the Company's Certificate of Incorporation (the "Certificate of
Incorporation") and the Company's By-Laws (the "By-Laws").
COMMON STOCK
Upon consummation of the Offering, 37,021,700 shares of Common Stock will be
issued and outstanding. Each share of Common Stock entitles the holder thereof
to one vote on all matters submitted to a vote of stockholders, including the
election of directors. There is no cumulative voting in the election of
directors; consequently, the holders of a majority of the outstanding shares
of Common Stock can elect all of the directors then standing for election.
Holdings will own 81.8% of the outstanding Common Stock after the Offering.
Such control could have the effect of entrenching current management and
preventing a hostile takeover of the Company. See "--Business Combinations."
Subject to preferences that may be applicable to any outstanding shares of
preferred stock, holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. See "Dividend Policy."
Holders of Common Stock have no conversion, redemption or preemptive rights to
subscribe to any securities of the Company. All outstanding shares of Common
Stock are, and the shares to be sold in the Offering when issued and paid for
will be, fully paid and nonassessable. In the event of any liquidation,
dissolution or winding-up of the affairs of the Company, holders of Common
Stock will be entitled to share ratably in the assets of the Company remaining
after provision for payment of liabilities to creditors and the preferences,
if any, of holders of preferred stock. The rights and preferences of holders
of Common Stock are subject to the rights of the holders of any shares of
preferred stock which the Company may issue in the future.
PREFERRED STOCK
As of the date of this Prospectus, no shares of preferred stock were issued
or outstanding. The Company's Certificate of Incorporation authorizes the
Board of Directors, without further stockholder action, to issue preferred
stock in one or more series and to fix and determine the relative rights and
preferences thereof, including voting rights, dividend rights, liquidation
rights, redemption rights, redemption provisions, sinking fund provisions,
conversion rights and other rights. As a result, the Board of Directors could,
without stockholder approval, issue shares of preferred stock with voting,
conversion, dividend, liquidation, or other rights that could adversely affect
the holders of Common Stock and that could have the effect of delaying,
deferring, or preventing a change in control of the Company. The Company
currently has no plans or arrangements for the issuance of any preferred
stock.
LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation contains a provision which
eliminates the personal liability of a director to the Company and its
stockholders for certain breaches of his or her fiduciary duty of care as a
director. This provision does not, however, eliminate or limit the personal
liability of a director (i) for any breach of such
47
<PAGE>
director's duty of loyalty to the Company or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under the DGCL statutory provision making
directors personally liable, under a negligence standard, for unlawful payment
of dividends or unlawful stock repurchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit. This
provision offers persons who serve on the Board of Directors of the Company
protection against awards of monetary damages resulting from breaches of their
duty of care (except as indicated above), including grossly negligent business
decisions made in connection with takeover proposals for the Company. As a
result of this provision, the ability of the Company or a stockholder thereof
to successfully prosecute an action against a director for a breach of his
duty of care has been limited. However, the provision does not affect the
availability of equitable remedies such as an injunction or rescission based
upon a director's breach of his duty of care. The Commission has taken the
position that the provision will have no effect on claims arising under the
federal securities laws.
The Company's Certificate of Incorporation also provides that the Company
will indemnify, to the fullest extent permitted by the DGCL, any officer,
director or employee of the Company who, by reason of the fact that he or she
is or was an officer, director or employee of the Company, was or is made or
is threatened to be made a party to a legal proceeding of any nature. Such
indemnification rights include reimbursement for expenses incurred by the
officer, director or employee in advance of the final disposition of the
proceeding.
TRANSFER AGENT AND REGISTRAR
has been appointed transfer agent and registrar of the Common Stock.
's principal executive offices are located at .
48
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Purchase Agreement (the
"Purchase Agreement") among the Company and each of the underwriters named
below (the "Underwriters"), for whom Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation and Salomon
Brothers Inc are acting as representatives (the "Representatives"), the
Company has agreed to sell to each of the Underwriters, and each of the
Underwriters has severally agreed to purchase from the Company, the aggregate
number of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ -----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.........................................
Donaldson, Lufkin & Jenrette Securities Corporation...........
Salomon Brothers Inc..........................................
-----------
Total.......................................................
===========
</TABLE>
In the Purchase Agreement, the several Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the shares of
Common Stock being sold pursuant to the Purchase Agreement if any of such
shares of Common Stock being sold pursuant to such agreement are purchased.
Under certain circumstances, the commitments of non-defaulting Underwriters
may be increased.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock offered hereby to the public at the
initial public offering price set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not in excess of $
per share of Common Stock. The Underwriters may allow, and such dealers may
reallow, a discount not in excess of $ per share of Common Stock on sales
to certain other dealers. After the initial public offering, the public
offering price, concession and discount may be changed.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
aggregate of 1,005,000 additional shares of Common Stock at the initial public
offering price, less the underwriting discount. The Underwriters may exercise
this option only to cover over-allotments, if any, made on the sale of Common
Stock offered hereby. To the extent that the Underwriters exercise this
option, each Underwriter will be obligated, subject to certain conditions, to
purchase the number of additional shares of Common Stock proportionate to such
Underwriter's initial amount reflected in the foregoing table.
The Company, each of the Company's directors and officers and Holdings have
agreed not to (except for the shares offered hereby and subject to certain
exceptions in the case of the Company for the grant of, and the issuance of
shares pursuant to the exercise of, employee stock options) directly or
indirectly sell, offer to sell, grant any option for sale of, or otherwise
dispose of any shares of Common Stock or any securities convertible or
exchangeable into, or exercisable for, Common Stock for a period of 180 days
after the date of this Prospectus without the prior written consent of Merrill
Lynch, Pierce, Fenner & Smith Incorporated. See "Shares Eligible For Future
Sale."
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be determined by negotiation among the
Company and the Representatives. Among the factors that will be considered in
determining the initial public offering price are an assessment of the
Company's recent results of operations, the future prospects of the Company
and the industry in general, the price-earnings ratio and the market prices of
securities of other companies engaged in activities similar to the Company and
prevailing conditions in the securities market. There can be no assurance that
an active trading market will develop for the Common Stock or that the Common
Stock will trade in the public market subsequent to the Offering at or above
the initial public offering price.
49
<PAGE>
The Underwriters do not intend to confirm sales of the shares of Common
Stock offered hereby to any accounts over which they exercise discretionary
authority.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in respect
thereof.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Parker Chapin Flattau & Klimpl, LLP, New York, New
York and for the Underwriters by Brown & Wood, New York, New York.
EXPERTS
The consolidated financial statements as of January 28, 1996 and January 29,
1995 and for each of the three years in the period ended January 28, 1996
included in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
50
<PAGE>
CSK AUTO, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements
Report of Independent Accountants........................................ F-2
Consolidated Statement of Operations .................................... F-3
Consolidated Balance Sheet............................................... F-4
Consolidated Statement of Stockholder's Equity........................... F-5
Consolidated Statement of Cash Flows .................................... F-6
Notes to Consolidated Financial Statements .............................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Stockholder of CSK Auto, Inc. (a wholly-owned
subsidiary of CSK Holdings, Ltd.)
The Merger described in Note 1 to the financial statements has not been
consummated at June 24, 1996. When it has been consummated, we will be in a
position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, of cash flows and of
stockholder's equity present fairly, in all material respects, the
financial position of CSK Auto, Inc. (a wholly-owned subsidiary of CSK
Holdings, Ltd.) and its subsidiaries at January 28, 1996 and January 29,
1995, and the results of their operations and their cash flows for each of
the three years in the period ended January 28, 1996, in conformity with
generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above."
Price Waterhouse LLP
Phoenix, AZ
May 21, 1996
F-2
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THIRTEEN WEEKS
YEAR ENDED ENDED
----------------------------------- --------------------
JANUARY 30, JANUARY 29, JANUARY 28, APRIL 30, APRIL 28,
1994 1995 1996 1995 1996
----------- ----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $645,426 $ 688,135 $718,352 $ 172,301 $ 189,185
-------- --------- -------- --------- ---------
Cost and expenses:
Cost of sales......... 397,565 410,358 433,817 103,712 113,709
Operating and
administrative....... 237,311 258,600 284,697 68,199 69,450
-------- --------- -------- --------- ---------
634,876 668,958 718,514 171,911 183,159
-------- --------- -------- --------- ---------
Operating profit
(loss)................. 10,550 19,177 (162) 390 6,026
Interest expense........ 11,731 10,343 14,379 3,270 3,595
-------- --------- -------- --------- ---------
Income (loss) before
income taxes and
extraordinary gain..... (1,181) 8,834 (14,541) (2,880) 2,431
Income tax expense
(benefit).............. (531) 796 (5,447) (1,082) 932
-------- --------- -------- --------- ---------
Income (loss) before
extraordinary gain..... (650) 8,038 (9,094) (1,798) 1,499
Extraordinary gain on
the elimination of
debt, net of $0 income
taxes.................. -- 97,186 -- -- --
-------- --------- -------- --------- ---------
Net income (loss)....... $ (650) $ 105,224 $ (9,094) $ (1,798) $ 1,499
======== ========= ======== ========= =========
Net income (loss) per
common share:
Income before
extraordinary gain... $ (0.02) $ 0.26 $ (0.29) $ (0.06) $ 0.05
Extraordinary gain on
the elimination of
debt................. -- 3.15 -- -- --
-------- --------- -------- --------- ---------
Net income (loss)..... $ (0.02) $ 3.41 $ (0.29) $ (0.06) $ 0.05
======== ========= ======== ========= =========
Weighted average
number of common
shares and
equivalents
outstanding ......... 30,860 30,860 30,860 30,860 30,860
======== ========= ======== ========= =========
Supplemental Pro Forma
Data:
Net income (loss)
(unaudited).......... $ (3,173) $ (547) $ 2,947
Net income (loss) per
common share
(unaudited).......... $ (0.08) $ (0.01) $ 0.08
======== ========= =========
Weighted average
number of common
shares and
equivalents
outstanding
(unaudited) ......... 37,446 37,492 37,560
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28,
1995 1996 APRIL 28, 1996
----------- ----------- --------------
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
Cash and cash equivalents............... $ 2,870 $ 4,364 $ 4,708
Receivables, net of allowances of $1,488
and $1,953, respectively............... 13,676 25,448 24,733
Inventories............................. 225,883 248,964 259,519
Assets held for sale.................... 4,757 1,203 2,937
Prepaid expenses and other assets....... 5,365 4,823 4,776
-------- -------- --------
Total current assets................ 252,551 284,802 296,673
Property and equipment, net............. 77,781 80,018 76,811
Leasehold interests, net................ 16,147 14,500 14,000
Deferred taxes, net..................... 2,609 9,219 8,968
Other assets............................ 1,742 2,780 2,497
-------- -------- --------
Total assets........................ $350,830 $391,319 $398,949
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable........................ $131,078 $145,248 $149,482
Outstanding checks...................... 8,461 13,901
Accrued payroll and related expenses.... 12,739 13,503 14,438
Accrued expenses and other current
liabilities............................ 22,739 21,479 23,033
Due to affiliates....................... 5,530 3,703
Current maturities of amounts due under
credit agreement....................... 2,200 1,000 1,000
Current maturities of capital lease
obligations............................ 4,285 5,488 5,661
Current portion of deferred taxes....... 1,883 3,045 3,403
-------- -------- --------
Total current liabilities........... 174,924 203,754 214,621
-------- -------- --------
Amounts due under credit agreement...... 78,284 95,062 92,671
Obligations under capital leases........ 20,832 20,453 18,941
Other................................... 12,414 12,053 11,220
-------- -------- --------
Total non-current liabilities....... 111,530 127,568 122,832
-------- -------- --------
Commitments and contingencies...........
Stockholder's equity
Preferred stock, $0.001 par value,
10,000,000 shares authorized, no
shares issued and outstanding........ -- -- --
Common stock, $0.001 par value,
75,000,000 shares authorized,
30,300,000 shares issued and
outstanding.......................... 30 30 30
Additional paid-in-capital............ 82,378 87,093 87,093
Accumulated deficit................... (18,032) (27,126) (25,627)
-------- -------- --------
Total stockholder's equity.......... 64,376 59,997 61,496
-------- -------- --------
Total liabilities and stockholder's
equity............................. $350,830 $391,319 $398,949
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------- PAID-IN- ACCUMULATED TOTAL
SHARES AMOUNT CAPITAL DEFICIT EQUITY(DEFICIT)
---------- ------ ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at January 31,
1993................... 30,300,000 $30 $77,950 $(122,606) $(44,626)
Contribution from
Holdings............... 3,700 3,700
Net loss................ (650) (650)
---------- --- ------- --------- --------
Balance at January 30,
1994................... 30,300,000 30 81,650 (123,256) (41,576)
Income tax benefit from
Tax Sharing Agreement.. 728 728
Net income.............. 105,224 105,224
---------- --- ------- --------- --------
Balance at January 29,
1995................... 30,300,000 30 82,378 (18,032) 64,376
Contribution from
Holdings............... 4,715 4,715
Net loss................ (9,094) (9,094)
---------- --- ------- --------- --------
Balance at January 28,
1996................... 30,300,000 30 87,093 (27,126) 59,997
Net income (unaudited).. 1,499 1,499
---------- --- ------- --------- --------
Balance at April 28,
1996 (unaudited)....... 30,300,000 $30 $87,093 $ (25,627) $ 61,496
========== === ======= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THIRTEEN WEEKS ENDED
----------------------------------- ----------------------
JANUARY 30, JANUARY 29, JANUARY 28, APRIL 30, APRIL 28,
1994 1995 1996 1995 1996
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows provided by
(used in) operating
activities:
Net income (loss)....... $ (650) $105,224 $ (9,094) $ (1,798) $ 1,499
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Depreciation and
amortization of
property and
equipment............ 10,222 10,961 14,343 2,978 4,327
Amortization and write
off of leasehold
interests............ 1,795 1,992 1,647 403 500
Amortization of
deferred financing
costs................ 296 359 737 186 272
Amortization of other
deferred charges..... 159 152 271 31 58
Deferred interest on
previous credit
agreement............ 4,621 1,662
Extraordinary gain on
elimination of debt.. (97,186)
Deferred taxes........ (531) (195) (5,448) (1,727) 609
Change in assets and
liabilities:
Accounts receivable... 1,306 (5,063) (11,772) (2,291) 715
Inventories........... (13,341) (34,010) (23,081) (3,252) (10,555)
Prepaid expenses and
other current
assets............... (1,014) 113 542 (29) 47
Accounts payable...... 9,158 37,094 14,170 (4,673) 4,234
Outstanding checks.... (2,090) (3,885) 8,461 4,638 5,440
Accrued payroll,
accrued expenses and
other current
liabilities.......... 8,926 (3,821) (495) 3,720 2,489
Due to affiliate...... 5,530 (1,827)
Other................. (1,288) 1,723 828 66 (804)
-------- -------- --------- ---------- ----------
Net cash provided by
(used in) operating
activities............. 17,569 15,120 (3,361) (1,748) 7,004
-------- -------- --------- ---------- ----------
Cash flows provided by
(used in) investing
activities:
Capital expenditures.. (14,910) (14,597) (11,640) (4,383) (1,052)
Expenditures for
assets held for
sale................. (6,038) (24,203) (7,055) (9,589)
Proceeds from sale of
property and
equipment and assets
held for sale........ 580 1,758 28,257 1,311 7,946
Other investing
activities........... (613) (106) (302) (97)
-------- -------- --------- ---------- ----------
Net cash used in
investing
activities........... (14,943) (18,983) (7,888) (10,224) (2,695)
-------- -------- --------- ---------- ----------
Cash flows provided by
(used in) financing
activities:
Proceeds provided from
debt................. 809,663 213,998 202,510
Payments of debt...... (622) (2,362) (795,807) (198,413) (204,923)
Payments on capital
lease obligations.... (2,833) (2,954) (4,976) (1,139) (1,339)
Contributions from
Holdings............. 3,700 4,715
Other................. (18) (67) (852) (370) (213)
-------- -------- --------- ---------- ----------
Net cash provided by
(used in) financing ac-
tivities............... 227 (5,383) 12,743 14,076 (3,965)
-------- -------- --------- ---------- ----------
Net increase (decrease)
in cash and cash
equivalents............ 2,853 (9,246) 1,494 2,104 344
Cash and cash
equivalents, beginning
of period.............. 9,263 12,116 2,870 2,870 4,364
-------- -------- --------- ---------- ----------
Cash and cash
equivalents, end of
period................. $ 12,116 $ 2,870 $ 4,364 $ 4,974 $ 4,708
======== ======== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CSK Auto, Inc., (the "Company") is a specialty retailer of automotive
aftermarket parts and accessories. At January 28, 1996, the Company operated
566 stores in 14 Western states. CSK Auto, Inc., is a wholly-owned subsidiary
of CSK Holdings, Ltd. ("Holdings").
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Merger
In connection with the Company's initial public offering, Northern
Automotive Corporation ("NAC"), an Arizona corporation, was merged with and
into the Company, a Delaware corporation formed for the sole purpose of
consummating the merger (the "Merger") and effecting the reincorporation of
NAC as a Delaware corporation, with the Delaware corporation surviving the
Merger. As part of the Merger, all outstanding common and preferred stock of
NAC converted into 30,300,000 shares of Common Stock of the Company. The
Merger was treated as a reorganization of entities under common control
because Holdings owned all the outstanding Common and Preferred Stock of NAC
before the Merger and all the outstanding Common Stock of the Company after
the Merger. The accompanying financial statements have been retroactively
restated to give effect of the Merger with no change in the carrying value of
assets and liabilities.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany accounts and transactions
are eliminated in consolidation.
Fiscal Year
The Company's fiscal year-end is the Sunday closest to January 31. The years
ended January 30, 1994, January 29, 1995 and January 28, 1996 all consist of
52 weeks.
Cash Equivalents
Cash equivalents consist primarily of certificates of deposit with
maturities of three months or less when purchased.
Accounts Receivable
Accounts receivable is primarily comprised of amounts due from vendors for
rebates or allowances and from commercial sales customers.
Inventories and Cost of Sales
Inventories are valued at the lower of cost or market, cost being determined
utilizing the last-in, first-out method. Cost of sales includes product cost
net of earned vendor rebates, discounts and allowances. Certain operating and
administrative costs are capitalized in inventories. The amounts of
capitalized operating and administrative costs included in inventory as of
January 29, 1995 and January 28, 1996 were approximately $7.0 million and $8.5
million, respectively. The replacement cost of inventories approximated $188.0
million at January 29, 1995 and $211.0 million at January 28, 1996.
Property and Equipment
Property, equipment and purchased software are recorded at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed for financial reporting purposes utilizing primarily the straight
line method over the estimated useful lives of the related assets which range
from 5 to 25 years, or for
F-7
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
leasehold improvements and property under capital lease, the base lease term
or estimated useful life, if shorter. Maintenance and repairs are charged to
earnings while major improvements are capitalized.
Store Preopening Costs
Store preopening costs, consisting primarily of incremental labor, supplies
and occupancy costs directly related to the opening of specific stores, are
capitalized as prepaid expenses and other current assets and are expensed
during the month in which the store is opened.
Internal Software Development Costs
Internal software development costs, consisting primarily of incremental
internal labor costs and benefits, are expensed as incurred. Total amounts
charged to operations for 1993, 1994 and 1995 were approximately $0.7 million,
$3.0 million $6.2 million, respectively.
Leasehold Interests
Leasehold interests represent the discounted net present value of the excess
of the fair rental value over the respective contractual rent of facilities
under operating leases acquired in business combinations, and are amortized on
a straight-line basis over the respective lease terms. Accumulated
amortization approximated $15.2 million and $16.2 million at January 29, 1995
and January 28, 1996, respectively.
Reserve for Closed Stores
The Company provides a reserve for estimated costs and losses to be incurred
in connection with store closures which includes the present value of lease
rentals, net of anticipated sublease income, and losses on the disposal of
store-related assets.
COST OF STORE CLOSINGS
<TABLE>
<CAPTION>
BEGINNING RESERVE CHANGES ENDING
BALANCE SET-UP PAYMENTS IN ESTIMATE BALANCE
--------- ------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
1993........................ $7,054 $2,151 $(1,221) $(1,621) $6,363
1994........................ 6,363 1,839 (1,207) (1,250) 5,745
1995........................ 5,745 1,384 (1,260) (571) 5,298
</TABLE>
Advertising
The Company expenses all advertising costs as such costs are incurred.
Amounts due under vendor cooperative advertising agreements are recorded as
receivables until their collection. Advertising expenses for fiscal years
1993, 1994 and 1995 totaled approximately $21.9 million, $24.7 million and
$19.8 million, respectively.
Assets Held for Sale
Assets held for sale consist of assets owned by the Company which will be
sold and leased back in the near future.
Income Taxes
At the beginning of the fiscal year ended January 30, 1994, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes," on a prospective basis. The adoption did not
have a material impact on the Company. This standard requires that the Company
compute its
F-8
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
federal income tax expense as if it were a separate taxpayer, irrespective of
the provisions of the existing defined Tax Agreement (as defined in Note 9).
Deferred income taxes have been provided for all significant temporary
differences. These temporary differences arise principally from compensation
not yet deductible for tax purposes, losses not yet deductible for tax
purposes and the use of accelerated depreciation methods.
Earnings Per Share
Income (loss) per common and common equivalent share is computed using the
weighted average number of common and common equivalent shares outstanding
during the period as if the Merger had occurred. Common equivalent shares are
excluded from the computation if their effect is anti-dilutive except,
pursuant to the requirements of the Securities and Exchange Commission, common
equivalent shares subject to stock options (using the treasury stock method
and an assumed initial public offering price of $15.00 per share) issued
during the twelve month period prior to the initial public offering are
considered common equivalent shares for all periods prior to the initial
public offering.
Supplemental Earnings Per Share (unaudited)
Supplemental net income (loss) per share for the year ended January 28, 1996
and the thirteen week periods ended April 30, 1995 and April 28, 1996 have
been calculated as if $92.5 million of the net proceeds from the Company's
initial public offering was used to retire the Company's debt under the Credit
Agreement (see Note 4) on January 30, 1995. Only the incremental shares
necessary to retire this debt, based on assumed net proceeds per share of
$13.81, have been included in the calculation. Interest expense related to the
retired debt has been added to income net of the related tax effect.
Fair Value of Financial Instruments
Financial instruments such as cash and cash equivalents, accounts
receivable, accounts payable, accrued liabilities and obligations under
capital leases or credit agreements are recorded at values which approximate
their fair values.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-lived Assets to be Disposed Of" ("SFAS 121"), issued in
March 1995 and effective for fiscal years beginning after December 15, 1995,
requires recognition of impairment losses on long-lived assets and certain
intangible assets to be disposed of. As of January 28, 1996, there were no
impairment losses, as defined, and, accordingly, SFAS 121 is not expected to
have a material impact on the Company when it is adopted.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation", issued in October 1995, and effective for fiscal years
beginning after December 15, 1995, encourages, but does not require, a fair
value based method of accounting for employee stock options or similar equity
instruments. It also allows an entity to elect to continue to measure
compensation costs using the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock
F-9
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Issued to Employees" but requires pro forma disclosures of net income and
earnings per share as if the fair value method of accounting had been applied.
The Company has elected to continue to measure compensation cost under APB 25
and will comply with the pro forma disclosure requirements in fiscal 1996.
Unaudited interim financial statements
The interim consolidated financial statements as of April 28, 1996 and for
the thirteen week periods ended April 30, 1995 and April 28, 1996 are
unaudited. In the opinion of management, such interim consolidated financial
statements include all adjustments consisting only of normal recurring
adjustments necessary to present fairly the Company's consolidated financial
position as of April 28, 1996 and the consolidated results of operations and
cash flows for the periods ended April 30, 1995 and April 28, 1996. The
interim results of operations are not necessarily indicative of results which
may occur for the full year.
NOTE 2--TRANSACTIONS AND RELATIONSHIPS WITH RELATED PARTIES
The Company provided Auto Works Holdings, Inc. ("Auto Works"), a former
affiliate of the Company, with management and other support services. The
Company had a receivable from Auto Works for $11.4 million as of February 2,
1992, for services provided through that date, which was converted into a non-
interest bearing obligation maturing in fifteen years (or sooner under certain
conditions). On November 27, 1993, Auto Works was sold to an independent third
party. Subsequent thereto, and pursuant to the stock purchase agreement
between Holdings and the third party, Holdings assumed the $11.4 million
obligation of Auto Works to the Company which was outstanding on November 27,
1993. During the year ended January 30, 1994 the Company recorded
approximately $1.3 million, as a reduction of costs and expenses, for services
provided to Auto Works through November 27, 1993. In the years ended January
30, 1994 and January 28, 1996, the Company received payments on the obligation
of $3.7 million and $4.7 million, respectively. The payments were reflected as
contributions from Holdings.
During the year ended January 28, 1996, the Company received approximately
$14.1 million of proceeds from the sale of realty and fixtures to an affiliate
at amounts that equaled the Company's cost, which approximated fair market
value. The related assets were subsequently leased back by the Company. In
addition, an affiliate was owed at January 28, 1996 approximately $5.5
million. The Company's obligation which was incurred in connection with the
purchase of product from two of its vendors was subsequently transferred. At
the time of such transfers, the Company owed the sum of approximately $16.6
million less anticipated discounts of $0.8 million to the vendors, since
reduced by prepayments. The obligation to the affiliate is non-interest
bearing and matures on December 31, 1996. The Company's obligation will be
reduced by $1,038 multiplied by the number of days prior to December 31, 1996
that full payment is made.
The Company leases certain facilities from related parties (see Note 5).
F-10
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following (thousands of dollars):
<TABLE>
<CAPTION>
JANUARY 29, 1995 JANUARY 28, 1996
---------------- ----------------
<S> <C> <C>
Land..................................... $ 1,448 $ 1,342
Buildings................................ 1,799 1,763
Leasehold improvements................... 35,023 39,483
Furniture, fixtures & equipment.......... 49,272 52,773
Property under capital leases............ 42,804 43,863
Purchased software....................... 4,696 4,679
-------- --------
135,042 143,903
Less accumulated depreciation and amorti-
zation.................................. (57,261) (63,885)
-------- --------
$ 77,781 $ 80,018
======== ========
</TABLE>
Accumulated amortization of property under capital leases totaled $18.9
million at January 28, 1996 and at January 29, 1995.
NOTE 4--CREDIT AGREEMENT
On June 22, 1994, the Company restructured its existing long-term debt
obligations which were originally recorded at a value of $178.0 million into
an $81.0 million Amended and Restated Credit Agreement (the "Amended Credit
Agreement"), resulting in a gain on elimination of debt of $97.2 million. The
amount recorded under the existing long-term obligations included principal
amounts, accrued interest and an unamortized premium resulting from a 1992
restructuring. The Company recorded the gain on elimination of debt as a non-
taxable event (see Note 9).
During fiscal year ended January 28, 1996, the Company entered into a $100.0
million credit agreement (the "1995 Agreement"). Outstanding debt under the
Amended Credit Agreement was paid in full from borrowings under the 1995
Agreement. Pursuant to the terms of the 1995 Agreement, the Company obtained a
$5.0 million term loan with monthly principal payments of $83,333 commencing
April 1, 1995 and with a final payment due February, 1997. The 1995 Agreement
also provides for a revolving credit facility (the "Revolver") of
approximately $95.0 million. Amounts available under the Revolver are
determined by inventory levels and by the outstanding balance of the term
loan. Interest is paid at LIBOR plus 3% on outstanding balances of the term
loan and Revolver under a LIBOR agreement and prime plus 1% on the remaining
balance. The average interest rate on amounts outstanding under the 1995
Agreement at January 28, 1996 was 9.03%. All outstanding borrowings under the
Revolver are due in February, 1997. Subject to certain conditions, the 1995
Agreement contains renewal options which can be made, at the Company's
request, in one year intervals through February, 2001.
Commitment fees on available borrowings are payable over the term of the
1995 Agreement on the average daily unused amount of the total commitment at
the rate of 1/2% per annum.
Obligations outstanding under the 1995 Agreement totaled $96.0 million at
January 28, 1996. Such amounts are secured by substantially all of the assets
of the Company. The terms of the 1995 Agreement require the Company to meet
certain financial covenants and maintain minimum levels of net worth; failure
to meet such covenants could result in reclassification of related debt to
current liabilities.
F-11
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--LEASES
The Company leases its office and warehouse facilities and a majority of its
stores and equipment. Generally, store leases provide for minimum rentals and
the payment of utilities, maintenance, insurance and taxes. Certain store
leases also provide for contingent rentals based upon a percentage of sales in
excess of a stipulated minimum. The majority of lease agreements are for base
lease periods ranging from 15 to 20 years, with three to five renewal options
of five years each.
Operating lease rental expense is as follows (thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------
JANUARY 30, JANUARY 29, JANUARY 28,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Minimum rentals.......................... $43,466 $46,016 $55,051
Contingent rentals....................... 2,698 1,385 1,284
Sublease rentals......................... (4,732) (4,411) (4,369)
------- ------- -------
$41,432 $42,990 $51,966
======= ======= =======
</TABLE>
Future minimum lease obligations under non-cancelable leases at January 28,
1996, are as follows (thousands of dollars):
<TABLE>
<CAPTION>
OPERATING CAPITAL
FOR FISCAL YEARS ENDING IN: LEASES LEASES
--------------------------- --------- --------
<S> <C> <C>
1997..................................................... $ 46,507 $ 9,586
1998..................................................... 44,004 9,540
1999..................................................... 39,256 8,965
2000..................................................... 35,027 6,259
2001..................................................... 33,029 699
Thereafter............................................... 166,694 1,445
-------- --------
$364,517 36,494
========
Less amounts representing interest....................... (10,553)
--------
Present value of obligations............................. 25,941
Less current portion..................................... (5,488)
--------
Long-term obligations.................................... $ 20,453
========
</TABLE>
Future minimum lease obligations under operating leases with affiliates
totaled $28.6 million at January 28, 1996. Operating lease rental expense
under leases with affiliates totaled $1.4 million for the years ended January
30, 1994 and January 29, 1995, respectively and $1.8 million for the year
ended January 28, 1996.
NOTE 6--REENGINEERING DISTRIBUTION OPERATIONS
During the fiscal year ended January 30, 1994, the Company initiated a plan
to reengineer its distribution operations. In connection with this plan, a
provision to operating expense of $3.6 million was made.
The reengineering charge includes estimated facilities and equipment charges
in addition to other related expenses. Net costs of approximately $2.1 million
and $1.5 million were charged against the accrual for the fiscal year ended
January 28, 1996 and January 29, 1995, respectively.
F-12
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7 - EMPLOYEE BENEFIT PLANS
The Company provides various health, welfare and disability benefits to its
full-time employees which are funded primarily by contributions. The Company
does not provide post-employment or post-retirement health care and life
insurance benefits to its employees.
The Company sponsors a 401(k) plan which is available to all employees of
the Company who have completed one year of continuous service. The Company
matches 20% of the contributions up to 6% of the participants base salary.
Participant contributions are subject to certain restrictions as set forth in
the Internal Revenue Code. The Company's matching contributions totaled
$208,000, $230,000 and $267,000, for fiscal years 1993, 1994 and 1995,
respectively.
Pursuant to certain equity participation agreements, certain current
officers and a former officer of the Company have been granted participation
interests equal in the aggregate to 6.4% of the Common Stock held by Holdings
immediately prior to the Offering. The agreements provide that if the
respective individual's participation interest has vested, such individual
would earn a cash payment payable by the Company equal to the product their
vested participation interest and considered received up to a maximum of
$12.75 per equity participation share equivalent (not to exceed, in the
aggregate, $24.0 million for all such individuals) if one or more of the
following events occurred: (i) the sale of substantially all of the assets of
the Company, (ii) the merger of the Company with an unaffiliated entity where
the stockholders of the Company before the merger are not the holders of a
majority of the voting stock of the merged entity, or (iii) a public or
private sale of the Company's Common Stock by the controlling stockholder of
the Company to an unaffiliated entity. Payments to be made pursuant to the
agreements are generally based upon a percentage relating to the individual's
vested portion of his participation interest. In the event of a sale of Common
Stock by the Company's controlling stockholder, however, the payments are to
be adjusted based upon the percentage of such Stockholder's holding in the
Company that is being sold. Except in the case of a sale of the Company's
stock by the controlling stockholder of the Company, in which case payments
are to be made within 30 days of such sale, all payments under the agreements
are to be made over a one year period from the date of the event triggering
the payments (the "Triggering Event") and are conditioned upon the individual
remaining employed by the Company for at least one year from the Triggering
Event. The initial public offering of the Company is not considered a
Triggering Event.
The Company has adopted a variety of stock based compensation plans designed
to attract and retain employees (including officers and directors who are
employees), non-employee directors and consultants of the Company, and to
generally encourage superior performance by the Company's management,
employees and consultants at all levels of the Company's organization. These
plans, which include (i) the 1996 Management Stock Purchase Plan (the
"Management Stock Purchase Plan"), (ii) the 1996 Employee Stock Option Plan
(the "Employee Stock Option Plan"), (iii) the 1996 Employee Stock Purchase
Plan (the "Employee Stock Purchase Plan) and (iv) the 1996 Director Stock Plan
(the "Director Stock Plan", and together with the Management Stock Purchase
Plan, the Employee Stock Purchase Plan and the Employee Stock Option Plan,
collectively, the "Stock Based Plans"), are also intended to align the
interests of directors, officers, employees and consultants with those of the
Company's stockholders. The aggregate shares reserved for issuance under the
Company's Stock Based Plans are expected to represent approximately 13.1% of
the shares of Common Stock outstanding after the Offering. The number of
shares issued pursuant to such plans will depend upon the degree to which
awards are made or exercised and the degree to which shares are purchased by
participants. Options for 3,584,052 shares of Common Stock granted under the
Employee Stock Option Plan are outstanding of which options for 2,118,000
shares of Common Stock are currently exercisable at $12.75 per share.
MANAGEMENT STOCK PURCHASE PLAN. The number of shares of Common Stock
reserved for issuance under the Management Stock Purchase Plan is 250,000
shares, representing, subject to equitable adjustment as set forth in the
Management Stock Purchase Plan.
F-13
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The participants in the Management Stock Purchase Plan will consist of all
Company officers and such employees of the Company and the Company's
subsidiaries and parent as are participants in the Company's Incentive Plan.
Although the Management Stock Purchase Plan and the Incentive Plan are
separate plans, the same individuals participate in each plan. Each
participant will at his or her election be permitted to receive up to 100% of
the annual incentive bonus, if any, earned by the participant under the
Incentive Plan (less certain payroll deductions) in the form of restricted
shares of Common Stock ("Restricted Shares") under the Management Stock
Purchase Plan at 85% of their fair market value on the date such restricted
shares are issued. No shares may be purchased under the Management Stock
Purchase Plan prior to completion of the Offering.
The restricted period for Restricted Shares purchased under the Management
Stock Purchase Plan will be one year from the date of purchase. The Restricted
Shares cannot be sold during the restricted period.
EMPLOYEE STOCK OPTION PLAN. The number of shares of Common Stock initially
reserved for issuance upon exercise of options that may be granted under the
Stock Option Plan is 4,300,000 shares, subject to equitable adjustment as set
forth in the Employee Stock Option Plan.
Options may be granted to employees (including officers and directors who
are employees) of, and to consultants to, the Company, its subsidiaries or its
parent. Upon expiration, cancellation or termination of unexercised options,
the Shares of the Company's Common Stock subject to such options will again be
available for the grant of options under the Employee Stock Option Plan.
Options granted under the Employee Stock Option Plan may either be incentive
stock options ("ISOs"), within the meaning of Section 422 of the Code, or
nonqualified stock options which do not qualify as ISOs ("NQSOs"). ISOs,
however, may only be granted to employees.
The exercise price of each option will be determined by the Compensation
Committee (the "Committee"); provided however, that the exercise price of an
ISO may not be less than the fair market value of the Company's Common Stock
on the date of grant (110% of such fair market value if the optionee owns (or
is deemed to own) more than 10% of the voting power of the Company, its
subsidiaries or its parent). The exercise price of each option is payable in
full upon exercise or, if the applicable Contract permits, in installments.
Payment of the exercise price of an option may be made in cash, or if the
applicable Contract permits, in cash, in shares of the Company's Common Stock
or any combination thereof.
Options may be granted for terms determined by the Committee; provided,
however, that the term of an ISO may not exceed 10 years (5 years if the
optionee owns (or is deemed to own) more than 10% of the voting power of the
Company, its subsidiaries or its parent).
The maximum number of shares of the Company's Common Stock for which options
may be granted to an employee in any fiscal year of the Company is 1,250,000.
In addition, the aggregate fair market value of shares with respect to which
ISOs may be granted to an employee which are exercisable for the first time
during any calendar year may not exceed $100,000.
During June 1996, an aggregate of 1,819,000 options were issued to certain
officers and Directors of the Company. An additional aggregate of 1,563,052
options were issued to other employees of the Company, and 202,000 options
were issued to a former officer of the company outside of the Employee Stock
Option Plan to satisfy certain Company obligations under his employment
arrangement. Of the foregoing options, an aggregate of 2,118,000 options
granted to the certain officers referenced above, two additional current
officers and the former officer are currently exercisable. Of the remaining
options, 1,339,802 vest over five years commencing three years from the date
of their grant and 126,250 options have varying vesting schedules. All
outstanding options have a term of ten years and are exercisable at a price of
$12.75 per share.
F-14
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN. The Employee Stock Purchase Plan is intended
to qualify as an employee stock purchase plan under Section 423 of the
Internal Revenue Code. Under the Employee Stock Purchase Plan, the maximum
number of shares of Common Stock for which options may be granted is 250,000
shares, subject to equitable adjustment as set forth in the Employee Stock
Purchase Plan. No shares may be purchased under the Employee Stock Purchase
Plan prior to the completion of the Offering.
DIRECTOR STOCK PLAN. The maximum number of shares of Common Stock initially
reserved for issuance under the Director Stock Plan is 50,000 shares, subject
to equitable adjustment as set forth in the Director Stock Plan.
The participants in the Director Stock Plan will consist of all of the
directors of the Company who are not officers or employees of the Company or
any of its affiliates. Each participant will receive all of his or her annual
retainer in the form of Restricted Shares paid in four installments at the
beginning each calendar quarter and all of his or her meeting fees in the form
of Restricted Shares paid at the end of the calendar quarter in which the
meeting occurred. The restrictions on such Restricted Shares will lapse one
year from the date of grant. The stock cannot be sold during the restricted
period. The total number of Restricted Shares included in each grant will be
determined by dividing one-quarter of the participant's retainer by the fair
market value of one share of Common Stock on the first business day of each
calendar quarter. With respect to the meeting fees, the total number of shares
of Restricted Shares included in each grant will be determined by dividing the
participant's meeting fees for the calendar quarter by the fair market value
of one share of Common Stock on the last business day of the calendar quarter.
NOTE 8--SUPPLEMENTAL SCHEDULE OF CASH FLOWS
Interest paid during 1993, 1994 and 1995 amounted to $6.9 million, $8.5
million and $13.4 million, respectively. Such amounts include interest paid on
the bank credit facility and capital leases.
Income taxes paid during 1993, 1994 and 1995 amounted to $0, $264,000 and
$0, respectively.
NOTE 9--INCOME TAXES
The Company and its subsidiaries are, with other affiliates, members of a
group which, for federal income tax purposes, constitutes a consolidated group
which files a consolidated federal income tax return. Members of the group
have entered into an Intercompany Tax Allocation Agreement, as amended (the
"Tax Agreement") with their ultimate parent, CSK Group, Ltd., pursuant to
which (i) the Company's federal tax liability, if any, computed on a separate
return basis will not exceed the aggregate tax liability of the entire
consolidated group, (ii) the tax liability, if any, of other members of the
consolidated group may be reduced by the utilization of a portion of the
Company's tax loss carryforwards, and (iii) for any year in which federal
income taxes are payable on a consolidated basis, each of the members of the
consolidated tax group who, on a stand alone basis, would have had a federal
tax obligation for such year will be obligated to pay a pro-rata portion of
the consolidated tax obligation. At the beginning of the fiscal year ended
January 30, 1994, the Company prospectively adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). This
standard requires that the Company compute its federal income tax expense as
if it were a separate taxpayer, irrespective of the provisions of the Tax
Agreement. The difference between the Company's current federal income tax
liability calculated as if it were a separate taxpayer and the actual amounts
due under the Tax Agreement as of January 29, 1995 was accounted for as
additional paid in capital of the Company. No such difference existed as of
January 28,1996 as management does not anticipate that other members
participating in
F-15
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the Tax Agreement will utilize the tax loss carryforward generated by the
Company during the year ended January 28, 1996.
Prior to the completion of the Offering, each member of the Company Group
and CSK Group, Ltd. will enter into a Tax Sharing Agreement (the "Tax Sharing
Agreement") that will require the Company to pay CSK Group, Ltd. an amount
equal to the amount of the federal and state income taxes that the Company
Group would have been required to pay if the Company Group filed its own
separate tax returns and was never part of the CSK Group Ltd. tax returns. On
the other hand, the Company will be paid for any tax attributes of the Company
or its subsidiaries that are used to reduce the tax that would otherwise be
paid by CSK Group Ltd. and its other subsidiaries. The new Tax Sharing
Agreement is not expected to have a material impact on the Company.
As a result, the provision (benefit) for income taxes is comprised of the
following (thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------
JANUARY 30, JANUARY 29, JANUARY 28,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal............................... $ 0 $ 992 $(1,801)
State................................. 0 223 (406)
----- ------ -------
0 1,215 (2,207)
----- ------ -------
Deferred:
Federal............................... (434) 55 (2,922)
State................................. (97) (474) (318)
----- ------ -------
(531) (419) (3,240)
----- ------ -------
Total............................... $(531) $ 796 $(5,447)
===== ====== =======
</TABLE>
The following table summarizes the differences between the Company's
expected provision (benefit) for income taxes based on the Company's income
before taxes and actual amounts recorded by the Company (thousands of
dollars):
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------
JANUARY 30, JANUARY 29, JANUARY 28,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Income before taxes.................... $(1,181) $8,834 $(14,541)
Federal income tax rate................ 34% 34% 34%
------- ------ --------
Expected provision for income taxes.... (402) 3,004 (4,944)
State taxes, net of federal benefit.... (55) 425 (671)
State taxes, rate adjustment........... (496)
Valuation allowance.................... (2,220)
Other.................................. (74) 83 168
------- ------ --------
Actual (benefit) provision for income
taxes................................. $ (531) $ 796 $ (5,447)
======= ====== ========
</TABLE>
As discussed in Note 4, the Company treated the $97.2 million gain on the
elimination of debt which occurred in the year ended January 29, 1995 as a
nontaxable event. As a result of this treatment, the Company lost the ability
to utilize approximately $60.0 million of net operating loss carryforwards. At
January 30, 1994, the Company carried a valuation allowance against the entire
amount of the carryforwards, and accordingly, the loss of such carryforwards
has no effect on the results of operations of the Company for the year ended
January 29, 1995.
F-16
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At January 30, 1994, a valuation allowance of $2.2 million existed as an
offset to the Company's deferred tax assets. The valuation allowance was
eliminated at January 29, 1995 due to the Company's forecasted ability to
utilize all deferred tax assets.
The current and non-current deferred tax assets and liabilities consist of
the following (thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------
JANUARY 29, JANUARY 28,
1995 1996
----------- -----------
<S> <C> <C>
Gross deferred tax assets:
Closed store reserve............................. $ 3,054 $ 2,048
Salaries and benefits............................ 2,471 2,847
Capital leases expenditures...................... 1,220 1,064
Internally developed software.................... 1,485 3,639
Preopening costs................................. 625 1,933
Site selection costs............................. 1,350 1,566
Bad debt reserve................................. 576 744
Tax loss carryforwards........................... 1,860
Other............................................ 655
------- -------
Total gross deferred tax assets................ 10,781 16,356
------- -------
Gross deferred tax liabilities:
Inventory........................................ 7,235 8,159
Depreciation..................................... 2,820 2,023
------- -------
Total gross deferred tax liabilities........... 10,055 10,182
------- -------
Net deferred tax asset............................. $ 726 $ 6,174
======= =======
The net tax asset (liability) is reflected in the
accompanying balance sheet as follows:
Current deferred tax liability, net.............. $(1,883) $(3,045)
Non-current deferred tax asset, net.............. 2,609 9,219
------- -------
Net deferred tax asset........................... $ 726 $ 6,174
======= =======
</TABLE>
The Company has recorded a deferred tax asset of $1.9 million as of January
28, 1996 reflecting the benefit of tax loss carryforwards which expire in 2011.
Realization is dependent on generating sufficient taxable income prior to
expiration of the loss carryforwards. Although realization is not assured,
management believes it is more likely than not that all the deferred tax asset
will be realized. Accordingly, the Company believes that no valuation allowance
is required for deferred tax assets in excess of deferred tax liabilities. The
amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
NOTE 10--LEGAL MATTERS
The Company is a defendant in various legal matters arising from normal
business activities. Management believes that the ultimate outcome of these
matters will not have a material effect on the Company's results of operations,
financial position or cash flows.
F-17
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CON-
NECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN
ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information................................................... 2
Prospectus Summary....................................................... 3
Risk Factors............................................................. 9
Use of Proceeds.......................................................... 11
Dividend Policy.......................................................... 11
Capitalization........................................................... 12
Dilution................................................................. 13
Selected Consolidated Financial Data..................................... 14
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 22
Management............................................................... 33
Certain Transactions..................................................... 44
Principal Stockholders................................................... 45
Shares Eligible for Future Sale.......................................... 46
The Merger............................................................... 46
Description of Capital Stock............................................. 47
Underwriting............................................................. 49
Legal Matters............................................................ 50
Experts.................................................................. 50
Index to Consolidated Financial Statements............................... F-1
</TABLE>
-----------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIRE-
MENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
6,700,000 SHARES
CSK AUTO, INC.
COMMON STOCK
-----------
PROSPECTUS
-----------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
All of the expenses listed below are estimated except for the SEC
registration fee, the NASD filing fee and the New York Stock Exchange ("NYSE")
listing fee. The itemized statement below includes all expenses in connection
with the distribution of the securities being registered, other than
underwriting discounts and commissions:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $42,510
NASD filing fee....................................................
listing fee..................................................
Blue Sky fees and expenses (including attorneys' fees and
expenses).........................................................
Printing and engraving expenses....................................
Transfer Agent's fees and expenses.................................
Accounting fees and expenses.......................................
Legal fees and expenses............................................
Miscellaneous expenses.............................................
-------
TOTAL............................................................ $
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware. Section
145 of the General Corporation Law of the State of Delaware ("Section 145")
provides that a Delaware corporation may indemnify any persons who are, or are
threatened to be made, parties to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of
the fact that such person was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding, provided such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's
best interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful. A Delaware
corporation may indemnify any persons who are, or are threatened to be made, a
party to any threatened, pending or completed action or suit by or in the
right of the corporation by reason of the fact that such person was a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise. The indemnity may include expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, provided
such person acted in good faith and in a manner he reasonably believed to be
in or not opposed to the corporation's best interests except that no
indemnification is permitted without judicial approval if the director,
officer, employee or agent is adjudged to be liable to the corporation. Where
a director, officer, employee or agent is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which he has actually and reasonably
incurred.
The Company's certificate of incorporation provides for the indemnification
of directors and officers of the Company to the fullest extent permitted by
Section 145.
Article Eleven of the Company's Certificate of Incorporation provides that
the Company shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason of the fact
that he is or was a director or officer of such corporation, or is or was
serving at the request of such corporation as a director, officer or member of
another corporation,
II-1
<PAGE>
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of such corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. Indemnification in connection with an action
or suit by or in the right of such corporation to procure a judgment in its
favor is limited to payment of expenses (including attorneys' fees) actually
and reasonably incurred in connection with the defense or settlement of such
an action or suit except that no such indemnification may be made in respect
of any claim, issue or matter as to which such person shall have been adjudged
to be liable for negligence or misconduct in the performance of his duty to
the indemnifying corporation unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought
shall determine that, despite the adjudication of liability but in
consideration of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
The Purchase Agreement contains, among other things, provisions whereby the
Underwriters agree to indemnify the Company, each officer and director of the
Company who has signed the Registration Statement and each person who controls
the Company within the meaning of Section 15 of the Securities Act against any
losses, liabilities, claims or damages arising out of the alleged untrue
statements or alleged omissions of material facts with respect to information
furnished to the Company by the Underwriters for use in the Registration
Statement or Prospectus. See Item 17 "Undertakings."
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Company has made no sales of unregistered
securities except that on June 22, 1996 certain executive officers of the
Company purchased shares of common stock of NAC which upon consummation of the
Merger will be exchanged for an aggregate of 21,700 shares of the Company.
Such sales were made pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<C> <S>
1.1 Form of Purchase Agreement
2.1* Agreement and Plan of Merger
3.1 Certificate of Incorporation of the Company
3.2 By-laws of the Company
4.1* Form of certificate representing shares of Common Stock of the Company
4.2 Form of Subscription Agreement between the Company and certain of its
executive officers
5.1* Opinion and consent of Parker Chapin Flattau & Klimpl, LLP
10.1 1996 Employee Stock Option Plan
10.2 1996 Management Stock Purchase Plan
10.3 1996 Director Stock Plan
10.4 1996 Employee Stock Purchase Plan
10.5 Employment Agreement dated June 19, 1996 between the Company and Jules
Trump
10.6 Employment Agreement dated June 19, 1996 between the Company and James
Bazlen
10.7 Employment Agreement dated June 19, 1996 between the Company and
Arthur Hicks
10.8 Amended and Restated Participation Agreement dated June 19, 1996
between the Company and James Bazlen relating to equity participation
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.9 Amended and Restated Participation Agreement dated June 19, 1996
between the Company and Arthur Hicks relating to equity participation
10.10 1996 General and Administrative Staff Incentive Compensation Plan
10.11 Amended and Restated Credit Agreement dated as of June 21, 1996,
between the Company and Transamerica Credit Corporation individually
and as agent for other lending institutions
10.12 Letter of Credit Facilitation Agreement dated January 16, 1995 between
the Company and First Interstate Bank of Arizona, N.A.
10.13 Amended and Restated Lease dated October 23, 1989 between the Company
and Missouri Falls Associates Limited Partnership
10.14 First Amendment to Amended and Restated Lease dated November 22, 1991
between the Company and Missouri Falls Associates Limited Partnership
10.15 Form of Tax Sharing Agreement between the Company and CSK Group Ltd.
10.16 Form of Agreement of Purchase and Sale and Joint Escrow Instructions
by and between the Company and TransAtlantic Realty, Inc.
10.17 Form of Lease Agreement between TransAtlantic Realty, Inc. and the
Company
11.1 Statement Regarding Computation of Earnings Per Share
21.1 Subsidiaries of the Company
23.1 Consent of Price Waterhouse LLP
23.2* Consent of Parker Chapin Flattau & Klimpl, LLP (included in opinion
filed as Exhibit 5.1)
</TABLE>
- --------
* To be filed by amendment.
(b) Financial Statement Schedules:
For the three years ended January 28, 1996:
Schedule II--Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-3
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining the liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PHOENIX, STATE OF
ARIZONA, ON THE 26TH DAY OF JUNE 1996.
CSK Auto, Inc.
By: /s/ James Bazlen
---------------------------------
JAMES BAZLEN PRESIDENT
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of James G. Bazlen and James Lieb, his
true and lawful attorney-in-fact and agent, each with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto each said attorney-in-
fact and agent, full power and authority to do and perform each and every act
and thing requisite or necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or either of
them or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Jules Trump Co-Chairman of the June 26, 1996
- ------------------------------------- Board and Director
JULES TRUMP (principal
executive officer)
/s/ Eddie Trump Co-Chairman of the June 26, 1996
- ------------------------------------- Board and Director
EDDIE TRUMP
/s/ James Bazlen President and June 26, 1996
- ------------------------------------- Director (principal
JAMES BAZLEN financial and
accounting officer)
/s/ James Lieb Director June 26, 1996
- -------------------------------------
JAMES LIEB
/s/ Robert Smith Director June 26, 1996
- -------------------------------------
ROBERT SMITH
II-5
<PAGE>
SCHEDULE II
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS LTD.)
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD
- ----------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED JANUARY 30, 1994
Reserves for Closed Stores....... $7,054 $2,151 $(2,842) $6,363
Reserves for Bad Debts........... 2,159 1,681 (1,712) 2,128
Tax Valuation Allowance.......... -- -- 2,220 2,220
YEAR ENDED JANUARY 29, 1995
Reserves for Closed Stores....... 6,363 1,839 (2,457) 5,745
Reserves for Bad Debts........... 2,128 1,447 (2,087) 1,488
Tax Valuation Allowance.......... 2,220 -- (2,220) --
YEAR ENDED JANUARY 28, 1996
Reserves for Closed Stores....... 5,745 1,384 (1,831) 5,298
Reserves for Bad Debts........... 1,488 1,437 (972) 1,953
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Purchase Agreement
2.1* Agreement and Plan of Merger
3.1 Certificate of Incorporation of the Company
3.2 By-laws of the Company
4.1* Form of certificate representing shares of Common Stock of the Company
4.2 Form of Subscription Agreement between the Company and certain of its
executive officers
5.1* Opinion and consent of Parker Chapin Flattau & Klimpl, LLP
10.1 1996 Employee Stock Option Plan
10.2 1996 Management Stock Purchase Plan
10.3 1996 Director Stock Plan
10.4 1996 Employee Stock Purchase Plan
10.5 Employment Agreement dated June 19, 1996 between the Company and Jules
Trump
10.6 Employment Agreement dated June 19, 1996 between the Company and James
Bazlen
10.7 Employment Agreement dated June 19, 1996 between the Company and
Arthur Hicks
10.8 Amended and Restated Participation Agreement dated June 19, 1996
between the Company and James Bazlen relating to equity participation
10.9 Amended and Restated Participation Agreement dated June 19, 1996
between the Company and Arthur Hicks relating to equity participation
10.10 1996 General and Administrative Staff Incentive Compensation Plan
10.11 Amended and Restated Credit Agreement dated as of June 21, 1996,
between the Company and Transamerica Credit Corporation individually
and as agent for other lending institutions
10.12 Letter of Credit Facilitation Agreement dated January 16, 1995 between
the Company and First Interstate Bank of Arizona, N.A.
10.13 Amended and Restated Lease dated October 23, 1989 between the Company
and Missouri Falls Associates Limited Partnership
10.14 First Amendment to Amended and Restated Lease dated November 22, 1991
between the Company and Missouri Falls Associates Limited Partnership
10.15 Form of Tax Sharing Agreement between the Company and CSK Group Ltd.
10.16 Form of Agreement of Purchase and Sale and Joint Escrow Instructions
by and between the Company and TransAtlantic Realty, Inc.
10.17 Form of Lease Agreement between TransAtlantic Realty, Inc. and the
Company
11.1 Statement Regarding Computation of Earnings Per Share
21.1 Subsidiaries of the Company
23.1 Consent of Price Waterhouse LLP
23.2* Consent of Parker Chapin Flattau & Klimpl, LLP (included in opinion
filed as Exhibit 5.1)
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
______________________________________________________________________________
______________________________________________________________________________
EXHIBIT 1.1
CSK AUTO, INC.
(a Delaware corporation)
[6,700,000] Shares of Common Stock
PURCHASE AGREEMENT
------------------
Dated: ___________, 1996
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
Table of Contents
PURCHASE AGREEMENT ........................................................ 1
SECTION 1. Representations and Warranties .......................... 3
(a) Representations and Warranties by the Company and NAC ... 3
(i) Compliance with Registration Requirements .......... 3
(ii) Independent Accountants ........................... 4
(iii) Financial Statements ............................. 4
(iv) No Material Adverse Change in Business ............ 4
(v) Good Standing of the Company and NAC ............... 4
(vi) Good Standing of Subsidiaries ..................... 5
(vii) Capitalization ................................... 5
(viii) Authorization of Agreement ...................... 5
(ix) Authorization and Description of Securities ....... 6
(x) Absence of Defaults and Conflicts .................. 6
(xi) Absence of Labor Dispute .......................... 6
(xii) Absence of Proceedings ........................... 7
(xiii) Accuracy of Exhibits ............................ 7
(xiv) Possession of Intellectual Property .............. 7
(xv) Absence of Further Requirements ................... 7
(xvi) Possession of Licenses and Permits ............... 8
(xvii) Title to Property ............................... 8
(xviii) Compliance with Cuba Act ....................... 8
(xix) Investment Company Act ........................... 9
(xx) Environmental Laws ................................ 9
(xxi) Registration Rights .............................. 9
(xxii) Taxes ........................................... 9
(xxiii) Merger ......................................... 9
(b) Officer's Certificates .................................. 9
SECTION 2. Sale and Delivery to Underwriters; Closing .............. 9
(a) Initial Securities ...................................... 9
(b) Option Securities ....................................... 10
(c) Payment ................................................. 10
(d) Denominations; Registration ............................. 11
SECTION 3. Covenants of the Company ................................ 11
(a) Compliance with Securities Regulations and Commission
Requests ................................................ 11
(b) Filing of Amendments .................................... 11
(c) Delivery of Registration Statements ..................... 12
(d) Delivery of Prospectuses ................................ 12
(e) Continued Compliance with Securities Laws ............... 12
(f) Blue Sky Qualifications ................................. 12
(g) Rule 158 ................................................ 13
(h) Use of Proceeds ......................................... 13
(i) Listing ................................................. 13
(j) Restriction on Sale of Securities ....................... 13
<PAGE>
(k) Reporting Requirements ...................................... 13
(l) Compliance with Rule 463 .................................... 14
(m) Filings Relating to Merger .................................. 14
SECTION 4. Payment of Expenses ......................................... 14
(a) Expenses .................................................... 14
(b) Termination of Agreement .................................... 14
SECTION 5. Conditions of Underwriters' Obligations ..................... 14
(a) Effectiveness of Registration Statement ..................... 15
(b) Opinion of Counsel for Company and NAC ...................... 15
(c) Opinion of Counsel for Underwriters ......................... 15
(d) Officers' Certificate ....................................... 15
(e) Accountant's Comfort Letter ................................. 16
(f) Bring-down Comfort Letter ................................... 16
(g) Approval of Listing ......................................... 16
(h) No Objection ................................................ 16
(i) Lock-up Agreements .......................................... 16
(j) Merger ...................................................... 16
(k) Conditions to Purchase of Option Securities ................. 16
(l) Additional Documents ........................................ 17
(m) Termination of Agreement .................................... 17
SECTION 6. Indemnification ............................................. 18
(a) Indemnification of Underwriters ............................. 18
(b) Indemnification of Company, Directors and Officers .......... 18
(c) Actions against Parties; Notification ....................... 19
(d) Settlement without Consent if Failure to Reimburse .......... 19
SECTION 7. Contribution ................................................ 19
SECTION 8. Representations, Warranties and Agreements
to Survive Delivery ......................................... 21
SECTION 9. Termination of Agreement .................................... 21
(a) Termination; General ........................................ 21
(b) Liabilities ................................................. 21
SECTION 10. Default by One or More of the Underwriters .................. 22
SECTION 11. Notices ..................................................... 22
SECTION 12. Parties ..................................................... 22
SECTION 13. Governing Law and Time ...................................... 23
ii
<PAGE>
SECTION 14. Effect of Headings .......................................... 23
SCHEDULES
Schedule A - List of Underwriters ................................ Sch A-1
Schedule B - Pricing Information ................................. Sch B-1
Schedule C - List of Persons subject to Lock-up .................. Sch C-1
EXHIBITS
Exhibit A- Form of Opinion of Company's Counsel................... A-1
Exhibit B- Form of Lock-up Letter................................. B-2
iii
<PAGE>
Draft of June 19, 1996
CSK AUTO, INC.
(a Delaware corporation)
[6,700,000] Shares of Common Stock
(Par Value $.001 Per Share)
PURCHASE AGREEMENT
------------------
__________, 1996
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
Salomon Brothers Inc
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
CSK Auto, Inc., a Delaware corporation (the "Company"), confirms its
agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and each of the other Underwriters named in
Schedule A hereto (collectively, the "Underwriters", which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch, Donaldson, Lufkin & Jenrette Securities
Corporation and Salomon Brothers Inc are acting as representatives (in such
capacity, the "Representatives"), with respect to the issue and sale by the
Company and the purchase by the Underwriters, acting severally and not jointly,
of the respective numbers of shares of Common Stock, par value $.001 per share,
of the Company ("Common Stock") set forth in said Schedule A, and with respect
to the grant by the Company to the Underwriters, acting severally and not
jointly, of the option described in Section 2(b) hereof to purchase all or any
part of ____ additional shares of Common Stock to cover over-allotments, if any.
The aforesaid _____ shares of Common Stock (the "Initial Securities") to be
purchased by the Underwriters and all or any part of the . shares of Common
Stock subject to the option described in Section 2(b) hereof (the "Option
Securities") are hereinafter called, collectively, the "Securities".
1
<PAGE>
The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representatives deem advisable after
this Agreement has been executed and delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-____) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b).
The information included in such prospectus or in such Term Sheet, as the case
may be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto and schedules thereto at the time it
became effective and including the Rule 430A Information and the Rule 434
Information, as applicable, is herein called the "Registration Statement." Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations
is herein referred to as the "Rule 462(b) Registration Statement," and after
such filing the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. The final prospectus in the form first furnished to the
Underwriters for use in connection with the offering of the Securities is herein
called the "Prospectus." If Rule 434 is relied on, the term "Prospectus" shall
refer to the preliminary prospectus dated ________, 1996 together with the Term
Sheet and all references in this Agreement to the date of the Prospectus shall
mean the date of the Term Sheet. For purposes of this Agreement, all references
to the Registration Statement, any preliminary prospectus, the Prospectus or any
Term Sheet or any amendment or supplement to any of the foregoing shall be
deemed to include the copy filed with the Commission pursuant to its Electronic
Data Gathering, Analysis and Retrieval system ("EDGAR").
Prior to or concurrent with the Closing Time (as referred to in Section
2(c) hereof), it is contemplated that the Company will merge with Northern
Automotive Corporation, an Arizona corporation ("NAC"), with the Company as the
surviving corporation, pursuant to the applicable corporation laws of the State
of Delaware and the State of Arizona (the "Merger"). Unless the context
otherwise requires, the term Company when used herein includes NAC and its
wholly-owned subsidiaries after giving effect to the Merger and references to
NAC mean NAC and its wholly-owned subsidiaries before giving effect to the
Merger.
2
<PAGE>
SECTION 1. Representations and Warranties.
------------------------------
(a) Representations and Warranties by the Company and NAC. Each of the
Company and NAC represents and warrants to each Underwriter as of the date
hereof, as of the Closing Time referred to in Section 2(c) hereof, and as of
each Date of Delivery (if any) referred to in Section 2(b) hereof, and agrees
with each Underwriter, as follows:
(i) Compliance with Registration Requirements. Each of the
-----------------------------------------
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted or are pending or, to the knowledge of the
Company, are contemplated by the Commission, and any request on the part of
the Commission for additional information has been complied with.
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time (and, if any Option Securities are
purchased, at the Date of Delivery), the Registration Statement, the Rule
462(b) Registration Statement and any amendments and supplements thereto
complied and will comply in all material respects with the requirements of
the 1933 Act and the 1933 Act Regulations and did not and will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading. Neither the Prospectus nor any amendments or supplements
thereto, at the time the Prospectus or any such amendment or supplement was
issued and at the Closing Time (and, if any Option Securities are
purchased, at the Date of Delivery), included or will include an untrue
statement of a material fact or omitted or will omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If Rule 434 is
used, the Company will comply with the requirements of Rule 434 and the
Prospectus shall not be "materially different", as such term is used in
Rule 434, from the prospectus included in the Registration Statement at the
time it became effective. The representations and warranties in this
subsection shall not apply to statements in or omissions from the
Registration Statement or Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement or Prospectus.
Each preliminary prospectus and the prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so
filed in all material respects with the 1933 Act Regulations and each
preliminary prospectus and the Prospectus delivered to the Underwriters for
use in connection with this offering was identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
3
<PAGE>
(ii) Independent Accountants. The accountants who certified the
-----------------------
financial statements and supporting schedules included in the Registration
Statement are independent public accountants as required by the 1933 Act
and the 1933 Act Regulations.
(iii) Financial Statements. The financial statements included in the
--------------------
Registration Statement and the Prospectus, together with the related
schedules and notes, present fairly the financial position of NAC and its
consolidated subsidiaries at the dates indicated and the statement of
operations, stockholders' equity and cash flows of NAC and its consolidated
subsidiaries for the periods specified; said financial statements have been
prepared in conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved.
The supporting schedules included in the Registration Statement present
fairly in accordance with GAAP the information required to be stated
therein. The selected consolidated financial data and the summary
consolidated financial information included in the Prospectus relating to
periods for which audited financial statements are included in the
Registration Statement present fairly the information shown therein and
have been compiled on a basis consistent with that of the audited
consolidated financial statements included in the Registration Statement.
The selected consolidated financial data and the summary consolidated
financial information included in the Prospectus relating to periods for
which unaudited financial statements are included in the Registration
Statement present fairly the information shown therein and have been
compiled on a basis consistent with that of the unaudited financial
statements included in the Registration Statement. The pro forma financial
statements and the related notes thereto included in the Registration
Statement and the Prospectus present fairly the information shown therein,
have been prepared in accordance with the Commission's rules and guidelines
with respect to pro forma financial statements and have been properly
compiled on the basis described therein, and the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions and circumstances referred
to therein.
(iv) No Material Adverse Change in Business. Since the respective
--------------------------------------
dates as of which information is given in the Registration Statement and
the Prospectus, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of NAC and its
subsidiaries or the Company and its subsidiaries, in each case considered
as one enterprise, whether or not arising in the ordinary course of
business (a "Material Adverse Effect"), (B) there have been no transactions
entered into by NAC, the Company or any of their respective subsidiaries,
other than those in the ordinary course of business, which are material
with respect to NAC and its subsidiaries considered as one enterprise or
the Company and its subsidiaries considered as one enterprise, as the case
may be, and (C) there has been no dividend or distribution of any kind
declared, paid or made by NAC or the Company on any class of its capital
stock.
(v) Good Standing of the Company and NAC. Each of the Company and
------------------------------------
NAC has been duly organized and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its incorporation and
has corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the
4
<PAGE>
Prospectus and to enter into and perform its obligations under this
Agreement; and each of the Company and NAC is duly qualified as a foreign
corporation to transact business and is in good standing in each other
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not result
in a Material Adverse Effect. Each of the Company and NAC has obtained all
necessary consents and approvals from third parties (including pursuant to
all Agreements and Instruments, as hereinafter defined) in connection with,
and has the legal right, power and authority to enter into and consummate,
the Merger, subject only to obtaining certain governmental consents and
approvals from applicable authorities, which consents and approvals will be
acquired on or prior to the Closing Time.
(vi) Good Standing of Subsidiaries. Each "significant subsidiary"
-----------------------------
(as such term is defined in Rule 1-02 of Regulation S-X) (each a
"Subsidiary" and, collectively, the "Subsidiaries") of NAC and the Company,
respectively, has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectus
and is duly qualified as a foreign corporation to transact business and is
in good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in
good standing would not result in a Material Adverse Effect; except as
otherwise disclosed in the Registration Statement, all of the issued and
outstanding capital stock of each such Subsidiary has been duly authorized
and validly issued, is fully paid and non-assessable and is owned by NAC or
the Company, as the case may be, directly or through subsidiaries, free and
clear of any security interest, mortgage, pledge, lien, encumbrance, claim
or equity; none of the outstanding shares of capital stock of any
Subsidiary was issued in violation of the preemptive or similar rights of
any securityholder of such Subsidiary. The only subsidiaries of NAC are
and of the Company following the Merger will be the subsidiaries listed on
Exhibit 21 to the Registration Statement.
(vii) Capitalization. Upon giving effect to the Merger but prior to
--------------
the Closing Time: (i) the authorized, issued and outstanding capital stock
of the Company is as set forth in the Prospectus in the column entitled
"Actual" under the caption "Capitalization" (except for subsequent
issuances, if any, pursuant to this Agreement, pursuant to reservations,
agreements or employee benefit plans referred to in the Prospectus or
pursuant to the exercise of options referred to in the Prospectus); (ii)
the shares of issued and outstanding capital stock of the Company have been
duly authorized and validly issued and are fully paid and non-assessable;
and (iii) none of the outstanding shares of capital stock of the Company
was issued in violation of the preemptive or other similar rights of any
securityholder of the Company.
(viii) Authorization of Agreement. This Agreement has been duly
--------------------------
authorized, executed and delivered by each of the Company and NAC.
5
<PAGE>
(ix) Authorization and Description of Securities. The Securities
-------------------------------------------
have been duly authorized for issuance and sale to the Underwriters
pursuant to this Agreement and, when issued and delivered by the Company
pursuant to this Agreement against payment of the consideration set forth
herein, will be validly issued and fully paid and non-assessable; the
Common Stock conforms to all statements relating thereto contained in the
Prospectus and such description conforms to the rights set forth in the
instruments defining the same; no holder of the Securities will be subject
to personal liability by reason of being such a holder; and the issuance of
the Securities is not subject to the preemptive or other similar rights of
any securityholder of the Company.
(x) Absence of Defaults and Conflicts. None of the Company, any of
---------------------------------
its subsidiaries, NAC or any of its subsidiaries is in violation of its
charter or by-laws or in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, deed of trust, loan or credit agreement (including,
without limitation, the Credit Agreement, as such term is defined in the
preliminary prospectus), note, lease or other agreement or instrument to
which the Company, any of its subsidiaries, NAC or any of its subsidiaries,
as the case may be, is a party or by which it or any of them may be bound,
or to which any of the property or assets of the Company or any of its
subsidiaries or of NAC or any of its subsidiaries, as the case may be, is
subject (collectively, "Agreements and Instruments") except for such
defaults that would not result in a Material Adverse Effect; and the
execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated herein and in the Registration Statement
(including the Merger, the issuance and sale of the Securities and the use
of the proceeds from the sale of the Securities as described in the
Prospectus under the caption "Use of Proceeds") and compliance by the
Company and NAC with their respective obligations hereunder have been duly
authorized by all necessary corporate and stockholder action on the part of
the Company and NAC, as the case may be, and do not and will not, whether
with or without the giving of notice or passage of time or both, conflict
with or constitute a breach of, or default or Repayment Event (as defined
below) under, or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of any of the Company, NAC or
their respective subsidiaries pursuant to, the Agreements and Instruments
(except for such conflicts, breaches or defaults or liens, charges or
encumbrances that would not result in a Material Adverse Effect), nor will
such action result in any violation of the provisions of the charter or by-
laws of any of the Company, NAC or their respective subsidiaries or any
applicable law, statute, rule, regulation, judgment, order, writ or decree
of any government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Company, NAC or any of their
respective subsidiaries or any of their assets, properties or operations.
As used herein, a "Repayment Event" means any event or condition which
gives the holder of any note, debenture or other evidence of indebtedness
(or any person acting on such holder's behalf) the right to require the
repurchase, redemption or repayment of all or a portion of such
indebtedness by the Company, NAC or any of their respective subsidiaries.
(xi) Absence of Labor Dispute. Except as otherwise set forth in the
------------------------
Prospectus, (a) no labor dispute with the employees or managers (or other
supervisory personnel,
6
<PAGE>
however designated) of the Company, NAC or any of their respective
subsidiaries exists or, to the knowledge of the Company or NAC, is
imminent, and neither the Company nor NAC is aware of any existing or
imminent labor disturbance by the employees of any of its or any
subsidiary's principal suppliers, manufacturers, customers or contractors,
which, in either case, may reasonably be expected to result in a Material
Adverse Effect and (b) there is no proceeding pending in which the Company,
NAC or any of their respective subsidiaries is alleged to have failed to
comply with the Fair Labor Standards Act or any other Federal or State law
or regulation relating to the terms and conditions of employment of
employees of the Company, NAC or of their respective subsidiaries and, to
the best of the Company's or NAC's knowledge, no such proceedings are
threatened or contemplated.
(xii) Absence of Proceedings. There is no action, suit, proceeding,
----------------------
inquiry or investigation before or brought by any court or governmental
agency or body, domestic or foreign, now pending, or, to the knowledge of
the Company or NAC, threatened, against or affecting the Company, NAC or
any of their respective subsidiaries, which is required to be disclosed in
the Registration Statement (other than as disclosed therein), or which
might reasonably be expected to result in a Material Adverse Effect, or
which might reasonably be expected to materially and adversely affect the
properties or assets thereof, or the consummation of the transactions
contemplated in this Agreement or the performance by the Company or NAC of
its obligations hereunder or thereunder or in respect of the Merger, as the
case may be; the aggregate of all pending legal or governmental proceedings
to which NAC, the Company or any of their respective subsidiaries is a
party or of which any of their respective property or assets is the subject
which are not described in the Registration Statement, including ordinary
routine litigation incidental to the business, could not reasonably be
expected to result in a Material Adverse Effect.
(xiii) Accuracy of Exhibits. There are no contracts or documents
--------------------
that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits thereto that have not been so
described and filed as required.
(xiv) Possession of Intellectual Property. NAC and its subsidiaries
-----------------------------------
own or possess, or can acquire on reasonable terms, and, at the Closing
Time, the Company will own or possess, or will be able to acquire on
reasonable terms, adequate patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other intellectual
property (collectively, "Intellectual Property") necessary to carry on the
business now operated by NAC and its subsidiaries, and neither NAC, nor the
Company nor any of their respective subsidiaries has received any notice or
is otherwise aware of any infringement of or conflict with asserted rights
of others with respect to any Intellectual Property or of any facts or
circumstances that render any Intellectual Property invalid or inadequate
to protect the interest of NAC or any of its subsidiaries or (after giving
effect to the Merger) the Company or any of its subsidiaries therein, which
infringement or conflict (if the subject
7
<PAGE>
of any unfavorable decision, ruling or finding) or invalidity or
inadequacy, singly or in the aggregate, would result in a Material Adverse
Effect.
(xv) Absence of Further Requirements. No filing with, or
-------------------------------
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by (i) the Company of its
obligations hereunder, in connection with the offering, issuance or sale of
the Securities hereunder, the consummation of the transactions contemplated
by this Agreement or in connection with the Merger or (ii) NAC of its
obligations hereunder or in connection with the Merger, except such as have
been already obtained, as may be required under the 1933 Act or the 1933
Act Regulations or state securities laws, or as will be obtained on or
prior to the Closing Time from the applicable state authorities in
connection with the Merger.
(xvi) Possession of Licenses and Permits. NAC, its subsidiaries and
----------------------------------
the Company possess, and upon effectiveness of the Merger, the Company and
its subsidiaries will possess, such permits, licenses, approvals, consents
and other authorizations (collectively, "Governmental Licenses") issued by
the appropriate federal, state, local or foreign regulatory agencies or
bodies necessary to conduct the business now operated by NAC and its
subsidiaries; NAC, its subsidiaries and the Company are, and upon
effectiveness of the Merger, the Company and its subsidiaries will be, in
compliance with the terms and conditions of all such Governmental Licenses,
except where the failure so to comply would not, singly or in the
aggregate, have a Material Adverse Effect; all of the Governmental Licenses
are valid and in full force and effect, except where the invalidity of such
Governmental Licenses or the failure of such Governmental Licenses to be in
full force and effect would not have a Material Adverse Effect; and none of
NAC, the Company or any of their respective subsidiaries has received any
notice of proceedings relating to the revocation or modification of any
such Governmental Licenses that, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would result in a Material
Adverse Effect.
(xvii) Title to Property. NAC, its subsidiaries and the Company
-----------------
have, and upon effectiveness of the Merger, the Company and its
subsidiaries will have, good and marketable title to all real property
owned by them respectively, and good title to all other properties owned by
them, in each case free and clear of all mortgages, pledges, liens,
security interests, claims, restrictions or encumbrances of any kind except
such as (a) are described in the Prospectus or (b) do not, singly or in the
aggregate, materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by NAC
and its subsidiaries or the Company or any of its subsidiaries; and all of
the capital and operating leases and subleases of NAC and its subsidiaries
and the Company and its subsidiaries, in each case considered as one
enterprise, and under which NAC and its subsidiaries or the Company and its
subsidiaries, hold or are licensed to use properties described in the
Prospectus, are in full force and effect, and none of NAC, the Company or
any of their respective subsidiaries has any notice of any default
thereunder or of any material claim of any sort that has been asserted by
anyone adverse to the rights of NAC, the Company or any their respective
subsidiaries under any of the leases or subleases mentioned above, or
affecting or questioning the rights of NAC, the
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<PAGE>
Company or any such subsidiary to the continued use of the leased property
or possession of the leased or subleased premises or under any such lease
or sublease.
(xviii) Compliance with Cuba Act. Each of NAC, the Company and their
------------------------
respective subsidiaries has complied with, and is and will be in compliance
with, the provisions of that certain Florida act relating to disclosure of
doing business with Cuba, codified as Section 517.075 of the Florida
statutes, and the rules and regulations thereunder (collectively, the "Cuba
Act") or is exempt therefrom.
(xix) Investment Company Act. The Company is not, and upon the
----------------------
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectus
will not be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company
Act of 1940, as amended (the "1940 Act").
(xx) Environmental Laws. Except as described in the Registration
------------------
Statement and except as would not, singly or in the aggregate, result in a
Material Adverse Effect, (A) none of NAC, the Company or any of their
respective subsidiaries is in violation of any federal, state, local or
foreign statute, law, rule, regulation, ordinance, code, policy or rule of
common law or any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent, decree or
judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively, "Environmental Laws"), (B) each of NAC,
the Company and their respective subsidiaries has all permits,
authorizations and approvals required under any applicable Environmental
Laws and is each in compliance with their requirements, (C) there are no
pending or threatened administrative, regulatory or judicial actions,
suits, demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings relating to any Environmental Law
against NAC, the Company or any of their respective subsidiaries and (D)
there are no events or circumstances that might reasonably be expected to
form the basis of an order for clean-up or remediation, or an action, suit
or proceeding by any private party or governmental body or agency, against
or affecting NAC, the Company or any of their respective subsidiaries
relating to Hazardous Materials or any Environmental Laws.
(xxi) Registration Rights. There are no persons with registration
-------------------
rights or other similar rights to have any securities registered pursuant
to the Registration Statement or otherwise registered by the Company under
the 1933 Act.
(xxii) Taxes. All material tax returns required to be filed by NAC
-----
and each of its subsidiaries and the Company and each of its subsidiaries,
or by any other entity that with the Company and its subsidiaries or NAC
and its subsidiaries, as the case may be,
9
<PAGE>
constitutes a consolidated group for income tax purposes, in any
jurisdiction have been filed, other than those filings being contested in
good faith, and all material taxes, including withholding taxes, penalties
and interest, assessments, fees and other charges due pursuant to such
returns or pursuant to any assessment received by the Company or any of its
subsidiaries or such other entity have been paid, other than those being
contested in good faith and for which adequate reserves have been provided.
(xxiii) Merger. The execution, delivery and performance by each of
------
the Company and NAC of the agreements, certificates, assignments and
filings relating to the Merger, the consummation of the transactions
contemplated thereby and compliance by the Company and NAC with their
respective obligations thereunder have been duly authorized by all
necessary corporate and stockholder action by the Company and NAC,
constitute legal, valid and binding obligations of the Company and NAC,
respectively, and do not and will not, whether with or without the giving
of notice or passage of time or both, conflict with or constitute a breach
of, or default or Repayment Event under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets
of any of the Company, NAC or any of their respective subsidiaries pursuant
to, the Agreements and Instruments (except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not result in a
Material Adverse Effect), nor will such action result in any violation of
the provisions of the charter or by-laws of the Company, NAC or any of
their respective subsidiaries or any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over the
Company, NAC or any of their respective subsidiaries or any of their
assets, properties or operations.
(b) Officer's Certificates. Any certificate signed by any officer of NAC,
the Company or any of their respective subsidiaries delivered to the
Representatives or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company and NAC, jointly and severally, to
each Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
------------------------------------------
(a) Initial Securities. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company agrees to sell to each Underwriter, severally and not jointly, and each
Underwriter, severally and not jointly, agrees to purchase from the Company, at
the price per share set forth in Schedule B, the number of Initial Securities
set forth in Schedule A opposite the name of such Underwriter, plus any
additional number of Initial Securities that such Underwriter may become
obligated to purchase pursuant to the provisions of Section 10 hereof.
(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the Underwriters, severally
and not jointly, to purchase up to an additional 1,005,000 shares of Common
Stock at the price per share set forth in Schedule B, less an amount per share
equal to any dividends or distributions declared by the Company and payable on
the
10
<PAGE>
Initial Securities but not payable on the Option Securities. The option
hereby granted will expire 30 days after the date hereof and may be
exercised in whole or in part from time to time only for the purpose of
covering over-allotments that may be made in connection with the offering
and distribution of the Initial Securities upon notice by the
Representatives to the Company setting forth the number of Option
Securities as to which the several Underwriters are then exercising the
option and the time and date of payment and delivery for such Option
Securities. Any such time and date of delivery (a "Date of Delivery") shall
be determined by the Representatives, but shall not be later than seven
full business days after the exercise of said option, nor in any event
prior to the Closing Time, as hereinafter defined. If the option is
exercised as to all or any portion of the Option Securities, each of the
Underwriters, acting severally and not jointly, will purchase that
proportion of the total number of Option Securities then being purchased
that the number of Initial Securities set forth in Schedule A opposite the
name of such Underwriter bears to the total number of Initial Securities,
subject in each case to such adjustments as the Representatives in their
discretion shall make to eliminate any sales or purchases of fractional
shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
Brown & Wood, One World Trade Center, New York, New York, or at such other
place as shall be agreed upon by the Representatives and the Company, at
10:00 A.M. (New York time) on the third (fourth, if the pricing occurs
after 4:30 P.M. (New York time) on any given day) business day after the
date hereof (unless postponed in accordance with the provisions of Section
10), or such other time not later than ten business days after such date as
shall be agreed upon by the Representatives and the Company (such time and
date of payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and
delivery of certificates for, such Option Securities shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by
the Representatives and the Company, on each Date of Delivery as specified
in the notice from the Representatives to the Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against
delivery to the Representatives for the respective accounts of the
Underwriters of certificates for the Securities to be purchased by them.
It is understood that each Underwriter has authorized the Representatives,
for its account, to accept delivery of, receipt for, and make payment of
the purchase price for, the Initial Securities and the Option Securities,
if any, that it has agreed to purchase. Merrill Lynch, individually and
not as representative of the Underwriters, may (but shall not be obligated
to) make payment of the purchase price for the Initial Securities or the
Option Securities, if any, to be purchased by any Underwriter whose funds
have not been received by the Closing Time or the relevant Date of
Delivery, as the case may be, but such payment shall not relieve such
Underwriter from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such
denominations and registered in such names as the Representatives may
request in writing at least one full business day before the Closing Time
or
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<PAGE>
the relevant Date of Delivery, as the case may be. The certificates for the
Initial Securities and the Option Securities, if any, will be made available for
examination and packaging by the Representatives in The City of New York not
later than 10:00 A.M. (New York time) on the business day prior to the Closing
Time or the relevant Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with each
------------------------
Underwriter as follows:
(a) Compliance with Securities Regulations and Commission Requests.
The Company, subject to Section 3(b), will comply with the requirements of
Rule 430A or Rule 434, as applicable, and will notify the Representatives
immediately, and confirm the notice in writing, (i) when any post-effective
amendment to the Registration Statement, shall become effective, or any
supplement to the Prospectus or any amended Prospectus shall have been
filed, (ii) of the receipt of any comments from the Commission, (iii) of
any request by the Commission for any amendment to the Registration
Statement or any amendment or supplement to the Prospectus or for
additional information and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or of
any order preventing or suspending the use of any preliminary prospectus,
or of the suspension of the qualification of the Securities for offering or
sale in any jurisdiction or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect the
filings necessary pursuant to Rule 424(b) and will take such steps as it
deems necessary to ascertain promptly whether the form of prospectus
transmitted for filing under Rule 424(b) was received for filing by the
Commission and, in the event that it was not, it will promptly file such
prospectus. The Company will make every reasonable effort to prevent the
issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible moment.
(b) Filing of Amendments. The Company will give the
Representatives notice of its intention to file or prepare any amendment to
the Registration Statement (including any filing under Rule 462(b)), any
Term Sheet or any amendment, supplement or revision to either the
prospectus included in the Registration Statement at the time it became
effective or to the Prospectus will furnish the Representatives with copies
of any such documents a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file or use any such
document to which the Representatives or counsel for the Underwriters shall
object.
(c) Delivery of Registration Statements. The Company has furnished
or will deliver to the Representatives and counsel for the Underwriters,
without charge, signed copies of the Registration Statement as originally
filed and of each amendment thereto (including exhibits filed therewith or
incorporated by reference therein) and signed copies of all consents and
certificates of experts, and will also deliver to the Representatives,
without charge, a conformed copy of the Registration Statement as
originally filed and of each amendment thereto (without exhibits) for each
of the Underwriters. The copies of the Registration Statement and each
amendment thereto furnished to the Underwriters will
12
<PAGE>
be identical to the electronically transmitted copies thereof filed with
the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary prospectus
as such Underwriter reasonably requested, and the Company hereby consents
to the use of such copies for purposes permitted by the 1933 Act. The
Company will furnish to each Underwriter, without charge, during the period
when the Prospectus is required to be delivered under the 1933 Act or the
Securities Exchange Act of 1934 (the "1934 Act"), such number of copies of
the Prospectus (as amended or supplemented) as such Underwriter may
reasonably request. The Prospectus and any amendments or supplements
thereto furnished to the Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will
comply with the 1933 Act and the 1933 Act Regulations so as to permit the
completion of the distribution of the Securities as contemplated in this
Agreement and in the Prospectus. If at any time when a prospectus is
required by the 1933 Act to be delivered in connection with sales of the
Securities, any event shall occur or condition shall exist as a result of
which it is necessary, in the opinion of counsel for the Underwriters or
for the Company, to amend the Registration Statement or amend or supplement
the Prospectus in order that the Prospectus will not include any untrue
statements of a material fact or omit to state a material fact necessary in
order to make the statements therein not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, or if it
shall be necessary, in the opinion of such counsel, at any such time to
amend the Registration Statement or amend or supplement the Prospectus in
order to comply with the requirements of the 1933 Act or the 1933 Act
Regulations, the Company will promptly prepare and file with the
Commission, subject to Section 3(b), such amendment or supplement as may be
necessary to correct such statement or omission or to make the Registration
Statement or the Prospectus comply with such requirements, and the Company
will furnish to the Underwriters such number of copies of such amendment or
supplement as the Underwriters may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best efforts,
in cooperation with the Underwriters, to qualify the Securities for
offering and sale under the applicable securities laws of such states and
other jurisdictions (domestic or foreign) as the Representatives may
designate and to maintain such qualifications in effect for a period of not
less than one year from the later of the effective date of the Registration
Statement and any Rule 462(b) Registration Statement; provided, however,
that the Company shall not be obligated to file any general consent to
service of process or to qualify as a foreign corporation or as a dealer in
securities in any jurisdiction in which it is not so qualified or to
subject itself to taxation in respect of doing business in any jurisdiction
in which it is not otherwise so subject. In each jurisdiction in which the
Securities have been so qualified, the Company will file such statements
and reports as may be required by the laws of such jurisdiction to continue
such qualification in effect
13
<PAGE>
for a period of not less than one year from the effective date of the
Registration Statement and any Rule 462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports pursuant to
the 1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last
paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds received
by it from the sale of the Securities in the manner specified in the
Prospectus under "Use of Proceeds".
(i) Listing. The Company will use its best efforts to effect the
listing of the Common Stock (including the Securities) on the ___ [stock
exchange].
(j) Restriction on Sale of Securities. During a period of 180 days
from the date of the Prospectus, the Company will not, without the prior
written consent of Merrill Lynch, (i) directly or indirectly, offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant
to purchase or otherwise transfer or dispose of any share of Common Stock
or any securities convertible into or exercisable or exchangeable for
Common Stock or file any registration statement under the 1933 Act with
respect to any of the foregoing or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly
or indirectly, the economic consequence of ownership of the Common Stock,
whether any such swap or transaction described in clause (i) or (ii) above
is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The foregoing sentence shall not apply to (A) the
Securities to be sold hereunder, (B) any shares of Common Stock issued by
the Company pursuant to the Company's Executive Stock Purchase Plan or upon
the exercise of an option outstanding on the date hereof and referred to in
the Prospectus, (C) any shares of Common Stock issued or options to
purchase Common Stock granted pursuant to existing employee benefit plans
of the Company referred to in the Prospectus or (D) any shares of Common
Stock issued pursuant to any non-employee director stock plan referred to
in the Prospectus.
(k) Reporting Requirements. The Company, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act,
will file all documents required to be filed with the Commission pursuant
to the 1934 Act within the time periods required by the 1934 Act and the
rules and regulations of the Commission thereunder.
(l) Compliance with Rule 463. The Company will file with the
Commission such reports on Form SR as may be required pursuant to Rule 463
of the 1933 Act Regulations.
(m) Filings Relating to Merger. The Company shall effect all
registrations, filings, applications, deliveries of documents and notices
to applicable state and Federal
14
<PAGE>
authorities in order to (i) perfect the transfer of NAC's properties,
franchises, licenses, permits, approvals, registrations, leases, title to
properties and all other rights to the Company in connection with the
Merger and (ii) satisfy the requirements of the Credit Agreement.
SECTION 4. Payment of Expenses. (a) Expenses. The Company and NAC,
-------------------
jointly and severally, agree to pay all expenses incident to the performance of
their obligations under this Agreement, including (i) the preparation, printing
and filing of the Registration Statement (including financial statements and
exhibits) as originally filed and of each amendment thereto, (ii) the
preparation, printing and delivery to the Underwriters of this Agreement, any
Agreement among Underwriters and such other documents as may be required in
connection with the offering, purchase, sale, issuance or delivery of the
Securities, (iii) the preparation, issuance and delivery of the certificates for
the Securities to the Underwriters, including any stock or other transfer taxes
and any stamp or other duties payable upon the sale, issuance or delivery of the
Securities to the Underwriters, (iv) the fees and disbursements of counsel,
accountants and other advisors to NAC and the Company, (v) the qualification of
the Securities under securities laws in accordance with the provisions of
Section 3(f) hereof, including filing fees and the reasonable fees and
disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of the Blue Sky Survey and any supplement
thereto, (vi) the printing and delivery to the Underwriters of copies of each
preliminary prospectus, any Term Sheets and of the Prospectus and any amendments
or supplements thereto, (vii) the preparation, printing and delivery to the
Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii)
the fees and expenses of any transfer agent or registrar for the Securities,
(ix) the filing fees incident to, and the reasonable fees and disbursements of
counsel to the Underwriters in connection with, the review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of
the Securities, (x) the fees and expenses incurred in connection with the
listing of the Securities on the ___ [stock exchange] and (xi) all expenses
incurred in connection with the Merger including, without limitation, all
filings and notifications relating thereto.
(b) Termination of Agreement. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company and NAC, jointly and severally, agree to reimburse
the Underwriters for all of their out-of-pocket expenses, including the
reasonable fees and disbursements of counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The obligations of
---------------------------------------
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company and NAC contained in Section 1
hereof and in certificates of any officer of the Company, NAC or any of their
respective subsidiaries delivered pursuant to the provisions hereof, to the
performance by the Company and NAC of their covenants and other obligations
hereunder and to the following further conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the
15
<PAGE>
Commission, and any request on the part of the Commission for additional
information shall have been complied with to the reasonable satisfaction of
counsel to the Underwriters. A prospectus containing the Rule 430A
Information shall have been filed with the Commission in accordance with
Rule 424(b) (or a post-effective amendment providing such information shall
have been filed and declared effective in accordance with the requirements
of Rule 430A) or, if the Company has elected to rely upon Rule 434, a Term
Sheet shall have been filed with the Commission in accordance with Rule
424(b).
(b) Opinion of Counsel for Company and NAC. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Parker Chapin Flattau & Klimpl, LLP counsel for the
Company and NAC, in form and substance satisfactory to counsel for the
Underwriters, together with signed or reproduced copies of such letter for
each of the other Underwriters to the effect set forth in Exhibit A hereto
and to such further effect as counsel to the Underwriters may reasonably
request.
(c) Opinion of Counsel for Underwriters. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Brown & Wood, counsel for the Underwriters, together with
signed or reproduced copies of such letter for each of the other
Underwriters with respect to the matters set forth in clauses (i), (ii),
(v), (vi) (solely as to preemptive or other similar rights arising by
operation of law or under the charter or by-laws of the Company), (viii)
through (x), inclusive, (xii), (xiv) (solely as to the information in the
Prospectus under "Description of Capital Stock--Common Stock") and the
penultimate paragraph of Exhibit A hereto. In giving such opinion, such
counsel may rely, as to all matters governed by the laws of jurisdictions
other than the law of the State of New York, the federal law of the United
States and the General Corporation Law of the State of Delaware, upon the
opinions of counsel satisfactory to the Representatives. Such counsel may
also state that, insofar as such opinion involves factual matters, they
have relied, to the extent they deem proper, upon certificates of officers
of the Company, NAC and their respective subsidiaries and certificates of
public officials.
(d) Officers' Certificate. At Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectus, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise (giving effect to the Merger), whether or not arising in the
ordinary course of business, and the Representatives shall have received a
certificate of the President or a Vice President of the Company and of the
chief financial or chief accounting officer of the Company, dated as of
Closing Time, to the effect (i) that there has been no such material
adverse change, (ii) that the representations and warranties in Section
1(a) hereof are true and correct with the same force and effect as though
expressly made at and as of Closing Time, (iii) that the Company has
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to Closing Time, (iv) of clause 5(j) of
this Agreement and (v) that no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or are contemplated by the
Commission.
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(e) Accountant's Comfort Letter. At the time of the execution of this
Agreement, the Representatives shall have received from Price Waterhouse
LLP a letter dated such date, in form and substance satisfactory to the
Representatives, together with signed or reproduced copies of such letter
for each of the other Underwriters containing statements and information of
the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus.
(f) Bring-down Comfort Letter. At Closing Time, the Representatives
shall have received from Price Waterhouse LLP a letter, dated as of Closing
Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (e) of this Section, except that the
specified date referred to shall be a date not more than three business
days prior to Closing Time.
(g) Approval of Listing. At Closing Time, the Securities shall have
been approved for listing on the _____________ [stock exchange], subject
only to official notice of issuance.
(h) No Objection. The NASD shall not have raised any objection with
respect to the fairness and reasonableness of the underwriting terms and
arrangements.
(i) Lock-up Agreements. At the date of this Agreement, the
Representatives shall have received an agreement substantially in the form
of Exhibit B hereto signed by the persons listed on Schedule C hereto.
(j) Merger. All transactions contemplated by the Merger shall have
been consummated, all required consents and approvals under all applicable
Agreements and Instruments and all filings, authorizations, approvals,
consents, orders, registrations or decrees of any governmental authority or
agency relating to the Merger shall have been obtained and the Merger shall
have become effective in compliance with all applicable laws and, subject
only to the actions described in Section 3(n) hereof, all of NAC's (and its
subsidiaries') properties, franchises, licenses, permits, approvals,
registrations, leases, title to properties and other rights shall have been
duly transferred to, held by and vested in the Company (directly or
indirectly through a wholly-owned subsidiary) by operation of law.
(k) Conditions to Purchase of Option Securities. In the event that
the Underwriters exercise their option provided in Section 2(b) hereof to
purchase all or any portion of the Option Securities, the representations
and warranties of NAC and the Company contained herein and the statements
in any certificates furnished by the Company, NAC or any of their
respective subsidiaries hereunder shall be true and correct as of each Date
of Delivery and, at the relevant Date of Delivery, the Representatives
shall have received:
(i) Officers' Certificate. A certificate, dated such Date of
---------------------
Delivery, of the President or a Vice President of the Company and of
the chief financial or chief accounting officer of the Company
confirming that the certificate delivered at the
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Closing Time pursuant to Section 5(d) hereof remains true and correct
as of such Date of Delivery.
(ii) Opinion of Counsel for Company. The favorable opinion of
------------------------------
Parker Chapin Flattau & Klimpl, LLP counsel for the Company, in form
and substance satisfactory to counsel for the Underwriters, dated such
Date of Delivery, relating to the Option Securities to be purchased on
such Date of Delivery and otherwise to the same effect as the opinion
required by Section 5(b) hereof.
(iii) Opinion of Counsel for Underwriters. The favorable opinion of
-----------------------------------
Brown & Wood, counsel for the Underwriters, dated such Date of
Delivery, relating to the Option Securities to be purchased on such
Date of Delivery and otherwise to the same effect as the opinion
required by Section 5(c) hereof.
(iv) Bring-down Comfort Letter. A letter from Price Waterhouse LLP,
-------------------------
in form and substance satisfactory to the Representatives and dated
such Date of Delivery, substantially in the same form and substance as
the letter furnished to the Representatives pursuant to Section 5(f)
hereof, except that the "specified date" in the letter furnished
pursuant to this paragraph shall be a date not more than five days
prior to such Date of Delivery.
(l) Additional Documents. At Closing Time and at each Date of
Delivery, counsel for the Underwriters shall have been furnished with such
documents and opinions as they may require for the purpose of enabling them
to pass upon the issuance and sale of the Securities as herein
contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company in connection
with the issuance and sale of the Securities as herein contemplated shall
be satisfactory in form and substance to the Representatives and counsel
for the Underwriters.
(m) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement, or, in the case of any condition to the purchase of Option
Securities, on a Date of Delivery which is after the Closing Time, the
obligations of the several Underwriters to purchase the relevant Option
Securities, may be terminated by the Representatives by notice to the
Company at any time at or prior to Closing Time or such Date of Delivery,
as the case may be, and such termination shall be without liability of any
party to any other party except as provided in Section 4 and except that
Sections 1, 6, 7 and 8 shall survive any such termination and remain in
full force and effect.
SECTION 6. Indemnification.
---------------
(a) Indemnification of Underwriters. The Company and NAC agree, jointly
and severally, to indemnify and hold harmless each Underwriter and each person,
if any, who controls any Underwriter within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act as follows:
18
<PAGE>
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the
Rule 434 Information, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
6(d) below) any such settlement is effected with the written consent of the
Company, as the case may be; and
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission, to
the extent that any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
- -------- -------
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).
(b) Indemnification of Company, Directors and Officers. Each Underwriter
severally agrees to indemnify and hold harmless the Company, its directors, each
of its officers who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act against any and all loss, liability, claim, damage
and expense described in the indemnity contained in subsection (a) of this
Section, as incurred, but only with respect to untrue statements or omissions,
or alleged untrue statements or omissions, made in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such Underwriter through Merrill
Lynch expressly for use in the Registration Statement (or any amendment thereto)
or such preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).
19
<PAGE>
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
SECTION 7. Contribution. If the indemnification provided for in Section 6
------------
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other hand from the offering of the Securities
pursuant to this Agreement or (ii) if the allocation provided by clause (i) is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and of the Underwriters on the
other hand in connection with the
20
<PAGE>
statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the Securities
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Securities
pursuant to this Agreement (before deducting expenses) received by the Company
and the total underwriting discount received by the Underwriters, in each case
as set forth on the cover of the Prospectus, or, if Rule 434 is used, the
corresponding location on the Term Sheet, bear to the aggregate initial public
offering price of the Securities as set forth on such cover.
The relative fault of the Company on the one hand and the Underwriters on
the other hand shall be determined by reference to, among other things, whether
any such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company and NAC or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company, NAC and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company and NAC, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company or NAC
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
shall have the same rights to contribution as the Company and NAC. The
21
<PAGE>
Underwriters' respective obligations to contribute pursuant to this Section 7
are several in proportion to the number of Initial Securities set forth opposite
their respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.
--------------------------------------------------------------
All representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Company, NAC or any of their respective
subsidiaries submitted pursuant hereto, shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any
Underwriter or controlling person, or by or on behalf of the Company or NAC, and
shall survive delivery of the Securities to the Underwriters.
SECTION 9. Termination of Agreement.
------------------------
(a) Termination; General. The Representatives may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries, considered as one enterprise, or of NAC and its subsidiaries,
considered as one enterprise, whether or not arising in the ordinary course of
business, or (ii) if there has occurred any material adverse change in the
financial markets in the United States or Canada, any outbreak of hostilities or
escalation thereof or other calamity or crisis or any change or development
involving a prospective change in national or international political, financial
or economic conditions, in each case the effect of which is such as to make it,
in the judgment of the Representatives, impracticable to market the Securities
or to enforce contracts for the sale of the Securities, or (iii) if trading in
any securities of the Company has been suspended or materially limited by the
Commission or the _________________ [stock exchange], or if trading generally on
the American Stock Exchange or The New York Stock Exchange or in the Nasdaq
National Market has been suspended or materially limited, or minimum or maximum
prices for trading have been fixed, or maximum ranges for prices have been
required, by any of said exchanges or by such system or by order of the
Commission, the National Association of Securities Dealers, Inc. or any other
governmental authority, or (iv) if a banking moratorium has been declared by
either Federal, New York or California authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the Underwriters. If one or more of
------------------------------------------
the Underwriters shall fail at Closing Time or a Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representatives shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms
22
<PAGE>
herein set forth; if, however, the Representatives shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of Securities to be purchased on such date, each of the non-
defaulting Underwriters shall be obligated, severally and not jointly, to
purchase the full amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the underwriting obligations of
all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number
of Securities to be purchased on such date, this Agreement or, with respect
to any Date of Delivery which occurs after the Closing Time, the obligation
of the Underwriters to purchase and of the Company to sell the Option
Securities to be purchased and sold on such Date of Delivery shall
terminate without liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement or, in the case of a Date of Delivery which is after the Closing
Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Company to sell the relevant Option Securities,
as the case may be, either the Representatives or the Company shall have the
right to postpone Closing Time or the relevant Date of Delivery, as the case may
be, for a period not exceeding seven days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements. As used herein, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 10.
SECTION 11. Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives at North Tower, World
Financial Center, New York, New York 10281-1201, attention of _________________;
the Company or NAC shall be directed to it at CSK Auto Inc., 645 E. Missouri
Avenue, Phoenix, Arizona 85012, attention of Mr. James Bazlen.
SECTION 12. Parties. This Agreement shall each inure to the benefit of
-------
and be binding upon the Underwriters, the Company, NAC and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Underwriters, the Company, NAC and their respective successors and the
controlling persons and officers and directors referred to in Sections 6 and 7
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Underwriters, the Company, NAC
and their respective successors, and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation.
23
<PAGE>
No purchaser of Securities from any Underwriter shall be deemed to be a
successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
----------------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 14. Effect of Headings. The Article and Section headings herein
------------------
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
24
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the Underwriters and the Company and NAC in accordance with its terms.
Very truly yours,
CSK AUTO, INC.
By _________________________
Title:
NORTHERN AUTOMOTIVE CORPORATION
By _______________________________
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By _____________________________________
Authorized Signatory
For themselves and as Representatives of the other Underwriters named in
Schedule A hereto.
25
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial
Name of Underwriter Securities
------------------- -----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ....................................
Donaldson, Lufkin & Jenrette
Securities Corporation ..........................................
Salomon Brothers Inc ............................................
---------
Total ........................................................... [6,700,000]
===========
</TABLE>
Sch A-1
<PAGE>
SCHEDULE B
CSK AUTO, INC.
[6,700,000] Shares of Common Stock
(Par Value $.001 Per Share)
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $______________.
2. The purchase price per share for the Securities to be paid by the
several Underwriters shall be $________________, being an amount equal to
the initial public offering price set forth above less $_______________ per
share; provided that the purchase price per share for any Option Securities
purchased upon the exercise of the over-allotment option described in
Section 2(b) shall be reduced by an amount per share equal to any dividends
or distributions declared by the Company and payable on the Initial
Securities but not payable on the Option Securities.
Sch B-1
<PAGE>
[SCHEDULE C]
[List of persons and entities
subject to lock-up]
Carmel Trust
Jules Trump
James G. Bazlen
Arthur S. Hicks
Dennis Anderson
Michael Eldridge
Martin Fraser
Mary Howard
Lon Novatt
Mark Padellford
Monty Reese
John Saar
Robert Shortt
Henry Torres
Don W. Watson
Eddie Trump
James Lieb
Robert Smith
Sch C-1
<PAGE>
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware. NAC
has been duly incorporated and is validly existing as a corporation in good
standing under the laws of the State of Arizona.
(ii) Each of the Company and NAC has corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Prospectus and to enter into and perform its obligations under the
Purchase Agreement.
(iii) Each of the Company and NAC is duly qualified as a foreign
corporation to transact business and is in good standing in each jurisdiction
in which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a Material Adverse
Effect.
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus in the column entitled "Actual"
under the caption "Capitalization" (except for subsequent issuances, if any,
pursuant to the Purchase Agreement or pursuant to reservations, agreements or
employee benefit plans referred to in the Prospectus or pursuant to the
exercise of options referred to in the Prospectus); the shares of issued and
outstanding capital stock of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; and none of the outstanding
shares of capital stock of the Company was issued in violation of the
preemptive or other similar rights of any securityholder of the Company.
(v) The Securities have been duly authorized for issuance and sale to
the Underwriters pursuant to the Purchase Agreement and, when issued and
delivered by the Company pursuant to the Purchase Agreement against payment of
the consideration set forth in the Purchase Agreement, will be validly issued
and fully paid and non-assessable and no holder of the Securities is or will
be subject to personal liability by reason of being such a holder.
(vi) The issuance of the Securities is not subject to preemptive or
other similar rights of any securityholder of the Company.
(vii) Each Subsidiary of NAC and (after giving effect to the Merger) the
Company, respectively, has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and is
duly qualified as a foreign corporation to transact business and is in good
standing in each
A-1
<PAGE>
jurisdiction in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a Material
Adverse Effect; except as otherwise disclosed in the Registration Statement,
all of the issued and outstanding capital stock of each Subsidiary has been
duly authorized and validly issued, is fully paid and non-assessable and, to
the best of our knowledge, is owned by the Company or NAC, as the case may be,
directly or through subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity; none of the outstanding
shares of capital stock of any Subsidiary was issued in violation of the
preemptive or similar rights of any securityholder of such Subsidiary.
(viii) The Purchase Agreement has been duly authorized, executed and
delivered by each of the Company and NAC and constitutes the legal, valid and
binding obligation of each of them in accordance with its terms.
(ix) The Registration Statement, including any Rule 462(b)
Registration Statement, has been declared effective under the 1933 Act; any
required filing of the Prospectus pursuant to Rule 424(b) has been made in the
manner and within the time period required by Rule 424(b); and, to the best of
our knowledge, no stop order suspending the effectiveness of the Registration
Statement or any Rule 462(b) Registration Statement has been issued under the
1933 Act and no proceedings for that purpose have been instituted or are
pending or threatened by the Commission.
(x) The Registration Statement, including any Rule 462(b)
Registration Statement, the Rule 430A Information and the Rule 434
Information, as applicable, the Prospectus and each amendment or supplement to
the Registration Statement and Prospectus as of their respective effective or
issue dates (other than the financial statements and supporting schedules
included therein or omitted therefrom, as to which we need express no opinion)
complied as to form in all material respects with the requirements of the 1933
Act and the 1933 Act Regulations.
(xi) The form of certificate used to evidence the Common Stock
complies in all material respects with all applicable statutory requirements,
with any applicable requirements of the charter and by-laws of the Company and
the requirements of the ___________________.
(xii) To the best of our knowledge, except as disclosed in the
Prospectus, there is not pending or threatened any action, suit, proceeding,
inquiry or investigation, to which the Company, NAC or any of their respective
subsidiaries is a party, or to which the property of the Company, NAC or any
of their respective subsidiaries is subject, before or brought by any court or
governmental agency or body, domestic or foreign, which might reasonably be
expected to result in a Material Adverse Effect, or which might reasonably be
expected to materially and adversely affect the properties or assets thereof
or the consummation of the transactions contemplated in the Purchase
Agreement or the performance by the Company or NAC of its obligations
thereunder or in respect of the Merger.
(xiii) The information in the Prospectus under "Description of Capital
Stock--Common Stock", "Description of Capital Stock--Preferred Stock",
"Business--General", "Business--Employees", "Business--Facilities", "Business-
-Tradenames, Service Marks and Trademarks", "Business--Regulations",
"Business--Legal Proceedings", "Management--Executive Employment -
A-2
<PAGE>
Agreements", "Management--Retirement Program", "Management--Incentive
Compensation Plan", "Management--Equity Participation Agreements",
"Management--Stock Based Plans", "Management--Employee Stock Option Plan",
"Management--Employee Stock Purchase Plan", "Management--Director Stock Plan",
"Certain Transactions", "Shares Eligible for Future Sale" and "The Merger" and
in the Registration Statement under Item 14, to the extent that it constitutes
matters of law, summaries of legal matters, the Company's charter and bylaws
or legal proceedings, or legal conclusions, has been reviewed by us and is
correct in all material respects.
(xiv) To the best of our knowledge, there are no statutes or
regulations that are required to be described in the Prospectus that are not
described as required.
(xv) All descriptions in the Registration Statement of contracts and
other documents to which the Company, NAC or any of their respective
subsidiaries is a party are accurate in all material respects; to the best of
our knowledge, there are no franchises, contracts, indentures, mortgages, loan
agreements, notes, leases or other instruments required to be described or
referred to in the Registration Statement or to be filed as exhibits thereto
other than those described or referred to therein or filed as exhibits
thereto, and the descriptions thereof or references thereto are correct in all
material respects.
(xvi) To the best of our knowledge, neither the Company nor any
subsidiary is, and (prior to giving effect to the Merger) neither NAC nor any
subsidiary was, in violation of its charter or by-laws and no default by the
Company, NAC or any of their respective subsidiaries exists in the due
performance or observance of any material obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, deed of trust, loan
or credit agreement (including, without limitation, the Credit Agreement, as
such term is defined in the Prospectus), note, lease or other agreement or
instrument to which the Company, NAC or any of their respective subsidiaries,
as the case may be, is a party or by which it or any of them may be bound, or
to which any of the property or assets of the Company, NAC or any of their
respective subsidiaries, as the case may be, is subject (collectively,
"Agreements and Instruments").
(xvii) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or governmental
authority or agency, domestic or foreign (other than under the 1933 Act and
the 1933 Act Regulations, which have been obtained, or as may be required
under the securities or blue sky laws of the various states, as to which we
need express no opinion) is necessary or required in connection with the due
authorization, execution and delivery of the Purchase Agreement or for the
offering, issuance or sale of the Securities.
(xviii) The execution, delivery and performance of the Purchase
Agreement and the consummation of the transactions contemplated in the
Purchase Agreement and in the Registration Statement (including the issuance
and sale of the Securities and the use of the proceeds from the sale of the
Securities as described in the Prospectus under the caption "Use Of Proceeds")
and compliance by the Company and NAC with their respective obligations under
the Purchase Agreement do not and will not, whether with or without the giving
of notice or lapse of time or both, conflict with or constitute a breach of,
or default or Repayment Event (as defined in Section 1(a)(x) of the Purchase
Agreement) under or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company, NAC or any of their
A-3
<PAGE>
respective subsidiaries pursuant to any of the Agreements and Instruments
known to us, to which the Company, NAC or their respective subsidiaries is a
party or by which it or any of them may be bound, or to which any of the
property or assets of any of them is subject (except for such conflicts,
breaches or defaults or liens, charges or encumbrances that would not have a
Material Adverse Effect), nor will such action result in any violation of the
provisions of the charter or by-laws of the Company, NAC or any of their
respective subsidiaries, or any applicable law, statute, rule, regulation,
judgment, order, writ or decree, known to us, of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over the
Company, NAC or any of their respective subsidiaries or any of their
respective properties, assets or operations.
(xix) Except as described in the Registration Statement and except as
would not, singly or in the aggregate, result in a Material Adverse Effect, to
the best of our knowledge, none of NAC, the Company or any of their respective
subsidiaries is in violation of any federal, state, local or foreign statute,
law, rule, regulation, ordinance, code, policy or rule of common law or any
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment, relating to pollution or
protection of human health, the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation, laws and regulations relating to the
release or threatened release of chemicals, pollutants, contaminants, wastes,
toxic substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials.
(xx) Each of the Company and NAC has obtained all necessary consents
and approvals from third parties (including pursuant to all Agreements and
Instruments) and has the legal right, power and authority to enter into and
consummate the Merger. The execution, delivery and performance by each of the
Company and NAC of the agreements, certificates, assignments and filings
relating to the Merger, the consummation of the transactions contemplated
thereby and compliance by the Company and NAC with their respective
obligations thereunder have been duly authorized by all necessary corporate
and stockholder action by the Company and NAC, constitute legal, valid and
binding obligations of the Company and NAC, respectively, and do not and will
not, whether with or without the giving of notice or passage of time or both,
conflict with or constitute a breach of, or default or Repayment Event under,
or result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of any of the Company, NAC or any of their
respective subsidiaries pursuant to, the Agreements and Instruments (except
for such conflicts, breaches or defaults or liens, charges or encumbrances
that would not result in a Material Adverse Effect), nor will such action
result in any violation of the provisions of the charter or by-laws of the
Company, NAC or any of their respective subsidiaries or any applicable law,
statute, rule, regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having jurisdiction
over the Company, NAC or any of their respective subsidiaries or any of their
assets, properties or operations. All filings, authorizations, approvals,
consents, orders, registrations or decrees of any governmental authority or
agency relating to the Merger have been obtained. The Merger has become
effective in compliance with all applicable laws and, subject only to the
actions described in Section 3(n) of the Purchase Agreement, all of NAC's (and
its subsidiaries') properties, franchises, licenses,
A-4
<PAGE>
permits, approvals, registrations, leases, title to properties and other
rights have been duly transferred to, are held by and have vested in the
Company (directly or indirectly through a wholly-owned subsidiary) by
operation of law.
(xxi) To the best of our knowledge, there are no persons with
registration rights or other similar rights to have any securities registered
pursuant to the Registration Statement or otherwise registered by the Company
under the 1933 Act.
(xxii) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the 1940
Act.
Nothing has come to our attention that would lead us to believe that the
Registration Statement or any amendment thereto, including the Rule 430A
Information and Rule 434 Information (if applicable), (except for financial
statements and schedules and other financial data included therein or omitted
therefrom, as to which we need make no statement), at the time such
Registration Statement or any such amendment became effective, contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any amendment or supplement thereto
(except for financial statements and schedules and other financial data
included therein or omitted therefrom, as to which we need make no statement),
at the time the Prospectus was issued, at the time any such amended or
supplemented prospectus was issued or at the Closing Time, included or
includes an untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company, NAC and public officials.
Such opinion shall not state that it is to be governed or qualified by, or
that it is otherwise subject to, any treatise, written policy or other
document relating to legal opinions, including, without limitation, the Legal
Opinion Accord of the ABA Section of Business Law (1991).
A-5
<PAGE>
[Form of lock-up from directors, officers or other stockholders pursuant to
Section 5(i)]
Exhibit B
____________, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
Donaldson, Lufkin & Jenrette
Securities Corporation
Salomon Brothers Inc
as Representatives of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: CSK Auto, Inc.
--------------
Dear Sirs:
The undersigned, a stockholder [and an officer and/or director] of CSK Auto,
Inc., a Delaware corporation (the "Company"), understands that Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
Donaldson, Lufkin & Jenrette Securities Corporation and Salomon Brothers Inc
propose to enter into a Purchase Agreement (the "Purchase Agreement") with the
Company providing for the public offering of shares (the "Securities") of the
Company's common stock, par value $.001 per share (the "Common Stock"). In
recognition of the benefit that such an offering will confer upon the
undersigned as a stockholder [and an officer and/or director] of the Company,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the undersigned agrees with each underwriter to
be named in the Purchase Agreement that, during a period of 180 days from the
date of the Purchase Agreement, the undersigned will not, without the prior
written consent of Merrill Lynch, directly or indirectly, (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant for the sale of,
or otherwise dispose of or transfer any shares of the Company's Common Stock or
any securities convertible into or exchangeable or exercisable for Common Stock,
whether now owned or hereafter acquired by the undersigned or with respect to
which the undersigned has or hereafter acquires the power of disposition, or
file any registration statement under the Securities Act of 1933, as amended,
with respect to any of the foregoing or (ii) enter into any swap or any other
agreement or any transaction that
B-1
<PAGE>
transfers, in whole or in part, directly or indirectly, the economic consequence
of ownership of the Common Stock, whether any such swap or transaction is to be
settled by delivery of Common Stock or other securities, in cash or otherwise.
Very truly yours,
Signature:
Print Name:
B-2
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
of
CSK AUTO, INC.
--------------
The undersigned, natural persons, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and as hereafter further
amended and supplemented, and known, identified and referred to as the "General
Corporation Law of the State of Delaware"), hereby certify that:
ARTICLE ONE
-----------
Section 1. The name of the Corporation is CSK Auto, Inc.
ARTICLE TWO
-----------
Section 1. The address of its registered office in the State of
Delaware is No. 1013 Centre Road, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Prentice-Hall
Corporation Systems, Inc.
ARTICLE THREE
-------------
Section 1. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
ARTICLE FOUR
------------
Section 1. The aggregate number of shares of stock of all classes
which the Corporation shall have authority to issue is 85,000,000 consisting of
75,000,000 shares of Common Stock having a par value of $.001 per share, and
10,000,000 shares of Preferred Stock having a par value of $.001 per share.
There shall be no preemptive rights with respect to any shares of capital stock
of the Corporation.
Section 2. The powers, preferences and the relative, participating,
optional and other
<PAGE>
rights and the qualifications, limitations and restrictions of each class of
stock, and the express grant of authority to the Board of Directors to fix by
resolution the designations and the powers, preferences and rights of each share
of Preferred Stock and the qualifications, limitations and restrictions thereof,
which are not fixed by this Certificate of Incorporation, are as follows:
A. Except as any provision of law, any provision herein or elsewhere
in the Certificate of Incorporation may otherwise provide, each share of Common
Stock of the Corporation shall have the same rights, privileges, interest and
attributes, and shall be subject to the same limitations, as every other share
of Common Stock of the Corporation and shall entitle the holder of record of any
such issued and outstanding share to receive an equal proportion of any cash
dividends which may be declared, set apart or paid, an equal proportion of any
distributions of the authorized but unissued shares of Common Stock of the
Corporation and/or its treasury shares, if any, which may be made, an equal
proportion of the distribution of any bonds or property of the Corporation,
including the shares or bonds of other corporations, which may be made, and an
equal proportion of any distributions of the net assets of the Corporation
(whether stated capital or surplus) which may be made upon the liquidation,
dissolution, or winding up of the affairs of the Corporation, whether voluntary
or involuntary; provided, that any distributions of the authorized but unissued
shares of the Corporation and/or its treasury shares, if any, shall be made only
in respect of shares of the same class, and, provided further, that no statement
herein contained shall be deemed to limit, curtail, or divest the authority of
the Board of Directors of the Corporation to make any proper distributions,
including distributions of authorized but unissued shares, in relation to its
treasury shares, if any. Each issued and outstanding share of Common Stock shall
entitle the holder of record thereof to one vote per share.
B. The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of this subsection B. to provide for the
issuance of the Preferred Stock in series, and by filing a certificate pursuant
to the General Corporation Law, to establish the number of shares to be included
in each such series, and to fix the designation, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions of the shares of each such series. The authority of the Board
with respect to each series shall include, but not be limited to, determination
of the following:
(1) the number of shares constituting that series and the distinctive
designation of that series;
(2) whether the holders of shares of that series shall be entitled to
receive dividends and, if so, the rates, conditions and times of such
dividends, any preference of any such dividends to, and the relation
to, the dividends payable on any other class or classes of stock or
any other series of the same class and whether dividends shall
be cumulative or noncumulative;
(3) whether the holders of that series shall have voting rights in
addition to the voting rights provided by law and, if so, the terms
of such voting rights;
(4) whether shares of that series shall be convertible into, or
exchangeable for, at the option of either the holder or the
Corporation or upon the happening of a specified
<PAGE>
event, shares of any other class or classes or of any other series of
the same or other class or classes of stock of the Corporation and,
if so, the terms and conditions of such conversion or exchange,
including provision for adjustment of the conversion or exchange rate
in such events as the Board of Directors may determine;
(5) whether shares of that series shall be redeemable and, if so, the
terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable and the amount per share
payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(6) whether shares of that series shall be subject to the operation
of a retirement or sinking fund and, if so subject, the extent to and
the manner in which it shall be applied to the purchase or redemption
of the shares of that series, and the terms and provisions relative
to the operation thereof;
(7) the rights of shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation
and any preference of any such rights to, and the relation to, the
rights in respect thereto of any other class or classes of stock or
any other series of the same class; and
(8) whether shares of that series shall be subject or entitled to any
other preferences, and the other relative, participating, optional or
other special rights and qualifications, limitations or restrictions
of shares of that series.
Section 3. Except as may be provided in the terms and conditions
fixed by the Board of Directors for any series of Preferred Stock, and in
addition to any other vote that may be required by statute, stock exchange
regulations, this Certificate of Incorporation or any amendment hereof, the
number of authorized shares of any class or classes of stock of the Corporation
may be increased or decreased by the affirmative vote of the holders of a
majority of the voting power of the outstanding shares of capital stock of the
Corporation entitled to vote.
ARTICLE FIVE
------------
Section 1. The Corporation is to have perpetual existence.
<PAGE>
ARTICLE SIX
-----------
Section 1. The name and the mailing address of each of the
incorporators are as follows:
Name Mailing Address
---- ---------------
Elaine S. Moshe 1211 Avenue of the Americas
Suite 1700
New York, NY 10036
ARTICLE SEVEN
-------------
Section 1. Meetings of stockholders may be held within or without the
State of Delaware, as the By-laws may provide. The books of the Corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the By-laws of the Corporation. Elections of
directors need not be by written ballot unless the By-laws of the Corporation
shall so provide.
ARTICLE EIGHT
-------------
Section 1. From time to time any of the provisions of this
Certificate of Incorporation may be amended, altered or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted in the manner and at the time prescribed by said laws,
and all rights at any time conferred upon the stockholders of the Corporation by
this Certificate of Incorporation are granted subject to the provisions of this
Article Eight.
ARTICLE NINE
------------
Section 1. The number of directors which shall constitute the Board
of Directors shall be not less than three (3) nor more than nine (9). The exact
number of directors within the maximum and minimum limitation specified herein
shall be fixed from time to time by resolution of the Board of Directors. At
each annual meeting of stockholders held, the full Board of Directors shall be
elected. Each director elected shall hold office for a term of one year.
Section 2. The directors shall have the power, from time to time, to
increase or decrease their own number, within the maximum and minimum
limitations specified therein, by resolution of the Board of Directors.
Directors may not be removed from office except for cause by the affirmative
vote of not less than a majority of the shares entitled to vote at an election
of directors.
<PAGE>
Section 3. Newly created directorships resulting from an increase in
the number of directors and all vacancies occurring in the Board, including
vacancies occurring in the Board by reason of the removal of directors, may be
filled by the affirmative vote of a majority of the remaining directors though
less than a quorum of the Board of Directors, and directors so chosen shall hold
office until the next election of the Board of Directors, and until their
successors shall be elected and qualified.
ARTICLE TEN
-----------
Section 1. No director of the Corporation shall be personally liable
to the Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, as the same exists or hereafter may be amended, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
Delaware General Corporation Law hereafter is amended to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the Corporation, in addition to the limitation of personal liability
provided herein, shall be limited to the fullest extent permitted by the amended
Delaware Corporation Law. Any repeal or modification of this Article by the
stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation existing at the time of such repeal or modification.
ARTICLE ELEVEN
--------------
Section 1. Each person who was or is made a party or is threatened to
be made a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a director,
officer or employee of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another Corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans (hereinafter an "indemnitee"), whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith and such indemnification
shall continue as to an indemnitee who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the indemnitee's heirs,
executors and administrators; provided, however, that, except as
<PAGE>
provided in the following paragraph of this Article with respect to
proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the board of directors of the Corporation. The right to
indemnification conferred in this Article shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"). To the extent that the Delaware General
Corporation Law so requires, an advancement of expenses incurred by an
indemnitee in his or her capacity as a director or officer (but not in any other
capacity in which service was or is rendered by such indemnitee, including
without limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal that such indemnitee is not entitled to be indemnified for such expenses
under this Article or otherwise (hereinafter an "undertaking"). In all other
cases (including, without limitation, service by a director or officer in some
other capacity, or service as such a director or officer in a circumstance where
an undertaking is not required by law), any advancement of expenses shall be on
such terms and conditions (including whether or not an undertaking shall be
required in the particular case) as the board of directors of the Corporation
deems appropriate from time to time.
Section 2. If a claim under Section 1 of this Article is not paid in
full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any
such suit or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled also to be paid the expense of prosecuting or defending such suit. In
any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking the Corporation shall be entitled to recover such expenses upon a
final adjudication that, the indemnitee has not met the applicable standard of
conduct set forth in the Delaware General Corporation Law. Neither the failure
of the Corporation (including its board of directors, independent legal counsel,
or its stockholders) to have made a determination prior to the commencement of
such suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its board of directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right hereunder, or by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified or to such advancement of expenses
under this Article or otherwise shall be on the Corporation.
Section 3. The rights to indemnification and to the advancement of
expenses conferred in this Article shall not be exclusive of any other right
which any person may have or hereafter acquire
<PAGE>
under any statute, this Certificate of Incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 4. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against expense, liability or loss, whether or not the Corporation would have
the power to indemnify such person against such expense, liability or loss under
the Delaware General Corporation Law.
Section 5. The Corporation may, to the extent authorized from time to
time by the board of directors, grant rights to indemnification, and to the
advancement of expenses, to any agent of the Corporation to the fullest extent
of the provisions of this Article with respect to the indemnification and
advancement of expenses of director, officers and employees of the Corporation.
Section 6. Each reference in this Article to service as agent of
another corporation or other entity shall include, without limitation, service
as a trustee or administrator of an employee benefit plan.
ARTICLE TWELVE
--------------
Section 1. Whenever the vote of the stockholders at a meeting thereof
is required or permitted to be taken in connection with any corporate action by
any provisions of the laws of the State of Delaware or of the Certificate of
Incorporation, such corporate action may only be taken at a meeting of the
stockholders.
ARTICLE THIRTEEN
----------------
Section 1. Whenever a compromise or arrangement is proposed between
this Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders, of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders, of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders,
<PAGE>
of this Corporation, as the case may be, and also on this Corporation.
ARTICLE FOURTEEN
----------------
From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate of Incorporation are granted subject to the provisions of this
Article. Each reference in this instrument to the Certificate of Incorporation
shall mean this Certificate of Incorporation as amended and/or restated from
time to time.
IN WITNESS WHEREOF, the undersigned as the incorporators of the
Corporation have signed this Certificate this 19th day of June, 1996
/s/ Elaine S. Moshe
-----------------------------
Elaine S. Moshe
<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
CSK AUTO, INC.
--------------
(a Delaware corporation)
ARTICLE I
---------
OFFICES
-------
Section 1. The registered office of the Corporation shall be in the City
of Wilmington, County of New Castle, State of Delaware.
Section 2. The Corporation also may have offices at such other places,
both within and without the State of Delaware, as the Board of Directors from
time to time may determine or the business of the Corporation may require.
ARTICLE II
----------
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. All meetings of the stockholders for the election of directors
shall be held at such place, within or without the State of Delaware, as shall
be designated from time to time by the Board of Directors and stated in the
notice of the meeting. Meetings of stockholders for any other purpose may be
held at such time and place, within or without the State of Delaware, as shall
be stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. The Annual Meeting of stockholders, commencing with the 1997
annual meeting, shall be held on such date and at such time and place either
within or without the State of Delaware as may be designated by the Board of
Directors and stated in the notice of the meeting, for the election of
Directors, in accordance with the provisions contained in the Certificate of
Incorporation and these By-Laws, and the transaction of such other business as
may properly be brought before the meeting, in accordance with these By-Laws.
Section 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than 10 nor more than 60 days before the date of the
meeting.
Section 4. The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the
<PAGE>
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list also shall be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 5. Special meetings of the stockholders shall be held on such
date, and at such time and place either within or without the State of Delaware
and only for such purpose or purposes as may be designated by the Board of
Directors and stated in the notice of the meeting, in accordance with these By-
Laws.
Section 6. Special meetings may be called by the Chairman of the Board and
shall be called by the Chairman of the Board or Secretary at the request in
writing of a majority of the Board of Directors then in office. Such request
shall state the purpose or purposes of the proposed meeting.
Section 7. Written notice of a special meeting stating the place, date and
hour of the meeting and the purpose or purposes for which the meeting is called,
shall be given not less than 10 nor more than 60 days before the date of the
meeting, to each stockholder entitled to vote at such meeting.
Section 8. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 9. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business, except as otherwise provided by statute or by the Certificate of
Incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 10. Except as otherwise provided herein, when a quorum is present
at any meeting, the vote of the holders of a majority of the stock having voting
power present in person or represented by proxy shall decide any question
brought before such meeting, unless the question is one upon which, by express
provision of the statutes or of the Certificate of
2
<PAGE>
Incorporation, a different vote is required in which case such express provision
shall govern and control the decision of such question. Directors shall be
elected by a plurality of the votes cast for the election of each director.
Section 11. Unless otherwise provided in the Certificate of Incorporation,
each stockholder shall, at every meeting of the stockholders, be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on after three years
from its date, unless the proxy provides for a longer period.
Section 12. To be properly brought before an Annual Meeting of
stockholders, business must be either (I) specified in the notice of Annual
Meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (2) otherwise properly brought before the Annual Meeting by or at the
direction of the Board of Directors, or (3) otherwise properly brought before
the Annual Meeting by a stockholder. In addition to any other applicable
requirements, for business to be properly brought before an Annual Meeting of
stockholders by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, such
stockholder's notice must be delivered to or mailed and received by the Secre
tary at the principal executive offices of the Corporation not less than one
hundred twenty (120) days nor more than one hundred fifty (150) days prior to
the one year anniversary of the date of the notice of the Annual Meeting of
stockholders that was held in the immediately preceding year; provided, however,
that in the event that the month and day of the Annual Meeting of stockholders
to be held in the current year is changed by more than thirty (30) calendar days
from the one year anniversary of the date the Annual Meeting of stockholders was
held in the immediately preceding year, and less than one hundred thirty days'
informal notice or other prior public disclosure of the date of the Annual
Meeting in the current year is given or made to stockholders, notice of such
proposed business to be brought before the meeting by the stockholder to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which formal or informal notice of the date of
the Annual Meeting of stockholders was mailed or such other public disclosure
was made, whichever first occurs. A stockholder's notice to the Secretary shall
set forth as to each matter the stockholder proposes to bring before the Annual
Meeting (1) a brief description of the business desired to be brought before the
Annual Meeting and the reasons for conducting such business at the Annual
Meeting, (2) the name and record address of the stockholder proposing such
business, (3) the class, series and number of shares of the Corporation's stock
which are beneficially owned by the stockholder, and (4) a description of all
arrangements or understandings between the stockholder and any other person or
persons (naming such person or persons) in connection with the proposing of such
business by the stockholder, and any material interest of the stockholder in
such business. Notwithstanding anything in these By-Laws to the contrary, no
business shall be conducted at the Annual Meeting of stockholders except in
accordance with the procedures set forth in this Section 12 of Article II;
provided, however, that nothing in this Section 12 of Article II shall be deemed
to preclude discussion by any stockholder of any business brought before the
Annual Meeting of stockholders. The Chairman of an Annual Meeting shall, if the
facts warrant,
3
<PAGE>
determine and declare to the Annual Meeting that business was not properly
brought before the Annual Meeting of stockholders in accordance with the
provisions of this Section 12 of Article II, and any such business not properly
brought before the Annual Meeting shall not be transacted.
Section 13. Only persons who are nominated in accordance with the
following procedures shall be eligible for election as Directors at any Annual
Meeting of stockholders. Nominations of persons for election to the Board of
Directors of the Corporation at the Annual Meeting of stockholders may be made
by or at the direction of the Board of Directors, by any committee or persons
appointed by the Board of Directors or by any stockholder of the Corporation
entitled to vote for the election of Directors at the meeting who complies with
the notice procedures set forth in this Section 13 of Article II. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be valid, any such nomination by a stockholder must be
made strictly in accordance with this Section. To be timely, such stockholder's
notice must be delivered to or mailed and received by the Secretary at the
principal executive offices of the Corporation not less than one hundred twenty
(120) days nor more than one hundred fifty (150) days prior to the one year
anniversary of the date of the notice of the Annual Meeting of stockholders that
was held in the immediately preceding year; provided, however, that in the event
that the month and day of the Annual Meeting of stockholders to be held in the
current year is changed by more than thirty (30) calendar days from the one year
anniversary of the date the Annual Meeting of stockholders was held in the
immediately preceding year, and less than one hundred thirty (130) days'
informal notice or other prior public disclosure of the date of the Annual
Meeting in the current year is given or made to stockholders, notice of such
nominations by the stockholder to be timely must be so received not later than
the close of business on the tenth (10th) day following the day on which formal
or informal notice of the date of the meeting was mailed or such other public
disclosure was made, whichever first occurs. Such stockholder's notice to the
Secretary shall set forth (1) as to each person whom the stockholder proposes to
nominate for election or reelection as a Director, (a) the name, age, business
address and residence address of the person, (b) the principal occupation or
employment of the person, (c) the class, series and number of shares of capital
stock of the Corporation which are beneficially owned by the person, and (d) any
other information relating to the person that is required to be disclosed in
solicitations of proxies for election of Directors pursuant to the Rules and
Regulations of the Securities and Exchange Commission under Section 14 of the
Securities Exchange Act of 1934, as amended (including such person's written
consent to being named in the proxy statement as a nominee and to serving as
Director if elected); and (2) as to the stockholder giving the notice (a) the
name and record address of the stockholder and (b) the class, series and number
of shares of capital stock of the Corporation which are beneficially owned by
the stockholder. The Corporation may require any proposed nominee to furnish
such other information as may reasonably be required by the Corporation to
determine the eligibility of such proposed nominee to serve as a Director of the
Corporation. No person shall be eligible for election as a Director of the
Corporation unless nominated in accordance with the procedures set forth herein.
The Chairman of the meeting shall, if the facts warrant, determine and declare
to the meeting that a
4
<PAGE>
nomination was not made in accordance with the foregoing procedure, and the
defective nomination shall be disregarded.
ARTICLE III
-----------
DIRECTORS
---------
Section 1. The business and affairs of the Corporation shall be managed by
the Board of Directors. Directors need not be stockholders. The number of
Directors which shall constitute the Board of Directors shall be not less than
three (3) nor more than nine (9), the exact number of Directors within the
maximum and minimum limitation specified herein shall be fixed from time to time
by resolution of the Board of Directors; provided, however, that the number of
Directors shall be increased beyond the foregoing limit, to the extent required,
in the event that (and for so long as) the holders of any preferred stock of the
Corporation, voting as a separate class or series under any provisions of the
Certificate of Incorporation or Certificate of Designation establishing a
series, shall be entitled to elect Directors. The term of a Director shall be
until the next election of the Directors, and until his successor shall be
elected and qualified, or until such director's earlier resignation or removal.
Section 2. The Directors shall have the power, from time to time, to
increase or decrease their own number, within the maximum and minimum
limitations specified therein, by resolution of the Board of Directors.
Newly created directorships resulting from an increase in the number of
Directors and all vacancies occurring in the Board, including vacancies
occurring in the Board by reason of the removal of Directors, may be filled by
the affirmative vote of a majority of the remaining Directors though less than a
quorum of the Board of Directors, and Directors so chosen shall hold office
until the next election of the Directors, and until their successors shall be
elected and qualified, provided that any vacancies with respect to Directors
elected by any holders of the Corporation's preferred stock voting as a separate
class or series under any provisions of the Certificate of Incorporation or
Certificate of Designation establishing such series shall be filled as provided
in the provisions of the Certificate of Incorporation or Certificate of
Designation establishing such series.
Section 3. Directors may not be removed from office except for cause by
the affirmative vote of not less than a majority of the shares entitled to vote
at an election of Directors (considered for this purpose as one class), provided
that this provision shall not apply to any Directors elected by holders of
preferred stock, voting as a separate class or series under any provisions of
the Certificate of Incorporation, which Directors may be removed only as
provided in the provisions of the Certificate of Incorporation or Certificate of
Designation establishing such series.
5
<PAGE>
Section 4. The business of the Corporation shall be managed by or under
the direction of its Board of Directors, which may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by statute or
by the Certificate of Incorporation or by these By-Laws directed or required to
be exercised or done by the stockholders.
Section 5. The Board of Directors of the Corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 6. The first meeting of the directors shall be held on a date
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors, or as shall be specified in a written waiver signed by all
of the directors.
Section 7. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the board.
Section 8. Special meetings of the Board of Directors may be called by the
Chairman of the Board on one day's notice to each director, either personally or
by mail or by telegram or commercial overnight receipted mail delivery; special
meetings shall be called by the Chairman of the Board or Secretary in like
manner and on like notice on the written request of a majority of the directors
then in office.
Section 9. At all meetings of the Board of Directors, a majority of the
entire Board of Directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum shall not be present at any meeting of the Board of
Directors the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 10. Unless otherwise restricted by the Certificate of
Incorporation or these By-Laws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 11. Unless otherwise restricted by the Certificate of
Incorporation or these By-Laws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
6
<PAGE>
Section 12. The Board of Directors may, by resolution passed by a majority
of the whole board, designate one or more committees, each committee to consist
of one or more of the directors of the Corporation. The board may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member.
Any such committee, to the extent provided in the resolution of the Board
of Directors, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation (except that
a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors
as provided in Section 151(a) of the General Corporation Law of the State of
Delaware, fix any of the preferences or rights of such shares relating to
voting, dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the Corporation), adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending the By-Laws of the Corporation; and, unless the
resolution or the Certificate of Incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock or to adopt a certificate of ownership and
merger. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Section 13. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
Section 14. Unless otherwise restricted by the Certificate of
Incorporation or these By-Laws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors and/or a
stated fee as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
7
<PAGE>
ARTICLE IV
----------
NOTICES
-------
Section 1. Whenever, under the provisions of the statutes or of the
Certificate of Incorporation or of these By-Laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
Corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram or commercial overnight
receipted mail delivery.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
Section 3. This Article shall not apply to any notice that a stockholder
must give the Corporation under Article II of these By-Laws.
ARTICLE V
---------
OFFICERS
--------
Section 1. The officers of the Corporation shall be chosen by the Board of
Directors and shall include a Chairman of the Board or Co-Chairmen of the Board,
a President, one or more Vice Presidents (having such levels of seniority as the
Board of Directors may designate from time to time), a Secretary and a
Treasurer. In addition, the Board of Directors may elect as officers of the
Corporation such Assistant Secretaries and Assistant Treasurers as the Board of
Directors may deem proper.
Section 2. The Board of Directors (annually, at its first meeting after
each annual meeting of stockholders) shall choose the officers of the
Corporation for the ensuing year. Newly created offices may be filled by the
Board of Directors from time to time.
Section 3. The Board of Directors may appoint such other officers as it
shall deem necessary, who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the board.
Section 4. The salaries of all officers of the Corporation shall be fixed
by the Board of Directors from time to time.
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<PAGE>
Section 5. The officers of the Corporation shall hold office until their
successors are chosen and qualified, or until the respective officer's earlier
resignation or removal. Any officer elected or appointed by the Board of
Directors may be removed at any time, with or without cause, by the affirmative
vote of a majority of the Board of Directors. Any vacancy occurring in any
office of the Corporation shall be filled only by the Board of Directors.
Section 6. The Chairman of the Board (who alternatively may be designated
the Chairman) or in the event that there are Co-Chairmen of the Board, then one
of them selected by the Board, shall be the chief executive officer of the
Corporation, have general and active management of the business of the
Corporation, and shall preside at all meetings of the stockholders and at all
meetings of the Board of Directors.
Section 7. The President shall be the Chief Operating Officer, shall have
general and active management of the business of the Corporation, shall (in the
absence of the Chairman of the Board) preside at all meetings of the
stockholders, and shall perform such duties as may be prescribed by the Board of
Directors or the Chairman of the Board, under whose supervision the President
shall be.
Section 8. In the absence of the Chairman of the Board and the President
or in the event of their inability or refusal to act, the Vice President (or in
the event there be more than one Vice President, the Vice Presidents in the
order designated by the Board of Directors) shall perform the duties of the
President and, when so acting, shall have all the powers of and be subject to
all the restrictions upon the President. The Vice Presidents shall perform such
other duties and have such other powers as the Board of Directors may from time
to time prescribe.
Section 9. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the Corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or Chairman of the Board, under whose supervision the Secretary shall be. The
Secretary shall have custody of the corporate seal of the Corporation and shall
have authority to affix the same to any instrument requiring it and when so
affixed, it may be attested by the Secretary's signature or by the signature of
any Assistant Secretary. The Board of Directors may give general authority to
any other officer to affix the seal of the Corporation and to attest the
affixing by such officer's signature.
Section 10. The Treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the Chairman of the
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<PAGE>
Board, the President and the Board of Directors an account of all such
transactions as treasurer and of the financial condition of the Corporation.
Section 11. If required by the Board of Directors, the Treasurer shall
give the Corporation a bond (which shall be renewed as prescribed by the Board
of Directors) in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of such office and for the restoration to the Corporation, in case of the
death, resignation, retirement or removal from office of the Treasurer, of all
books, papers, vouchers, money and other property of whatever kind in the
Treasurer's possession or under the Treasurer's control belonging to the
Corporation.
Section 12. The Assistant Secretary, or if there be more than one, the
Assistant Secretaries in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the Secretary or in the event of the Secretary's inability or
refusal to act, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
Section 13. The Assistant Treasurer, or if there shall be more than one,
the Assistant Treasurers in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the Treasurer or in the event of the Treasurer's inability or
refusal to act, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
ARTICLE VI
----------
CERTIFICATES FOR SHARES
-----------------------
Section 1. The shares of the Corporation shall be represented by a
certificate or shall be uncertificated. Except as otherwise determined by the
Board of Directors, certificates shall be signed by, or in the name of the
Corporation by, the Chairman of the Board, or the President, or any Vice
President, and by the Treasurer, or any Assistant Treasurer, or the Secretary,
or any Assistant Secretary of the Corporation.
Upon the face or back of each stock certificate issued to represent any
partly paid shares, or upon the books and records of the Corporation in the case
of uncertificated partly paid shares, there shall be set forth the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated.
If the Corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
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<PAGE>
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware
("GCLD"), in lieu of the foregoing requirements, there may be set forth on the
face or back of the certificate which the Corporation shall issue to represent
such class or series of stock, a statement that the Corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
Within a reasonable time after the issuance or transfer of uncertificated
stock, the Corporation shall send to the registered owner thereof a written
notice containing the information required to be set forth or stated on
certificates pursuant to Sections 151, 156, 202(a) or 218(a) of the GCLD or a
statement that the Corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 2. Any of or all the signatures on a certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if such person were
such officer, transfer agent or registrar at the date of issue.
Section 3. The Board of Directors may direct a new certificate or
certificates or uncertificated shares to be issued in place of any certificate
or certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of the fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates or uncertificated
shares, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
Section 4. Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for the shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Upon receipt of proper transfer instructions from the registered owner of
uncertificated shares such uncertificated shares shall be canceled and issuance
of new equivalent uncertificated shares or certificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the books
of the Corporation.
11
<PAGE>
ARTICLE VII
-----------
GENERAL PROVISIONS
------------------
Section 1. Dividends upon the capital stock of the Corporation, subject to
the provisions of the Certificate of Incorporation, if any, may be declared by
the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation.
Section 2. In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action other than stockholder action by written consent, the Board
of Directors may fix a record date, which shall not precede the date such record
date is fixed and shall not be more than sixty nor less than ten days before the
date of such meeting, nor more than sixty days prior to any such other action.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given.
The record date for any other purpose other than stockholder action by written
consent shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
Section 3. The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
Section 4. Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 5. The Board of Directors shall present at each annual meeting a
full and clear statement of the business and condition of the Corporation.
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<PAGE>
Section 6. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
Section 7. The fiscal year of the Corporation shall be fixed by resolution
of the Board of Directors.
Section 8. The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE VIII
------------
AMENDMENTS
----------
Section 1. These By-laws may be altered, amended or repealed or new By-
laws may be adopted by the stockholders at any regular or special meeting of the
stockholders, if notice of such alteration, amendment or repeal or adoption of
new By-Laws is contained in the notice of the meeting, or at any regular or
special meeting of the Board of Directors. By-laws adopted by the Board of
Directors may be amended or repealed by the stockholders by the affirmative vote
of a majority of the outstanding shares entitled to vote.
ARTICLE IX
----------
CERTAIN REFERENCES
------------------
Section 1. Any and all references in these By-Laws to the Corporation's
Certificate of Incorporation shall mean the original Certificate of
Incorporation and any restatement thereof, in each case as amended and restated
from time to time.
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EXHIBIT 4.2
SUBSCRIPTION AGREEMENT
__________________________
NORTHERN AUTOMOTIVE CORPORATION
__________________________
June 22, 1996
Northern Automotive Corporation
645 E. Missouri Avenue
Suite 400
Phoenix, AZ 85012
Dear Sir or Madam:
1. Subscription. The undersigned hereby purchases such number of shares
------------
(the "Shares") of common stock, $10.00 par value per share (the "Common Stock")
of Northern Automotive Corporation (the "Company") as shall result in the
issuance of shares of Common Stock of CSK Auto, Inc. ("CSK") upon
-----------
consummation of the merger ("Merger") contemplated in the Draft Registration
Statement (defined in Paragraph 2(b) below) and is paying therefore by delivery
of a promissory note (the "Note"), the form of which is attached hereto as
Exhibit A, in the original principal amount of $ (which is equal to
-----------
$12.75 per share of CSK to be issued in exchange for the Shares pursuant to the
Merger) due on the earlier of 120 days from the date hereof and the day prior to
the effective date of the Company's initial public offering.
2. Representations and Warranties of the Subscriber. The undersigned
------------------------------------------------
acknowledges, represents, warrants and agrees as follows:
(a) Evaluation of Risks. The undersigned has such knowledge and
-------------------
experience in financial and business matters as to be capable of evaluating the
merits and risks of, and bearing the economic risks entailed by, an investment
in the Company and of protecting his or her interests in connection with this
transaction. The undersigned recognizes that his or her investment in the
Company involves a high degree of risk.
(b) Due Diligence. The undersigned has received a copy of a June 21
-------------
draft registration statement to be used in connection with the Company's initial
public offering (the "Draft Registration Statement"), has carefully reviewed
such document and has had the opportunity to obtain any additional information
necessary to verify the accuracy of the information contained in such documents.
(c) No Distribution. The undersigned is acquiring the Shares for his
---------------
or her own account for investment and not with a view to or for resale in
connection with any distribution of the Shares. Except as provided herein, it
has not offered or sold any portion of the Shares and has no present intention
of dividing the Shares with others or of selling, distributing or otherwise
<PAGE>
disposing of any portion of the Shares either currently or after the passage of
a fixed or determinable period of time or upon the occurrence or non-occurrence
of any predetermined event or circumstance.
(d) No Registration. The undersigned understands that the sale of the
---------------
Shares has not been registered under the Securities Act of 1933, as amended (the
"Act") in reliance upon an exemption therefrom.
(e) Additional Transfer Restrictions. The undersigned understands and
--------------------------------
agrees, that, in addition to the restrictions set forth in this Agreement, the
following restrictions and limitations are applicable to its purchase and any
resales, pledges, hypothecations or other transfers of the Securities:
(i) The following legend reflecting all applicable restrictions will
be placed on any certificate(s) evidencing the Shares (and a similar legend
will be placed on any certificate issued pursuant to the Merger) and the
undersigned must comply with the terms and conditions set forth in such
legends prior to any resales, pledges, hypothecations or other transfers of
the Securities:
"The securities represented by this certificate have not been registered
and may not be transferred unless (A) the stockholder wishing to transfer
such securities provides an opinion of counsel reasonably concurred in by
counsel for Northern Automotive Corporation (the "Company") stating that
the proposed transfer of the Company's securities is exempt from or not
subject to the registration provisions of all applicable federal and state
laws; or (B) said securities have been registered pursuant to the
Securities Act of 1933, as amended."
(ii) Stop transfer instructions have been or will be placed on any
certificates or other documents evidencing the Securities so as to restrict
the resale, pledge, hypothecation or other transfer thereof in accordance
with the provisions hereof.
(f) Ownership Restrictions. Notwithstanding anything herein to the
----------------------
contrary, the Shares may not be sold, assigned, transferred, pledged,
hypothecated or otherwise disposed of (except by will or the applicable laws of
descent and distribution) during the three year period from the date hereof (the
"Restricted Period"); provided, however, that such restrictions shall be removed
-------- -------
with respect to one-third of the Shares on each of the first two anniversaries
of their issuance. Any attempt to dispose of any such Shares in contravention
of such restrictions shall be null and void and without effect.
-2-
<PAGE>
All certificates issued evidencing the Shares shall bear the following
legend in addition to that set forth in paragraph (e) above:
"The shares of stock represented by this
certificate are subject to the provisions
of a certain Subscription Agreement dated
June 22, 1996, and any transfer or
encumbrance of the shares is subject to the
restrictions contained in such Subscription
Agreement, a copy of which (including any
amendments thereto) is on file at the
principal office of the Company."
Upon the request of the undersigned, the Company will arrange for the
removal of such legend with respect to such number of shares as to which the
restriction is removed pursuant to Paragraph 2(f) above.
(g) IN MAKING AN INVESTMENT DECISION EACH PURCHASER MUST RELY ON ITS
OWN EXAMINATION OF THE COMPANY, INCLUDING THE MERITS AND RISKS INVOLVED. THESE
SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES
COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE
NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THE DRAFT REGISTRATION
STATEMENT.
(h) THE SECURITIES MAY NOT BE OFFERED, TRANSFERRED, RESOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT AS PERMITTED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION, RULE 144 UNDER THE SECURITIES ACT, IF APPLICABLE, OR ANY OTHER
APPLICABLE EXEMPTION THEREFROM. THE UNDERSIGNED IS AWARE THAT THE EXEMPTION
PROVIDED BY RULE 144 WILL NOT BE AVAILABLE UNTIL TWO YEARS FROM THE DATE THE
NOTE IS PAID IN FULL AND THEN ONLY IF THE OTHER REQUIREMENTS OF RULE 144 ARE
THEN COMPLIED WITH. THE UNDERSIGNED IS FURTHER AWARE THAT IT MAY BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
3. Representations and Warranties of the Company. The Company
---------------------------------------------
acknowledges, represents, warrants and that it is a corporation duly organized,
validly existing and in good standing under the laws of the state of Delaware
and has all requisite corporate power and authority to own and operate its
properties and assets and to carry on its business as currently conducted. The
Company is not in default or violation of any material term or provision of its
Articles of Incorporation or Bylaws nor will the consummation of the
transactions contemplated by this Agreement cause any such default or violation.
The Company has all requisite corporate power
-3-
<PAGE>
and authority to enter into this Agreement, to sell the Shares hereunder and to
carry out and perform its obligations under the terms of this Agreement. This
Agreement is a valid and binding obligation of the Company, enforceable in
accordance with its terms.
4. Miscellaneous.
-------------
(a) The undersigned agrees not to transfer or assign this Agreement,
or any of the undersigned's interest herein, and further agrees that the
transfer or assignment of the Shares shall be made only in accordance with all
applicable laws and the terms hereof.
(b) This Agreement constitutes the entire agreement between the
undersigned and the Company with respect to the subject matter hereof. This
Agreement may be amended only by a writing executed by both of them.
(c) This Agreement shall be enforced, and construed in accordance
with the laws of the State of Arizona.
IN WITNESS WHEREOF, the undersigned has executed this Agreement this
22nd day of June 1996.
-------------------------------
[Name]
SUBSCRIPTION ACCEPTED:
NORTHERN AUTOMOTIVE CORPORATION
By:_______________________
-4-
<PAGE>
EXHIBIT A
PROMISSORY NOTE
---------------
$ June 22, 1996
--
For value received, the undersigned,
(the "Payor"), promises to pay to Northern Automotive Corporation (the "Payee"),
at the business address of the Payee located at 645 E. Missouri Avenue, Phoenix,
Arizona 85012, without interest, the principal sum of
($ ) on the earlier of (i) 120 days from the date of this Note, or
(ii) the day prior to the effective date of a merger of the Payee with and into
--------------------------
CSK Auto, Inc. (as to which due date the Payor will be provided at least one
-------------------------------------------------------------
day's prior notice).
- -------------------
The parties acknowledge that upon the occurrence of an Event of Default by
the Payor hereunder, the Payee shall have recourse to all the assets of the
Payor.
This Note is issued in payment for shares of
Common Stock of the Payee, in accordance with a subscription agreement by the
Payor of even date herewith.
Each of the following shall constitute an Event of Default hereunder:
(a) a receiver, liquidator or trustee of the Payor or of any property of
the Payor shall be appointed by court order; or any of the property of the Payor
shall be sequestered by court order; or a petition shall be filed against the
Payor under any bankruptcy, reorganization or insolvency law and shall not be
dismissed within 60 days after such filing; or
(b) the Payor shall file a petition in bankruptcy or request reorganization
under any provision of any bankruptcy, reorganization or insolvency law or shall
consent to the filing of any petition against it under any such law; or
(c) the Payor shall make a formal or informal assignment for the benefit of
its creditors or admit in writing its inability to pay its debts generally when
they become due or shall consent to the appointment of a receiver, trustee or
liquidator of the Payor or of all or any part of the property of the Payor; or
(d) any material property of the Payor shall be levied upon, garnished,
attached, or otherwise seized for the benefit of any creditor of the Payor or
shall be foreclosed upon by any party having a security interest therein.
Upon the occurrence of any such Event of Default, this Note shall, at the
election of Payee, become immediately due and payable without further notice or
demand, and the indebtedness evidenced by this Note shall immediately upon such
declaration of an Event of Default become due
<PAGE>
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby expressly waived, notwithstanding anything contained
herein to the contrary.
If any one or more Events of Default shall occur and be continuing, Payee
may proceed to protect and enforce Payee's rights either by suit in equity or by
action at law, or both, whether for the specific performance of any covenant,
condition or agreement contained in this Note or in any agreement or document
referred to herein or in aid of the exercise of any power granted in this Note
or in any agreement or document referred to herein, or proceed to enforce the
payment of this Note or to enforce any other legal or equitable rights to the
Payee of this Note. No right or remedy herein conferred upon the Payee of this
Note is intended to be exclusive of any other right or remedy, and each and
every such right or remedy shall be cumulative and shall be in addition to every
other right and remedy given hereunder or now or hereafter existing at law or in
equity or by statute or otherwise.
Payor, to the extent permitted by applicable law, waives presentment for
payment, protest and demand, and notice of protest, demand and/or dishonor and
nonpayment of this note, and all other notices or demands otherwise required by
law that the Payor may lawfully waive.
Waiver by Payee of any default of the Payor hereunder shall not be deemed
a waiver of the same default on another occasion or any other default of the
Payor. Any failure of the Payee to exercise any right to call the principal and
interest due or accelerate the payment of the principal and interest on this
note, shall not preclude the Payee from any further exercise of such right in
the event of the continuation of the default or other circumstances allowing
such right or any subsequent default or circumstances.
Payor agrees to pay all costs and expenses, including reasonable attorney's
fees, incurred by Payee in connection with the enforcement of this Note, the
collection of any sums due hereunder, any actions for declaratory relief in any
way related to this Note, or the protection or preservation of any rights of
Payee hereunder, whether or not suit is brought.
This note shall be binding upon and inure to the benefit of the parties
hereto and their respective successor and assigns, and the references herein to
the Payor, shall include its successors and assigns, and the references herein
to the Payee shall include any successors or assigns thereof as approved by the
Payor.
This note may not be changed or terminated orally, but only by an
agreement in writing signed by the party against whom enforcement of any change,
modification, termination, waiver, or discharge is sought.
This Note shall be governed by and enforced in accordance with the laws of
the State of Delaware, without giving effect to principles of conflict of laws
thereof.
By:
---------------------------
-2-
<PAGE>
EXHIBIT 10.1
CSK AUTO, INC.
1996 EMPLOYEE STOCK OPTION PLAN
-------------------------------
1. Purposes of the Plan.
--------------------
This stock option plan (the "Plan") is designed to provide an
incentive to employees (including directors and officers who are employees) of
and consultants to CSK AUTO, INC., a Delaware corporation (the "Company") or any
of its Subsidiaries or a Parent (as such terms are defined in Paragraph 19), and
to offer an additional inducement in obtaining the services of such persons.
The Plan provides for the grant of "incentive stock options" ("ISOs") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and nonqualified stock options which do not qualify as ISOs ("NQSOs"),
but the Company makes no representation or warranty, express or implied, as to
the qualification of any option as an "incentive stock option" under the Code.
2. Stock Subject to the Plan.
-------------------------
Subject to the provisions of Paragraph 12, the aggregate number of
shares of common stock, $.001 par value per share, of the Company ("Common
Stock") for which options may be granted under the Plan shall not exceed
4,300,000. Such shares of Common Stock may, in the discretion of the
Board of Directors of the Company (the "Board of Directors"), consist either in
whole or in part of authorized but unissued shares of Common Stock or shares of
Common Stock held in the treasury of the Company. Subject to the provisions of
Paragraph 13, any shares of Common Stock subject to an option which for any
reason expires, is canceled or is terminated unexercised or which ceases for any
reason to be exercisable shall again become available for the granting of
options under the Plan. The Company shall at all times during the term of the
Plan reserve and keep available such number of shares of Common Stock as will be
sufficient to satisfy the requirements of the Plan.
3. Administration of the Plan.
--------------------------
The Plan shall be administered by a committee of the Board of
Directors consisting of not less than two directors (the "Committee"). During
such time as the Company has a class of equity securities registered under
Section 12 of the Securities Exchange Act of 1934, as amended, each member of
the Committee shall be (a) a "disinterested person" within the meaning of Rule
16b-3 promulgated under such act until such time as the amendments to Rule 16b-3
adopted by the Securities and Exchange Commission on May 30, 1996 in Release No.
34-37260 become effective with respect to the Plan (the "New Rule Date") and (b)
from and after the New Rule Date, a "Non-Employee Director" within the meaning
of Rule 16b-3 (as the same may be in effect and interpreted from time to time,
"Rule 16b-3"). A majority of the members of
<PAGE>
the Committee shall constitute a quorum, and the acts of a majority of the
members present at any meeting at which a quorum is present, and any acts
approved in writing by all members without a meeting, shall be the acts of the
Committee.
Subject to the express provisions of the Plan, the Committee shall
have the authority, in its sole discretion: to determine the employees and
consultants who shall be granted options; the times when options shall be
granted; whether an option shall be an ISO or a NQSO; the number of shares of
Common Stock to be subject to each option; the term of each option; the date
each option shall become exercisable; whether an option shall be exercisable in
whole, in part or in installments and, if in installments, the number of shares
of Common Stock to be subject to each installment, whether the installments
shall be cumulative, the date each installment shall become exercisable and the
term of each installment; whether to accelerate the date of exercise of any
option or installment; whether shares of Common Stock may be issued upon the
exercise of an option as partly paid and, if so, the dates when future
installments of the exercise price shall become due and the amounts of such
installments; the exercise price of each option; the form of payment of the
exercise price; whether to restrict the sale or other disposition of the shares
of Common Stock acquired upon the exercise of an option and, if so, whether to
waive any such restriction; whether to subject the grant or exercise of all or
any portion of an option to the fulfillment of contingencies as specified in the
contract referred to in Paragraph 11 (the "Contract"), including without
limitation, contingencies relating to entering into a covenant not to compete
with the Company, any of its Subsidiaries or a Parent, to financial objectives
for the Company, any of its Subsidiaries or a Parent, a division of any of the
foregoing, a product line or other category, and/or the period of continued
employment of the optionee with the Company, any of its Subsidiaries or a
Parent, and to determine whether such contingencies have been met; whether an
optionee is Disabled (as defined in Paragraph 19); the amount, if any, necessary
to satisfy the obligation of the Company, a Subsidiary or a Parent to withhold
taxes or other amounts; the fair market value of a share of Common Stock; to
construe the respective Contracts and the Plan; with the consent of the
optionee, to cancel or modify an option, provided, that the modified provision
--------
is permitted to be included in an option granted under the Plan on the date of
the modification, and further, provided, that in the case of a modification
------- --------
(within the meaning of Section 424(h) of the Code) of an ISO, such option as
modified would be permitted to be granted on the date of such modification under
the terms of the Plan; to prescribe, amend and rescind rules and regulations
relating to the Plan; from and after the New Rule Date, to approve any provision
which under Rule 16b-3 requires approval by the Board of Directors, a committee
of Non-Employee Directors or the stockholders to be exempt (unless otherwise
specifically provided herein); and to make all other determinations necessary or
advisable for administering the Plan. Any controversy or claim arising out of or
relating to the Plan, any option granted under the Plan or any Contract shall be
determined unilaterally by the Committee in its sole discretion. The
determinations of the Committee on the matters referred to in this Paragraph 3
shall be conclusive and binding on the parties.
2
<PAGE>
No member or former member of the Committee shall be liable for any
action, failure to act or determination made in good faith with respect to the
Plan or any option hereunder. In addition, the Company shall indemnify and hold
harmless each member and former member of the Committee and their respective
successors, assigns, heirs and personal representatives from and against any
liability, loss, claim, damage and expense (including without limitation
attorneys fees and expenses) incurred in connection therewith by reason of any
action, failure to act or determination made in good faith under or in
connection with the Plan or any option hereunder to the fullest extent permitted
with respect to directors under the Company's certificate of incorporation, by-
laws or applicable law.
4. Eligibility.
-----------
The Committee may from time to time, in its sole discretion,
consistent with the purposes of the Plan, grant options to employees (including
officers and directors who are employees) of, and to consultants to, the Company
or any of its Subsidiaries, or a Parent of the Company. Such options granted
shall cover such number of shares of Common Stock as the Committee may
determine, in its sole discretion; provided, however, that if the Company is a
-------- -------
"publicly held corporation" (within the meaning of Code Section 162(m)), the
maximum number of shares of Common Stock subject to options that may be granted
to any employee during any fiscal year of the Company under the Plan shall be
1,250,000 shares (the "162(m) Maximum"); and further, provided, that the
------- --------
aggregate market value (determined at the time the option is granted in
accordance with Paragraph 5) of the shares of Common Stock for which any
eligible employee may be granted ISOs under the Plan or any other plan of the
Company, or of a Parent or a Subsidiary of the Company, which are exercisable
for the first time by such optionee during any calendar year shall not exceed
$100,000. Such ISO limitation shall be applied by taking ISOs into account in
the order in which they were granted. Any option (or the portion thereof)
granted in excess of such ISO limitation amount shall be treated as a NQSO.
5. Exercise Price.
--------------
The exercise price of the shares of Common Stock under each option
shall be determined by the Committee in its sole discretion; provided, however,
-------- -------
that the exercise price of an ISO shall not be less than the fair market value
of the Common Stock subject to such option on the date of grant; and further,
-------
provided, that if, at the time an ISO is granted, the optionee owns (or is
- --------
deemed to own under Section 424(d) of the Code) stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company, of
any of its Subsidiaries or of a Parent, the exercise price of such ISO shall not
be less than 110% of the fair market value of the Common Stock subject to such
ISO on the date of grant.
The fair market value of a share of Common Stock on any day shall be
(a) if the principal market for the Common Stock is a national securities
exchange, the average of the
3
<PAGE>
highest and lowest sales prices per share of Common Stock on such day as
reported by such exchange or on a composite tape reflecting transactions on such
exchange, (b) if the principal market for the Common Stock is not a national
securities exchange and the Common Stock is quoted on The Nasdaq Stock Market
("Nasdaq"), and (i) if actual sales price information is available with respect
to the Common Stock, the average of the highest and lowest sales prices per
share of Common Stock on such day on Nasdaq, or (ii) if such information is not
available, the average of the highest bid and lowest asked prices per share of
Common Stock on such day on Nasdaq, or (c) if the principal market for the
Common Stock is not a national securities exchange and the Common Stock is not
quoted on Nasdaq, the average of the highest bid and lowest asked prices per
share of Common Stock on such day as reported on the OTC Bulletin Board Service
or by National Quotation Bureau, Incorporated or a comparable service; provided,
--------
however, that if clauses (a), (b) and (c) of this Paragraph are all
- -------
inapplicable, or if no trades have been made or no quotes are available for such
day, the fair market value of the Common Stock shall be determined by the Board
by any method consistent with applicable regulations adopted by the Treasury
Department relating to stock options.
6. Term.
----
The term of each option granted pursuant to the Plan shall be such
term as is established by the Committee, in its sole discretion; provided,
--------
however, that the term of each ISO granted pursuant to the Plan shall be for a
- -------
period not exceeding 10 years from the date of grant thereof; and further,
-------
provided, that if, at the time an ISO is granted, the optionee owns (or is
- --------
deemed to own under Section 424(d) of the Code) stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company, of
any of its Subsidiaries or of a Parent, the term of the ISO shall be for a
period not exceeding five years from the date of grant. Options shall be subject
to earlier termination as hereinafter provided.
7. Exercise.
--------
An option (or any Part or installment thereof), to the extent then
exercisable, shall be exercised by giving written notice to the Company (in
advance as determined by the Committee) at its principal office stating which
option is being exercised, specifying the number of shares of Common Stock as to
which such option is being exercised and accompanied by payment in full of the
aggregate exercise price therefor (or the amount due on exercise if the Contract
permits installment payments) (a) in cash or by certified check or (b) if the
applicable Contract permits, with previously acquired shares of Common Stock
having an aggregate fair market value on the date of exercise (determined in
accordance with Paragraph 5) equal to the aggregate exercise price of all
options being exercised, or with any combination of cash, certified check or
shares of Common Stock having such value. The Company shall not be required to
issue any shares of Common Stock pursuant to any such option until all required
payments, including any required withholding, have been made.
4
<PAGE>
A person entitled to receive Common Stock upon the exercise of an
option shall not have the rights of a stockholder with respect to such shares of
Common Stock until the date of issuance of a stock certificate to him for such
shares; provided, however, that until such stock
-------- -------
certificate is issued, any optionee using previously acquired shares of Common
Stock in payment of an option exercise price shall continue to have the rights
of a stockholder with respect to such previously acquired shares.
In no case may a fraction of a share of Common Stock be purchased or
issued under the Plan.
8. Termination of Relationship.
---------------------------
Except as may otherwise be expressly provided in the applicable
Contract, any optionee whose relationship with the Company, its Parent and
Subsidiaries as an employee or a consultant has terminated for any reason (other
than as a result of the death or Disability of the optionee) may exercise such
option, to the extent exercisable on the date of such termination, at any time
within three months after the date of termination, but not thereafter and in no
event after the date the option would otherwise have expired; provided, however,
-------- -------
that if such relationship is terminated either (a) for cause, or (b) without the
consent of the Company, such option shall terminate immediately.
For the purposes of the Plan, an employment relationship shall be
deemed to exist between an individual and a corporation if, at the time of the
determination, the individual was an employee of such corporation for purposes
of Section 422(a) of the Code. As a result, an individual on military, sick
leave or other bona fide leave of absence shall continue to be considered an
employee for purposes of the Plan during such leave if the period of the leave
does not exceed 90 days, or, if longer, so long as the individual's right to
reemployment with the Company (or a related corporation) is guaranteed either by
statute or by contract. If the period of leave exceeds 90 days and the
individual's right to reemployment is not guaranteed by statute or by contract,
the employment relationship shall be deemed to have terminated on the 91st day
of such leave.
Except as may otherwise be expressly provided in the applicable
Contract, options granted under the Plan shall not be affected by any change in
the status of the optionee so long as the optionee continues to be an employee
of, or a consultant to, the Company, or any of its Subsidiaries or a Parent
(regardless of having changed from one to the other or having been transferred
from one corporation to another).
Nothing in the Plan or in any option granted under the Plan shall
confer on any optionee any right to continue in the employ of, or as a
consultant to, the Company, any of its Subsidiaries or a Parent, or interfere in
any way with any right of the Company, any of its
5
<PAGE>
Subsidiaries or a Parent to terminate the optionee's relationship at any time
for any reason whatsoever without liability to the Company, its Subsidiaries or
Parent.
For purposes of this Plan, "cause" shall mean fraud or embezzlement by
the optionee, gross negligence by the optionee in the performance or
nonperformance of his duties for the Company, its Subsidiaries or Parent, or the
optionee's material failure or refusal to perform his duties at any time as an
employee of or consultant to the Company, a Subsidiary or Parent.
9. Death or Disability of an Optionee.
----------------------------------
Except as may otherwise be expressly provided in the applicable
Contract, if an optionee dies (a) while he is an employee of, or consultant to,
the Company, any of its Subsidiaries or a Parent, (b) within three months after
the termination of such relationship (unless such termination was for cause or
without the consent of the Company) or (c) within one year following the
termination of such relationship by reason of his Disability, his option may be
exercised, to the extent exercisable on the date of his death, by his Legal
Representative (as defined in Paragraph 19) at any time within one year after
death, but not thereafter and in no event after the date the option would
otherwise have expired.
Except as may otherwise be expressly provided in the applicable
Contract, any optionee whose relationship as an employee of, or consultant to,
the Company, its Parent and Subsidiaries has terminated by reason of such
optionee's Disability may exercise his option, to the extent exercisable upon
the effective date of such termination, at any time within one year after such
date, but not thereafter and in no event after the date the option would
otherwise have expired.
10. Compliance with Securities Laws.
-------------------------------
The Committee may require, in its sole discretion, as a condition to
the exercise of any option that either (a) a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of Common Stock to be issued upon such exercise shall be effective and
current at the time of exercise, or (b) there is an exemption from registration
under the Securities Act for the issuance of the shares of Common Stock upon
such exercise. Nothing herein shall be construed as requiring the Company to
register shares subject to any option under the Securities Act or to keep any
Registration Statement effective or current.
The Committee may require, in its sole discretion, as a condition to
the exercise of any option that the optionee execute and deliver to the Company
his representations and warranties, in form, substance and scope satisfactory to
the Committee, which the Committee determines are necessary or convenient to
facilitate the perfection of an exemption from the
6
<PAGE>
registration requirements of the Securities Act, applicable state securities
laws or other legal requirement, including without limitation that (a) the
shares of Common Stock to be issued upon the exercise of the option are being
acquired by the optionee for his own account, for investment only and not with a
view to the resale or distribution thereof, and (b) any subsequent resale or
distribution of shares of Common Stock by such optionee will be made only
pursuant to (i) a Registration Statement under the Securities Act which is
effective and current with respect to the shares of Common Stock being sold, or
(ii) a specific exemption from the registration requirements of the Securities
Act, but in claiming such exemption, the optionee shall prior to any offer of
sale or sale of such shares of Common Stock provide the Company with a favorable
written opinion of counsel satisfactory to the Company, in form, substance and
scope satisfactory to the Company, as to the applicability of such exemption to
the proposed sale or distribution.
In addition, if at any time the Committee shall determine, in its sole
discretion, that the listing or qualification of the shares of Common Stock
subject to such option on any securities exchange, Nasdaq or under any
applicable law, or the consent or approval of any governmental authority or
regulatory body, is necessary or desirable as a condition to, or in connection
with, the granting of an option or the issue of shares of Common Stock
thereunder, such option may not be exercised in whole or in part unless such
listing, qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Committee.
11. Stock Option Contracts.
----------------------
Each option shall be evidenced by an appropriate Contract which shall
be duly executed by the Company and the optionee, and shall contain such terms,
provisions and conditions not inconsistent herewith as may be determined by the
Committee.
12. Adjustments upon Changes in Common Stock.
----------------------------------------
Notwithstanding any other provision of the Plan, in the event of a
stock dividend, spin-off, split-up, combination, reclassification,
recapitalization, merger in which the Company is the surviving corporation, or
exchange of shares or the like which results in a change in the number or kind
of shares of Common Stock which are outstanding immediately prior to such event,
the aggregate number and kind of shares subject to the Plan, the aggregate
number and kind of shares subject to each outstanding option and the exercise
price thereof, and the 162(m) Maximum shall be appropriately adjusted by the
Board of Directors, whose determination shall be conclusive and binding on all
parties.
13. Amendments and Termination of the Plan.
--------------------------------------
7
<PAGE>
The Plan was adopted by the Board of Directors on July 1, 1996. No
option may be granted under the Plan after June 30, 2006. The Board of
Directors, without further approval of the Company's stockholders, may at any
time suspend or terminate the Plan, in whole or in part, or amend it from time
to time in such respects as it may deem advisable, including, without
limitation, in order that ISOs granted hereunder meet the requirements for
"incentive stock options" under the Code, to comply with the provisions of Rule
16b-3, Section 162(m) of the Code, or any change in applicable law, regulations,
rulings or interpretations of administrative agencies; provided, however, that
-------- -------
no amendment shall be effective without the requisite prior or subsequent
stockholder approval which would (a) except as contemplated in Paragraph 12,
increase the maximum number of shares of Common Stock for which options may be
granted under the Plan or the 162(m) Maximum, (b) prior to the New Rule Date,
materially increase the benefits accruing to participants under the Plan or (c)
change the eligibility requirements to receive options hereunder. No
termination, suspension or amendment of the Plan shall, without the consent of
the holder of an existing and outstanding option affected thereby, adversely
affect his rights under such option. The power of the Committee to construe and
administer any options granted under the Plan prior to the termination or
suspension of the Plan nevertheless shall continue after such termination or
during such suspension.
14. Non-transferability of Options.
------------------------------
No option granted under the Plan shall be transferable otherwise than
by will or the laws of descent and distribution, and options may be exercised,
during the lifetime of the optionee, only by the optionee or his Legal
Representatives. Except to the extent provided above, options may not be
assigned, transferred, pledged, hypothecated or disposed of in any way (whether
by operation of law or otherwise) and shall not be subject to execution,
attachment or similar process, and any such attempted assignment, transfer,
pledge, hypothecation or disposition shall be null and void ab initio and of no
-- ------
force or effect.
15. Withholding Taxes.
-----------------
The Company may withhold (a) cash, (b) subject to any limitations
under Rule 16b-3, shares of Common Stock to be issued with respect thereto
having an aggregate fair market value on the exercise date (determined in
accordance with Paragraph 5), or (c) any combination thereof, in an amount equal
to the amount which the Committee determines is necessary to satisfy the
obligation of the company, a Subsidiary or a Parent to withhold Federal, state
and local income taxes or other amounts incurred by reason of the grant or
exercise of an option, its disposition, or the disposition of the underlying
shares of Common Stock. Alternatively, the Company may require the holder to
pay to the Company such amount, in cash, promptly upon demand.
16. Legends; Payment of Expenses.
----------------------------
8
<PAGE>
The Company may endorse such legend or legends upon the certificates
for shares of Common Stock issued upon exercise of an option under the Plan and
may issue such "stop transfer" instructions to its transfer agent in respect of
such shares as it determines, in its discretion, to be necessary or appropriate
to (a) prevent a violation of, or to perfect an exemption from, the registration
requirements of the Securities Act and any applicable state securities laws, (b)
implement the provisions of the Plan or any agreement between the Company and
the optionee with respect to such shares of Common Stock, or (c) permit the
Company to determine the occurrence of a "disqualifying disposition," as
described in Section 421(b) of the Code, of the shares of Common Stock issued or
transferred upon the exercise of an ISO granted under the Plan.
The Company shall pay all issuance taxes with respect to the issuance
of shares of Common Stock upon the exercise of an option granted under the Plan,
as well as all fees and expenses incurred by the Company in connection with such
issuance.
17. Use of Proceeds.
---------------
The cash proceeds from the sale of shares of Common Stock pursuant to
the exercise of options under the Plan shall be added to the general funds of
the Company and used for such corporate purposes as the Board of Directors may
determine.
18. Substitutions and Assumptions of Options of Certain Constituent
---------------------------------------------------------------
Corporations.
- ------------
Anything in this Plan to the contrary notwithstanding, the Board of
Directors may, without further approval by the stockholders, substitute new
options for prior options of a Constituent Corporation (as defined in Paragraph
19) or assume the prior options of such Constituent Corporation.
19. Definitions.
-----------
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) Constituent Corporation. The term "Constituent Corporation" shall
mean any corporation which engages with the Company, any of its Subsidiaries or
a Parent in a transaction to which Section 424(a) of the Code applies (or would
apply if the option assumed or substituted were an ISO), or any Parent or any
Subsidiary of such corporation.
(b) Disability. The term "Disability" shall mean a permanent and
total disability within the meaning of Section 22(e)(3) of the Code.
9
<PAGE>
(c) Legal Representative. The term "Legal Representative" shall mean
the executor, administrator or other person who at the time is entitled by law
to exercise the rights of a deceased or incapacitated optionee with respect to
an option granted under the Plan.
(d) Parent. The term "Parent" shall have the same definition as
"parent corporation" in Section 424(e) of the Code.
(e) Subsidiary. The term "Subsidiary" shall have the same definition
as "subsidiary corporation" in Section 424(f) of the Code.
20. Governing Law; Construction.
---------------------------
The Plan, such options as may be granted hereunder and all related
matters shall be governed by, and construed in accordance with, the laws of the
State of Delaware, without regard to conflict of law provisions.
Neither the Plan nor any Contract shall be construed or interpreted
with any presumption against the Company by reason of the Company causing the
Plan or Contract to be drafted. Whenever from the context it appears
appropriate, any term stated in either the singular or plural shall include the
singular and plural, and any term stated in the masculine, feminine or neuter
gender shall include the masculine, feminine and neuter.
21. Partial Invalidity.
------------------
The invalidity, illegality or unenforceability of any provision in the
Plan or any Contract shall not affect the validity, legality or enforceability
of any other provision, all of which shall be valid, legal and enforceable to
the fullest extent permitted by applicable law.
22. Stockholder Approval.
--------------------
The Plan shall take effect upon its adoption by the Board, but the
Plan shall be subject to the approval of the holders of a majority of the
securities of the Company present, or represented, and entitled to vote at a
meeting of stockholders held in accordance with applicable law. No options
granted hereunder may be exercised prior to such approval; provided, however,
-------- -------
that the date of grant of any option shall be determined as if the Plan had not
been subject to such approval. Notwithstanding the foregoing, if the Plan is
not approved by a vote of the stockholders of the Company on or before June 19,
1997, the Plan and any options granted hereunder shall terminate.
10
<PAGE>
EXHIBIT 10.2
CSK AUTO, INC.
1996 MANAGEMENT STOCK PURCHASE PLAN
-----------------------------------
1. Purposes of the Plan.
--------------------
The purposes of CSK Auto, Inc. Management Stock Purchase Plan (the
"Plan") are to attract and retain highly-qualified executives, to align
executive and stockholder long-term interests by creating a direct link between
executive compensation and stockholder return, enable executives to develop and
maintain a substantial stock ownership position in CSK Auto, Inc., and to
provide incentives to such executives to contribute to the success of the
Company's businesses. The provisions of the Plan are intended to satisfy the
requirements of Rule 16b-3 of the Securities Exchange Act of 1934, as amended
from time to time, and shall be interpreted in a manner consistent with the
requirements thereof, as now or hereafter construed, interpreted and applied by
regulations, rulings and cases.
2. Definitions.
-----------
As used in this Plan, the following words and phrases shall have the
meanings indicated:
(a) "Annual Bonus" shall mean the bonus earned by a Participant under
the Incentive Plan.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause" shall mean the Participant's fraud, embezzlement, gross
negligence in the performance or nonperformance of the Participant's duties or
material failure or refusal to perform the Participant's duties at any time
while in the employ of the Company or a Subsidiary or a Parent.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(e) "Committee" shall mean the Compensation Committee of the Board.
(f) "Common Stock" means the shares of common stock of the Company,
$.001 par value per share.
(g) "Company" shall mean CSK Auto, Inc., a corporation organized under
the laws of the State of Delaware, or any successor corporation.
<PAGE>
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and as now or hereafter construed, interpreted and
applied by regulations, rulings and cases.
(i) "Fair Market Value" per Restricted Share on any day shall mean (i)
if the principal market for the Common Stock is a national securities exchange,
the average between the highest and lowest sales prices per share of the Common
Stock on the trading day immediately preceding such day as reported by such
exchange or on a composite tape reflecting transactions on such exchange, (ii)
if the principal market for the Common Stock is not a national securities
exchange and the Common Stock is quoted on The Nasdaq Stock Market ("Nasdaq"),
and (x) if actual sales price information is available with respect to the
Common Stock, the average between the highest and the lowest sales prices per
share of the Common Stock on the trading day immediately preceding such day on
Nasdaq, or (y) if such information is not available, the average between the
highest bid and lowest asked prices per share for the Common Stock on the
trading day immediately preceding such day on Nasdaq, or (iii) if the principal
market for the Common Stock is not a national securities exchange and the Common
Stock is not quoted on Nasdaq, the average between the highest bid and lowest
asked prices per share for the Common Stock on the trading day immediately
preceding such day as reported on the OTC Bulletin Board Service or by National
Quotations Bureau, Incorporated or a comparable service; provided that if
clauses (i), (ii) and (iii) of this Paragraph are all inapplicable, or if no
trades have been made or no quotes are available for such day, the Fair Market
Value of the Common Stock shall be determined by the Committee, in good faith,
in a manner that is not inconsistent with Section 423 of the Code or the
regulations thereunder.
(j) "Incentive Plan" shall mean CSK Auto, Inc. General and
Administrative Staff Incentive Compensation Bonus Plan.
(k) "Parent" shall mean the parent of the Company (whether or not the
parent on the date the Plan is adopted) which is designated by the Committee or
Board to participate in the Plan.
(l) "Participant" shall mean a person who is eligible to receive a
grant of Restricted Shares under Article 5 of the Plan and does receive a grant
of Restricted Shares under the Plan; all such grants are sometimes referred to
herein as purchases.
(m) "Plan" shall mean CSK Auto, Inc. Executive Stock Purchase Plan, as
amended from time to time.
(n) "Restricted Period" shall have the meaning given in Section 6(d)
hereof.
(o) "Restricted Share" or "Restricted Shares" shall mean the Shares
purchased hereunder subject to restrictions.
2
<PAGE>
(p) "Rule 16b-3" shall mean Rule 16b-3, as in effect from time to
time, promulgated by the Securities and Exchange Commission under Section 16 of
the Exchange Act, including any successor to such Rule.
(q) "Shares" shall mean the common shares of the Company, $.001 par
value per share.
(r) "Stock Option Plan" shall mean CSK Auto, Inc. 1996 Employee Stock
Option Plan, as amended from time to time.
(s) "Subsidiary" shall mean any subsidiary of the Company (whether or
not a subsidiary on the date the Plan is adopted) which is designated by the
Committee or Board to participate in the Plan.
3. Shares.
------
The maximum number of Shares which shall be reserved for the purchase
of Restricted Shares under the Plan shall be 250,000 Shares which number shall
be subject to adjustment as provided in Article 6 hereof. Such Shares may be
either authorized but unissued Shares or Shares that shall have been or may be
reacquired by the Company.
4. Eligibility.
-----------
All Company officers and such key employees of the Company and its
Subsidiaries as are designated as participants in the Company's Incentive Plan
shall be Participants in this Plan to purchase Restricted Shares granted
pursuant to, and subject to the terms and conditions of, this Plan. At the
election of any Participant, he or she may use up to 100 percent of the Annual
Bonus (less applicable payroll deductions, which shall not include Federal
income tax withholding) to purchase Restricted Shares granted pursuant to, and
subject to the terms and conditions of, this Plan. The amount of the Annual
Bonus shall be calculated in accordance with the Company's Incentive Plan.
Since the Restricted Shares are "purchased" with part or all of the Annual
Bonus, all Restricted Share grants under this Plan are sometimes referred to
herein as "purchases." Any election described in this paragraph shall be made
in accordance with rules established by the Committee.
5. Restricted Shares.
-----------------
Each purchase of Restricted Shares under the Plan shall comply with
the following terms and conditions (and with such other terms and conditions not
inconsistent with the terms of this Plan as the Committee, in its discretion,
shall establish):
3
<PAGE>
(a) PRICE. The price of each Restricted Share purchased under the
Plan shall be equal to 85% of the Fair Market Value of a share of the Company's
Common Stock for the day of purchase.
(b) RESTRICTIONS. Restricted Shares may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of (except by will or
the applicable laws of descent and distribution) during the Restricted Period.
Upon the issuance of Restricted Shares, a share certificate or certificates
representing such Restricted Shares shall be registered in the Participant's
name and shall bear an appropriate legend referring to the restrictions
applicable thereto as set forth in 5(d) below. Any attempt to dispose of any
such Shares in contravention of such restrictions shall be null and void and
without effect.
(c) RESTRICTED PERIOD. Subject to such exceptions as may be
determined by the Committee in its discretion prior to a purchase hereunder, the
Restricted Period for Restricted Shares purchased under the Plan shall be one
year from the date of purchase. For purposes of calculating the Restricted
Period, the date of purchase shall be deemed to be the date the Annual Bonus is
payable.
(d) TERMINATION OF EMPLOYMENT DURING RESTRICTED PERIOD. Nothing in
the Plan or in any option granted under the Plan shall confer on any individual
the right to continue in the employ of the Company, any of its Subsidiaries or
Parent, or interfere in any way with any right of the Company, its Subsidiaries
or Parent to terminate the individual's employment at any time for any reason
without liability to the Company, its Subsidiaries or Parent.
All stock certificates issued pursuant to the Plan shall bear the
following legend:
"The shares of stock represented by this certificate are subject to
the provisions of the Company's 1996 Management Stock Purchase Plan
adopted June 19, 1996, and any transfer or encumbrance of the shares
is subject to the restrictions contained in such Plan, a copy of which
(including any amendments thereto) is on file at the principal office
of the Company."
(e) OWNERSHIP. During the Restricted Period the Participant shall
possess all incidents of ownership of such Restricted Shares, including the
right to vote and to receive dividends with respect to such Shares, subject to
the restrictions and limitations described in this Article.
(f) ACCELERATED LAPSE OF RESTRICTIONS. Upon the termination of a
Participant's employment which either (i) occurs upon retirement in accordance
with Company policy or results from the Participant's death or Disability, all
restrictions then outstanding with
4
<PAGE>
respect to Restricted Shares purchased hereunder shall automatically expire and
be of no further force and effect.
6. Adjustments Upon Changes in Common Stock.
----------------------------------------
Notwithstanding any provisions of the Plan, in the event of any change
in the outstanding Common Stock by reason of a stock dividend, recapitalization,
merger in which the Company is the surviving corporation, reorganization, split-
up, spin-off, combination or exchange of shares or the like, the aggregate
number and kind of Restricted Share grants to Participants shall be
appropriately adjusted by the Board, whose determination shall be conclusive.
7. Administration.
--------------
Prior to completion of the Company's initial public offering, the Plan
shall be administered by the Board (which, during such period, shall have all
the powers given herein to the Committee). From and after the completion of
such offering, the Plan shall be administered by the Committee consisting of two
or more persons. Each member of the Committee shall be a "disinterested person"
within the meaning of Rule 16b-3 until such time as the amendments to Rule 16b-3
adopted by the Securities and Exchange Commission on May 30, 1996 in Release No.
34-37260 become effective with respect to the Plan (the "New Rule Date") and
from and after the New Rule Date, a "Non-Employee Director" within the meaning
of Rule 16b-3. The Committee shall have the authority in its discretion,
subject to and not inconsistent with the express provisions of the Plan, to
administer the Plan and to exercise all the powers and authorities either
specifically granted to it under the Plan or necessary or advisable in the
administration of the Plan, including, without limitation, to interpret the
Plan; to prescribe, amend and rescind rules and regulations relating to the
Plan; to determine the terms and provisions of the Agreements (which need not be
identical); and to make all other determinations deemed necessary or advisable
for the administration of the Plan.
No member of the Board or Committee shall be liable for any action
taken or determination made in good faith with respect to the Plan or any grant
hereunder.
8. Amendment and Termination of the Plan.
-------------------------------------
The Board at any time and from time to time may suspend, terminate,
modify or amend the Plan; provided, however, that an amendment which requires
stockholder approval in order for the Plan to continue to comply with Rule 16b-
3, or any other law, regulation or stock exchange requirement shall not be
effective unless approved by the requisite vote of stockholders. Except as
provided elsewhere herein, no suspension, termination, modification or amendment
of the Plan may adversely affect any purchase made, unless the written consent
of the Participant is obtained.
5
<PAGE>
9. Governing Law.
-------------
The Plan and the rights of all persons claiming hereunder shall be
construed and determined in accordance with the laws of the State of Delaware
without giving effect to the choice of law principles thereof.
10. Approval of Stockholders.
------------------------
The Plan shall take effect upon its adoption by the Board, but the
Plan (and any purchases made prior to the stockholder approval described in this
Article 9) shall be subject to the approval of the holders of a majority of the
securities of the Company present, or represented, and entitled to vote at a
meeting of stockholders held in accordance with applicable law, which approval
must occur within twelve months of the date the Plan is adopted by the Board.
6
<PAGE>
EXHIBIT 10.3
CSK AUTO, INC.
1996 DIRECTOR STOCK PLAN
------------------------
1. Purpose of the Plan.
-------------------
CSK Auto, Inc. Director Stock Plan is intended to increase the
proprietary interest of nonemployee members of the Board of Directors of CSK
Auto, Inc. by providing further opportunity for ownership of the Company's
Shares. By means of such increased proprietary interest, the Plan is intended
to increase their incentive to contribute to the success of the Company's
business.
The Plan is intended to comply with Rule 16b-3 under the Exchange Act
and shall be interpreted in a manner consistent with the requirements thereof,
as now or hereafter construed, interpreted and applied by regulations, rulings
and cases. In particular, the provisions of Article 4 hereof are intended to
comply with the "formula plan" requirements of Rule 16b-3 and such Article shall
be construed to so comply.
2. Definitions.
-----------
As used in this Plan, the following words and phrases shall have the
meanings indicated:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(c) "Committee" shall mean the Compensation Committee of the Board.
(d) "Common Stock" shall mean the shares of common stock of the
Company, $.001 par value per share.
(e) "Company" shall mean CSK Auto, Inc., a corporation organized under
the laws of the State of Delaware, or any successor corporation.
(f) "Disability" shall be as defined in Section 22(e)(3) of the Code.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and as now or hereafter construed, interpreted and
applied by regulations, rulings and cases.
<PAGE>
(h) "Fair Market Value" per Restricted Share on any day shall mean (i)
if the principal market for the Common Stock is a national securities exchange,
the average between the highest and lowest sales prices per share of the Common
Stock on the trading day immediately preceding such day as reported by such
exchange or on a composite tape reflecting transactions on such exchange, (ii)
if the principal market for the Common Stock is not a national securities
exchange and the Common Stock is quoted on The Nasdaq Stock Market ("Nasdaq"),
and (x) if actual sales price information is available with respect to the
Common Stock, the average between the highest and the lowest sales prices per
share of the Common Stock on the trading day immediately preceding such day on
Nasdaq, or (y) if such information is not available, the average between the
highest bid and lowest asked prices per share for the Common Stock on the
trading day immediately preceding such day on Nasdaq, or (iii) if the principal
market for the Common Stock is not a national securities exchange and the Common
Stock is not quoted on Nasdaq, the average between the highest bid and lowest
asked prices per share for the Common Stock on the trading day immediately
preceding such day as reported on the OTC Bulletin Board Service or by National
Quotations Bureau, Incorporated or a comparable service; provided that if
clauses (i), (ii) and (iii) of this Paragraph are all inapplicable, or if no
trades have been made or no quotes are available for such day, the Fair Market
Value of the Common Stock shall be determined by the Committee, in good faith,
in a manner that is not inconsistent with Section 423 of the Code or the
regulations thereunder.
(i) "Participant" shall mean a member of the Board who is not an
employee of the Company, any subsidiary of the Company or a parent of the
Company.
(j) "Plan" shall mean 1996 CSK Auto, Inc. Director Stock Plan, as
amended from time to time.
(k) "Plan Quarter" shall mean a calendar quarter of the Company,
except that the first "Plan Quarter" shall begin the date the Company's
registration statement filed in connection with the Company's initial public
offering is declared effective by the Securities and Exchange Commission and
shall end at the end of the calendar quarter during which such registration
statement is declared effective.
(l) "Plan Year" shall mean a calendar year, except that the first Plan
Year shall begin the date the Company's registration statement filed in
connection with the Company's initial public offering is declared effective by
the Securities and Exchange Commission and shall end at the end of the calendar
year during which such registration statement is declared effective.
(m) "Restricted Period" shall have the meaning given in Section 5(c)
hereof.
(n) "Restricted Share" or "Restricted Shares" shall mean the Shares
granted hereunder subject to restrictions as set forth in Article 5.
-2-
<PAGE>
(o) "Rule 16b-3" shall mean Rule 16b-3, as in effect from time to
time, promulgated by the Securities and Exchange Commission under Section 16 of
the Exchange Act, including any successor to such Rule.
(p) "Shares" shall mean the common shares of the Company, $.001 par
value.
3. Shares.
------
The maximum number of Shares which shall be reserved for the grant of
Restricted Shares under the Plan shall be 50,000 Shares, which number shall be
subject to adjustment as provided in Article 11 hereof. Such Shares may be
either authorized but unissued Shares or Shares that shall have been or may be
reacquired by the Company.
If any outstanding Restricted Shares under the Plan should be
forfeited and reacquired by the Company, the Shares so forfeited shall (unless
the Plan shall have been terminated) again become available for use under the
Plan, to the extent permitted by Rule 16b-3.
4. Grants of Restricted Shares.
----------------------------
(a) ALL GRANTS SUBJECT TO ANY DEFERRAL ELECTION. All provisions of
this Article 4 with respect to grants of Restricted Shares shall be subject to
any deferral election with respect to such Restricted Shares which is made by a
Participant in accordance with Article 6 hereof.
(b) GRANTS OF RESTRICTED SHARES FOR ANNUAL RETAINER FEE. In the case
of an individual who is a Participant at the beginning of a Plan Year, his or
her annual retainer fee shall be provided in the form of a grant of Restricted
Shares made in four installments on the first business day of each Plan Quarter.
The Restricted Shares so granted shall have a Fair Market Value on each such
date equal to the amount of one quarter of the annual retainer fee in effect on
such date for such Participant. Fractional Shares shall be paid in cash.
In the case of an individual who becomes a Participant during a Plan
Year, the pro-rated portion of his or her annual retainer fee with respect to
the balance of such Plan Year shall be provided in the form of a grant of
Restricted Shares made on the first business day of each Plan Quarter remaining
in the Plan Year. The Restricted Shares so granted shall have a Fair Market
Value on each such date equal to the amount of the applicable annual retainer
fee multiplied by a fraction, the numerator of which is the number of full
calendar quarters remaining in such Plan Year from and after the date the
individual becomes a Participant and the denominator of which is four.
Fractional Shares shall be paid in cash.
If an increase in the annual retainer fee becomes effective during a
given Plan Year, an additional grant of Restricted Shares shall be made on the
last business day of the Plan
-3-
<PAGE>
Quarter in which the increase in the annual retainer fee becomes effective. The
Restricted Shares so granted shall have a Fair Market Value on such date equal
to the amount of such increase multiplied by a fraction, the numerator of which
is the number of full calendar quarters remaining in such Plan Year from and
after the effective date of such increase and the denominator of which is four.
Fractional Shares shall be paid in cash.
(c) GRANTS OF RESTRICTED SHARES FOR MEETING FEES. The meeting fees of
each Participant shall be provided in the form of a grant of Restricted Shares
made on the last business day of the Plan Quarter in which the relevant meetings
occur. Restricted Shares so granted shall have a Fair Market Value on such date
equal to the aggregate amount of the meeting fees for the respective Participant
with respect to meetings occurring in such Plan Quarter. Fractional Shares
shall be paid in cash.
5. Restricted Shares.
-----------------
Each grant of Restricted Shares under the Plan shall comply with the
following terms and conditions:
(a) NUMBER OF SHARES. Each grant shall state the number of Restricted
Shares to be granted.
(b) RESTRICTIONS. Restricted Shares may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of (except by will or
the applicable laws of descent and distribution) during the Restricted Period.
(c) RESTRICTED PERIOD. The Restricted Period for Restricted Shares
granted under the Plan shall begin with their grant and end one year after they
are granted.
(d) OWNERSHIP. During the Restricted Period the Participant shall
possess all incidents of ownership of such Restricted Shares, including the
right to vote and to receive dividends with respect to such Restricted Shares,
subject to the restrictions and limitations described in this Article.
(e) RESTRICTED SHARE CERTIFICATE. Upon the grant of Restricted
Shares, a share certificate or certificates representing such Restricted Shares
shall be registered in the Participant's name, shall bear an appropriate legend
referring to the restrictions applicable thereto, and shall be delivered to the
Participant. Any attempt to dispose of any such Shares in contravention of such
restrictions shall be null and void and without effect.
-4-
<PAGE>
6. Effect of Certain Changes.
-------------------------
In the event of any extraordinary dividend, share dividend,
recapitalization, spin-off, merger, consolidation, share split, warrant or
rights issuance, or combination or exchange of such shares, or other similar
transactions, the number of Shares available for grant and the number of
outstanding Restricted Shares and Deferred Shares shall be equitably adjusted by
the Committee to reflect such event and preserve the value of such grants and
the Committee may make such other adjustments to the terms of outstanding
Restricted Shares and Deferred Shares as it may deem equitable under the
circumstances; provided, however, that any fractional Shares resulting from such
adjustment shall be eliminated.
7. Rights as a Stockholder.
-----------------------
A Participant shall have only the rights as a stockholder described in
Section 5(e) hereof with respect to any Restricted Shares during the Restricted
Period. No adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distribution of other rights
for which the record date is prior to the date an unrestricted Share certificate
is issued, except as provided in Article 10 hereof.
8. No Rights to Continuance as Director.
------------------------------------
Nothing in the Plan or in any grant made pursuant hereto shall confer
upon any Participant the right to continue to serve as a member of the Company's
Board or to be entitled to any remuneration or benefits not set forth in the
Plan.
9. Administration.
--------------
Prior to completion of the Company's initial public offering, the Plan
shall be administered by the Board (which, during such period, shall have all
the powers given herein to the Committee). From and after the completion of
such offering, the Plan shall be administered by the Committee consisting of two
or more persons. Each member of the Committee shall be a "disinterested person"
within the meaning of Rule 16b-3 until such time as the amendments to Rule 16b-3
adopted by the Securities and Exchange Commission on May 30, 1996 in Release No.
34-37260 became effective with respect to the Plan (the "New Rule Date") and
from and after the New Rule Date, a "Non-Employee Director" within the meaning
of Rule 16b-3. The Committee shall have the authority to make such
interpretations and constructions of the Plan as are necessary to administer the
Plan in accordance with, and subject to, the Plan's provisions.
All determinations of the Committee shall be made by a majority of its
members either present in person or participating by conference telephone at a
meeting or by unanimous written consent. All decisions, determinations and
interpretations of the Committee shall be final and binding on all persons,
including the Company, the Participant (or any person claiming any rights under
the Plan from or through any Participant) and any stockholder.
-5-
<PAGE>
No member of the Board or Committee shall be liable for any action
taken or determination made in good faith with respect to the Plan or any grant
hereunder.
10. Amendment and Termination of the Plan.
-------------------------------------
The Board at any time and from time to time may suspend, terminate,
modify or amend the Plan; provided, however, that an amendment which requires
stockholder approval in order for the Plan to continue to comply with Rule 16b-3
or any other law, regulation or stock exchange requirement shall not be
effective unless approved by the requisite vote of stockholders; and provided,
further, that the provisions of Article 4 shall not be amended more than once
every six months, other than to comport with changes in the Code, the Employee
Retirement Income Security Act, or the rules thereunder. Except as provided in
Article 10 hereof, no suspension, termination, modification or amendment of the
Plan may adversely affect any grant previously made, unless the written consent
of the Participant is obtained.
11. Governing Law.
-------------
The Plan and the rights of all persons claiming hereunder shall be
construed and determined in accordance with the laws of the State of Delaware
without giving effect to the choice of law principles thereof.
12. Approval of Stockholders.
-------------------------
The Plan shall take effect upon its adoption by the Board, but the
Plan (and any grants made prior to the stockholder approval described in this
Article 12) shall be subject to the approval of the holders of a majority of the
securities of the Company present, or represented, and entitled to vote at a
meeting of stockholders held in accordance with applicable law, which approval
must occur within twelve months of the date the Plan is adopted by the Board.
-6-
<PAGE>
EXHIBIT 10.4
CSK AUTO, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
1. Purpose of The Plan.
-------------------
This employee stock purchase plan (the "Plan") is intended to provide
an incentive to employees of CSK Auto, Inc., a Delaware corporation (the
"Company"), and its present and future Subsidiaries and Parents, and to
encourage such employees to acquire a proprietary interest in the Company
through the purchase of the Company's Common Stock. The Plan is intended to
qualify as an "employee stock purchase plan" under Section 423 of the Code, and
its provisions shall be construed in a manner consistent therewith.
2. Definitions.
-----------
Whenever used herein, the following words and phrases shall have the
meanings stated below, unless a different meaning is plainly required by the
context:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Compensation Committee appointed by the
Board to administer the Plan, composed of not less than two members of the
Board.
(d) "Common Stock" shall mean the shares of common stock of the
Company, $.001 par value per share.
(e) "Compensation" shall mean the gross amount of salary, wages,
commissions, overtime pay and bonuses paid during the Offering Period by the
Company, its Subsidiaries or a Parent to the Participant for services as an
employee, computed without reduction for any withholding from such amount or for
contributions to the Company's Section 401(k) plan, any amount excludable from
income pursuant to Section 125 of the Code or any non-qualified compensation
deferral (which shall only be taken into account in the Offering Period in which
it would have been payable but for the deferral and not in the year to which it
is deferred), but excluding any severance pay or expenses or benefits paid by a
third-party payer under any employee plan maintained by such employer.
(f) "Employee" shall mean any person who is employed by the Company, a
Subsidiary or a Parent on the Grant Date, other than:
<PAGE>
(i) an employee who has been employed for a period of less than three
months,
(ii) an employee who, immediately before the Grant Date, owns (or is
deemed to own pursuant to Section 424(d) of the Code, as modified by Section
423(b)(3) of the Code) shares possessing 5% or more of the total combined voting
power or value of all classes of stock of the Company, a Subsidiary or a Parent.
For this purpose, employment with a corporation all or substantially all of the
assets or shares of stock of which have been acquired by the Company, a
Subsidiary or a Parent or which has been merged into or consolidated with the
Company, a Subsidiary or a Parent shall be considered employment by the Company,
a Subsidiary or a Parent.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(h) "Exercise Date" shall mean the last day of an Offering Period on
which the principal market for the Common Stock is open.
(i) "Fair Market Value" of a share of Common Stock on any day shall
mean (i) if the principal market for the Common Stock is a national securities
exchange, the average between the highest and lowest sales prices per share of
the Common Stock on the trading day immediately preceding such day as reported
by such exchange or on a composite tape reflecting transactions on such
exchange, (ii) if the principal market for the Common Stock is not a national
securities exchange and the Common Stock is quoted on The Nasdaq Stock Market
("Nasdaq"), and (x) if actual sales price information is available with respect
to the Common Stock, the average between the highest and the lowest sales prices
per share of the Common Stock on the trading day immediately preceding such day
on Nasdaq, or (y) if such information is not available, the average between the
highest bid and lowest asked prices per share for the Common Stock on the
trading day immediately preceding such day on Nasdaq, or (iii) if the principal
market for the Common Stock is not a national securities exchange and the Common
Stock is not quoted on Nasdaq, the average between the highest bid and lowest
asked prices per share for the Common Stock on the trading day immediately
preceding such day as reported on the OTC Bulletin Board Service or by National
Quotations Bureau, Incorporated or a comparable service; provided that if
clauses (i), (ii) and (iii) of this Paragraph are all inapplicable, or if no
trades have been made or no quotes are available for such day, the Fair Market
Value of the Common Stock shall be determined by the Committee, in good faith,
in a manner that is not inconsistent with Section 423 of the Code or the
regulations thereunder.
(j) "Grant Date" shall mean the first day of each Offering Period on
which the principal market for the Common Stock is open.
2
<PAGE>
(k) "Offering Period" shall mean a calendar quarter during the term of
the Plan; provided, however, that the first Offering Period shall begin on the
-------- -------
day on which the initial public offering of Common Stock is completed.
(l) "Option Price" with respect to each share of Common Stock shall
mean the lesser of (i) 85% of the Fair Market Value of one share of Common
Stock on the Grant Date or (ii) 85% of the Fair Market Value of one share of
Common Stock on the Exercise Date; provided, however, that with respect to the
-------- -------
Offering Period that begins on the day on which the initial public offering of
Common Stock is completed, the amount under clause (i) shall be 85% of the
initial public offering price.
(m) "Parent" shall mean a parent corporation of the Company as defined
in Section 424(e) of the Code.
(n) "Participant" with respect to an Offering Period shall mean an
Employee who has elected to participate in the Plan pursuant to Paragraph 5 with
respect to such Offering Period, or with respect to a prior Offering Period if
such Employee has not withdrawn from the Plan or ceased to be an Employee.
(o) "Percentage" shall mean with respect to a Participant the
percentage of Compensation during an Offering Period which the Participant has
authorized to be withheld for purposes of this Plan pursuant to Paragraph 5, as
the same may be amended in accordance with this Plan. The Percentage must be a
whole percentage from 1% to 10%, inclusive.
(p) "Plan" shall mean the CSK Auto, Inc. Employee Stock Purchase Plan
as set forth herein.
(q) "Subsidiary" shall mean a subsidiary corporation of the Company as
defined in Section 424(f) of the Code.
3. Stock Subject to the Plan.
-------------------------
The aggregate number of shares of Common Stock for which options may
be granted under the Plan shall not exceed 250,000. Such shares may, in
the discretion of the Board, consist either in whole or in part of authorized
but unissued shares of Common Stock or shares of Common Stock held in the
treasury of the Company. The Company shall at all times during the term of the
Plan reserve and keep available such number of shares of Common Stock as will be
sufficient to satisfy the requirements of the Plan. Subject to the provisions
of Paragraph 15, any shares subject to an option which for any reason expires,
is canceled or is terminated unexercised shall again become available for grant
under the Plan.
3
<PAGE>
4. Administration of The Plan.
--------------------------
The Plan shall be administered by the Committee. During such time as
the Company has a class of equity securities registered under Section 12 of the
Exchange Act and until such time as the amendments to Rule 16b-3 adopted by the
Securities and Exchange Commission on May 30, 1996 in Release No. 34-37260
become effective with respect to the Plan (the "New Rule Date"), each member of
the Committee shall be a "disinterested person" within the meaning of Rule 16b-3
under the Exchange Act. A majority of the members of the Committee shall
constitute a quorum, and the acts of a majority of the members present at any
meeting at which a quorum is present and any acts approved in writing by all
members without a meeting shall be the acts of the Committee. Subject to the
express provisions of the Plan, the Committee may interpret the Plan, prescribe,
amend, or rescind rules and regulations relating to it, and make all other
determinations necessary or advisable for the administration of the Plan. Any
controversy or claim arising out of or relating to the Plan or any option
granted hereunder shall be determined unilaterally by the Committee in its sole
discretion. The determinations of the Committee on all matters regarding the
Plan or any option hereunder shall be conclusive and binding on the parties.
All Employees shall have the same rights and privileges under the
Plan, except that, subject to the limitations hereunder, the amount of Common
Stock which may be purchased by any Participant under the Plan shall bear a
uniform relationship to their Compensation. All rules and determinations of the
Committee shall be uniformly and consistently applied to all persons in similar
circumstances.
No member or former member of the Committee shall be liable for any
action, failure to act or determination made in good faith with respect to the
Plan or any option under the Plan. In addition, the Company shall indemnify and
hold harmless each member and former member of the Committee and their
respective successors, assigns, heirs and personal representatives from and
against any liability, loss, claim, damage and expense (including without
limitation attorneys fees and expenses) incurred in connection therewith by
reason of any action, failure to act or determination made in good faith under
or in connection with the Plan or any option hereunder to the fullest extent
permitted with respect to directors under the Company's certificate of
incorporation, by-laws or applicable law.
5. Participation.
-------------
An Employee may become a Participant by filing a prescribed election
form with the Committee at least 20 days prior to the first Grant Date for which
the election is to be effective. Such election shall include the Employee's
name, address, Social Security number, Percentage of Compensation to be withheld
for purposes of the Plan and such other items as the Committee may determine not
inconsistent with this Plan. Participation in the Plan shall continue until the
Employee withdraws pursuant to Paragraph 10 hereof or ceases to be an Employee
in accordance with Paragraph 11.
4
<PAGE>
6. Payroll Deductions.
------------------
An amount equal to the Percentage of the Participant's Compensation on
each pay day shall be deducted from his pay. Such amount shall be credited to
an account for such Participant under the Plan. A Participant may not make any
separate cash contributions into such account.
A Participant may change the Percentage by filing a new authorization
under Paragraph 5 at least 20 days before the first Grant Date for which it is
to be effective.
The Company (and each Subsidiary or Parent) shall not be required to
segregate any funds withheld pursuant to this Paragraph 6, which may be used for
general corporate purposes. The Participant (and his beneficiaries) shall not
have any right, title, interest or claim in or to or lien on such account or any
specific asset, fund, reserve or property of the Company, any Subsidiary or
Parent, but shall be a general, unsecured creditor of the Company, the
Subsidiary or Parent.
7. Grant of Options.
----------------
On a Grant Date, each Participant is granted an option to purchase the
number of full shares (rounded down) of Common Stock equal to Percentage of the
Participant's Compensation divided by the applicable Option Price. In no event
may an option for a fraction of a share be granted under the Plan.
Notwithstanding the foregoing, the maximum number of shares of Common Stock for
which options may be granted under the Plan to a Participant on any Grant Date
shall not exceed 1,000 shares subject to adjustment pursuant to Paragraph 13.
In the event the remaining shares available for grant under the Plan are not
sufficient to grant all the options otherwise required on a Grant Date, the
number of shares subject to each option on such date shall be reduced
proportionately.
Moreover, no Participant shall be granted an option if, immediately
after the grant, such Participant will own (or be deemed to own pursuant to
Section 424(d) of the Code, as modified by Section 423(b)(3) of the Code) shares
possessing 5% or more of the total combined voting power or value of all classes
of stock of the Company, a Subsidiary or a Parent. If a Participant would be
subject to the limitation in the preceding sentence taking into account an
option to which he would otherwise be entitled to on the Grant Date under the
Plan, the number of shares subject to the option granted on the Grant Date in
question shall be reduced by the minimum amount necessary to avoid such
limitation.
Notwithstanding any other provision of the Plan to the contrary, no
Participant may be granted an option which permits him to purchase stock under
the Plan or any other employee stock purchase plan of the Company, its
Subsidiaries or a Parent which qualifies under
5
<PAGE>
Section 423 of the Code to accrue at a rate which exceeds $25,000 of the Fair
Market Value of such stock (determined at the time such option is granted) for
any one calendar year.
8. Exercise of Option.
------------------
Unless a Participant gives written notice to the Committee (as
provided below), his options hereunder shall be automatically exercised on the
Exercise Date, by the purchase of the number of shares which the aggregate
amount of payroll deductions credited to his account will purchase at that time
at the Option Price, subject to the limitations described in Paragraph 7.
In no case may a fractional share be purchased or issued under the
Plan. No portion of the payroll deductions accumulated during one Offering
Period and no portion of any option granted with respect to any one Offering
Period may be carried over to or be used in another Offering Period. Any excess
balance in the Participant's account following the Exercise Date shall be
promptly paid to the Participant, without interest.
As soon as practicable after the Exercise Date, the Company shall
deliver to each Participant certificates evidencing the number of shares, if
any, purchased upon the exercise of his option. A person entitled to receive
Common Stock upon the exercise of an option hereunder shall not have the rights
of a stockholder with respect to such shares until the date of issuance of a
stock certificate to him for such shares.
Shares acquired pursuant to the Plan may not be sold, transferred or
otherwise disposed of until the first anniversary of the Exercise Date with
respect to such shares.
All stock certificates issued pursuant to the Plan shall bear the
following legend:
"The shares of stock represented by this certificate are subject
to the provisions of the Company's 1996 Employee Stock Purchase Plan
adopted June 19, 1996, and any transfer or encumbrance of the shares is
subject to the rights and restrictions contained in such Plan, a copy of
which (including any amendments thereto) is on file at the principal office
of the Company."
9. Compliance With Securities Laws.
-------------------------------
The Committee may require, in its discretion, as a condition to the
exercise of an option, that either (a) a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of Common Stock to be issued upon such exercise shall be effective and
current at the time of exercise or (b) there is an exemption from registration
under the Securities Act for the issuance of shares of Common Stock upon such
exercise. Nothing herein shall be construed as requiring the Company to register
shares subject to any option under the Securities Act.
6
<PAGE>
In addition, if at any time the Committee shall determine in its
discretion that the listing or qualification of the shares subject to such
option on any securities exchange, Nasdaq, or under any applicable law, or the
consent or approval of any governmental agency or regulatory body, is necessary
or desirable as a condition of or in connection with, the granting of an option
or the issue of shares thereunder, such option may not be exercised in whole or
in part unless such listing, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Committee.
10. Withdrawal.
----------
A Participant may withdraw from the Plan by giving written notice
thereof to the Committee at least 20 days prior to the Exercise Date for the
Offering Period for which it is to be effective. In such event, all of the
Participant's payroll deductions credited to his account during such Offering
Period shall be promptly paid to the Participant, without interest, and no
further payroll deductions under Paragraph 6 shall be made from such
Participant's Compensation, unless and until a new authorization filed in
accordance with Paragraph 5 becomes effective. A Participant's withdrawal shall
not affect his eligibility to participate in the Plan with respect to future
Offering Periods.
11. Termination of Employment.
-------------------------
A Participant shall be deemed to have withdrawn from the Plan upon the
termination of such Participant's employment with the Company, its Subsidiaries
and Parent for any reason, which withdrawal shall be effective on such
termination date without regard to the 20 day notice period under Paragraph 10.
Nothing in the Plan or in any option granted under the Plan shall confer on any
individual the right to continue in the employ of the Company, any of its
Subsidiaries or Parent, or interfere in any way with any right of the Company,
its Subsidiaries or Parent to terminate the individual's employment at any time
for any reason without liability to the Company, its Subsidiaries or Parent.
12. Designation of Beneficiary.
--------------------------
A Participant may designate a beneficiary or beneficiaries entitled to
receive the payments to be made to the Participant hereunder in the event he
dies before such payment is made. The designation may be made, revoked or
changed by the Participant at any time by completing, signing and delivering to
the Committee a designation in the appropriate form. If a Participant does not
designate a beneficiary to whom payment is to be made after his death, or if
none of the designated beneficiaries survives the Participant, any required
payments hereunder after the death of the Participant shall be made to the
executor or administrator of his estate.
7
<PAGE>
13. Adjustments Upon Changes in Common Stock.
----------------------------------------
Notwithstanding any provisions of the Plan, in the event of any change
in the outstanding Common Stock by reason of a stock dividend, recapitalization,
merger in which the Company is the surviving corporation, reorganization, split-
up, spin-off, combination or exchange of shares or the like, the aggregate
number and kind of shares available under the Plan, the aggregate number and
kind of shares subject to each outstanding option and the Option Price thereof
and the maximum number and kind of shares for which Participant may be granted
options on any Grant Date shall be appropriately adjusted by the Board, whose
determination shall be conclusive.
14. Nontransferability.
------------------
No option, account or rights under the Plan shall be transferable
other than by will or the laws of descent and distribution, and options may be
exercised, during the lifetime of the holder thereof, only by him or his legal
representatives. Except to the extent provided above, no option, account or
other rights under the Plan may be assigned, transferred, pledged, hypothecated
or disposed of in any way (whether by operation of law or otherwise) and any
such options, accounts or rights shall not be subject to execution, attachment
or similar process.
15. Amendments and Termination of the Plan.
--------------------------------------
The Plan was adopted by the Board on July 1, 1996. No option may be
granted under the Plan after June 30, 2006. The Board, without further approval
of the Company's stockholders, may at any time suspend or terminate the Plan, in
whole or in part, amend it from time to time in such respects as it may deem
advisable, including, without limitation, to insure that the Plan qualifies as
an "employee stock purchase plan" under Section 423 of the Code or to conform to
any change in applicable law or to regulations and rulings thereunder; provided,
--------
however, that no amendment shall be effective without requisite prior or
- -------
subsequent approval of the stockholders of the Company if such amendment would
(a) except as contemplated in Paragraph 13, increase the maximum number of
shares for which options may be granted under the Plan, (b) prior to the New
Rule Date, materially increase the benefits to Participants under the Plan, (c)
change the eligibility requirements for participation in the Plan, or (d) effect
any change inconsistent with Section 423 of the Code or regulations issued
thereunder. No termination, suspension or amendment of the Plan shall, without
consent of the holder of an existing option affected thereby, materially
adversely affect his rights under such option. The power of the Committee to
construe and administer the Plan with respect to any options granted prior to
the termination or suspension of the Plan nevertheless shall continue after such
termination or during such suspension. Upon a termination of the Plan, the
Company shall promptly pay to the Participants all of their payroll deductions
which were credited to their account (but not used to purchase stock) under the
Plan, without interest.
8
<PAGE>
16. Withholding Taxes.
-----------------
The Company or its Subsidiary or Parent, as applicable, may withhold
(a) cash, (b) subject to any limitations under Rule 16b-3 under the Exchange
Act, shares of Common Stock to be issued with respect thereto having an
aggregate Fair Market Value or (c) any combination of the foregoing, equal to
the amount which it determines is necessary to satisfy its obligation to
withhold Federal, state and local income taxes or other amounts incurred by
reason of the grant or exercise of an option, its disposition, or the
disposition of the underlying shares of Common Stock. Alternatively, the
Company may require the Participancy to pay to the Company such amount, in cash,
promptly upon demand. The Company shall not be required to issue any shares of
Common Stock pursuant to any such option until all required payments have been
made.
17. Notice.
------
Any notice, designation or other communication required or permitted
under the Plan shall be in writing, signed by the party giving the notice and
delivered in person or sent by certified or registered mail, return receipt
requested, addressed (a) if to the Company, to CSK Auto, Inc., 645 E. Missouri
Avenue, Phoenix, Arizona 85012, Attention: Compensation Committee, and (b) if
to an employee, to the last address shown for him on the records of the Company,
its Subsidiaries or Parent.
18. Applicable Law.
--------------
Any questions pertaining to the validity, construction or
administration of the Plan and the options granted hereunder shall be determined
under the laws of the State of Delaware, without regard to conflict of law
provisions, to the extent not inconsistent with Section 423 of the Code and the
regulations thereunder.
19. Stockholder Approval.
--------------------
The Plan shall be subject to approval by the holders of a majority of
the securities of the Company present, or represented, and entitled to vote at a
meeting of the Company's stockholder's held in accordance with applicable law.
No options granted hereunder may be exercised prior to such approval; provided
that the grant date of any options granted hereunder shall be determined as if
the Plan had not been subject to such approval. Notwithstanding the foregoing,
if the Plan is not approved by a vote of the stockholders of the Company on or
before the first Exercise Date, the Plan and all options granted hereunder shall
terminate and the Company shall promptly pay to the Participants all of their
payroll deductions which were credited to their account under the Plan, without
interest.
9
<PAGE>
Exhibit 10.5
EMPLOYMENT AGREEMENT
--------------------
June 19, 1996
Mr. Julius Trump
c/o Northern Automotive Corporation
645 E. Missouri Avenue
Phoenix, Arizona 85012
Dear Jule:
This will confirm our arrangement as follows:
1. You shall serve as our Chairman of the Board and Chief Executive
Officer reporting to the Board of Directors and at an annual base salary of
$400,000, subject to increase from time to time in the sole judgment of the
Board of Directors.
2. This agreement shall terminate in the event of your death or
disability, in which event you shall be entitled to your base salary through the
date of death or disability and to any applicable life or disability insurance
benefits referred to below in full satisfaction of all of our obligations
hereunder or otherwise. It shall be terminable by us at any time for Cause (as
hereafter defined), in which event you would not be entitled to any further
compensation or benefits hereunder or otherwise. If this agreement is
terminated by us except for Cause or as a result of your death or disability,
you shall be entitled to continue to receive, in full satisfaction of all of our
obligations hereunder or otherwise, your base salary and insurance benefits set
forth in paragraph 5 hereof during a period of one year from the date of
termination.
"Cause" shall mean (i) your willful and continued failure to perform
substantially all of your duties with us (other than any such failure resulting
from your incapacity due to physical or mental illness); or (ii) your engaging
in illegal conduct which is injurious to us; or (iii) your excessive use of any
alcohol while engaged in our affairs or the affairs of any of our affiliates (or
at any other time if you would continue to be under its influence when so
engaged); or (iv) your use of any narcotic or other stimulant; or (v) any fraud,
misappropriation (including any corporate opportunity), theft or embezzlement of
or with respect to any of our property.
3. You shall be entitled to such insurance and medical benefits as are
generally available to our Vice Presidents.
4. This agreement constitutes the entire agreement between you and us
with respect to the subject matter hereof, supersedes any and all prior
employment, salary, bonus and benefit agreements between you and either us or
our affiliates, except with respect to your participation in our annual bonus
plan, and may not be modified except in writing. If any restrictions contained
in this agreement shall be deemed invalid or unenforceable by reason of the
extent, duration or geographical scope thereof or otherwise, such restrictions
shall be reduced in a manner so as to render the balance of this agreement
enforceable.
<PAGE>
If the foregoing correctly sets forth our understanding, please sign
at the place provided below.
Very truly yours
NORTHERN AUTOMOTIVE CORPORATION
By: ______________________________
ACCEPTED: James Bazlen, President
- ---------------------
Julius Trump
-2-
<PAGE>
EXHIBIT 10.6
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
--------------------
June 19, 1996
Mr. James Bazlen
c/o Northern Automotive Corporation
645 E. Missouri Avenue
Phoenix, Arizona 85012
Dear Jim:
This will confirm our arrangement as follows:
1. You shall serve as our President, Chief Operating Officer and
Chief Financial Officer, reporting to the Chief Executive Officer, at an annual
base salary of $350,000, subject to increase from time to time in the sole
judgment of the Chief Executive Officer.
2. This agreement shall terminate in the event of your death or
disability, in which event you shall be entitled to your base salary through the
date of death or disability and to any applicable life or disability insurance
benefits referred to below in full satisfaction of all of our obligations
hereunder or otherwise. It shall be terminable by us at any time for Cause (as
hereafter defined), in which event you would not be entitled to any further
compensation or benefits hereunder or otherwise. If this agreement is
terminated (i) by us except for Cause or as a result of your death or
disability, or (ii) by you at any time for Good Reason (as hereafter defined),
you shall be entitled to continue to receive, in full satisfaction of all of our
obligations hereunder or otherwise, your base salary and insurance benefits set
forth in paragraph 5 hereof during a period of one year from the date of
termination.
"Cause" shall mean (i) your willful and continued failure to perform
substantially all of your duties with us (other than any such failure resulting
from your incapacity due to physical or mental illness); or (ii) your engaging
in illegal conduct which is injurious to us; or (iii) your excessive use of any
alcohol while engaged in our affairs or the affairs of any of our affiliates (or
at any other time if you would continue to be under its influence when so
engaged); or (iv) your use of any narcotic or other stimulant; or (v) any fraud,
misappropriation (including any corporate opportunity), theft or embezzlement of
or with respect to any of our property.
"Good Reason" shall mean (i) if promptly objected to by you in
writing, (a) the assignment to you of any duties inconsistent in any substantial
and adverse respect with your position, authority or responsibilities, or (b)
any other substantial adverse change in such position (including titles and
reporting requirements), authority or responsibilities; (ii) any failure by us
to furnish you and/or, where applicable, your family with the compensation and
benefits as set forth herein or otherwise due you, or (iii) our requiring you to
be based or to perform services at any office or location other than that at
which you are currently based or performing, except for travel reasonably
required in the performance of your responsibilities.
3. You shall treat confidentially all non-public information relating
to us and our affiliates and our and their respective operations, customers and
others with whom we and they deal and not disclose or use such information for
your own purposes; and upon the termination, for any reason, of your employment
you shall not for a period of 1 year thereafter, (a) solicit, hire or engage in
business with any person who at (or within 12 months prior to) such termination
was employed by us or our affiliates or (b) unless we have terminated your
employment without Cause, directly or indirectly be employed by, associated with
or have any interest in any entity which is, or is affiliated
<PAGE>
with, a chain of automotive aftermarket stores of at least 50 stores west of the
Mississippi River in the United States (for the purposes hereof any store the
sales of which are comprised of more than 30% in automotive aftermarket and/or
related products shall be deemed to be an automotive aftermarket store).
4. You shall be entitled to such insurance and medical benefits as
are generally available to our Vice Presidents.
5. This agreement constitutes the entire agreement between you and us
with respect to the subject matter hereof, supersedes any and all prior
employment, salary, bonus and benefit agreements between you and either us or
our affiliates, except with respect to your participation in our annual bonus
plan, and may not be modified except in writing. If any restrictions contained
in this agreement shall be deemed invalid or unenforceable by reason of the
extent, duration or geographical scope thereof or otherwise, such restrictions
shall be reduced in a manner so as to render the balance of this agreement
enforceable.
If the foregoing correctly sets forth our understanding, please sign
at the place provided below.
Very truly yours
NORTHERN AUTOMOTIVE CORPORATION
By: ______________________________
ACCEPTED: Julius Trump, Chairman
- ---------------------
James Bazlen
-2-
<PAGE>
EXHIBIT 10.7
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
--------------------
June 19, 1996
Mr. Art Hicks
c/o Northern Automotive Corporation
645 E. Missouri Avenue
Phoenix, Arizona 85012
Dear Art:
This will confirm our arrangement as follows:
1. You shall serve as our Executive Vice President-Store Operations,
reporting to the Chief Executive Officer or such other officer as he may
designate, at an annual base salary of $220,000, subject to increase from time
to time in the sole judgment of the Chief Executive Officer.
2. This agreement shall terminate in the event of your death or
disability, in which event you shall be entitled to your base salary through the
date of death or disability and to any applicable life or disability insurance
benefits referred to below in full satisfaction of all of our obligations
hereunder or otherwise. It shall be terminable by us at any time for Cause (as
hereafter defined), in which event you would not be entitled to any further
compensation or benefits hereunder or otherwise. If this agreement is
terminated (i) by us except for Cause or as a result of your death or
disability, or (ii) by you at any time for Good Reason (as hereafter defined),
you shall be entitled to continue to receive, in full satisfaction of all of our
obligations hereunder or otherwise, your base salary and insurance benefits set
forth in paragraph 5 hereof during a period of one year from the date of
termination.
"Cause" shall mean (i) your willful and continued failure to perform
substantially all of your duties with us (other than any such failure resulting
from your incapacity due to physical or mental illness); or (ii) your engaging
in illegal conduct which is injurious to us; or (iii) your excessive use of any
alcohol while engaged in our affairs or the affairs of any of our affiliates (or
at any other time if you would continue to be under its influence when so
engaged); or (iv) your use of any narcotic or other stimulant; or (v) any fraud,
misappropriation (including any corporate opportunity), theft or embezzlement of
or with respect to any of our property.
"Good Reason" shall mean (i) if promptly objected to by you in
writing, (a) the assignment to you of any duties inconsistent in any substantial
and adverse respect with your position, authority or responsibilities, or (b)
any other substantial adverse change in such position (including titles and
reporting requirements), authority or responsibilities; (ii) any failure by us
to furnish you and/or, where applicable, your family with the compensation and
benefits as set forth herein or otherwise due you, or (iii) our requiring you to
be based or to perform services at any office or location other than that at
which you are currently based or performing, except for travel reasonably
required in the performance of your responsibilities.
3. You shall treat confidentially all non-public information relating
to us and our affiliates and our and their respective operations, customers and
others with whom we and they deal and not disclose or use such information for
your own purposes; and upon the termination, for any reason, of your employment
you shall not for a period of 1 year thereafter, (a) solicit, hire or engage in
business with any person who at (or within 12 months prior to) such termination
was employed by us or our affiliates or (b) unless we have terminated your
employment without Cause, directly or indirectly be employed by, associated with
or have any interest in any entity which is, or is affiliated
<PAGE>
with, a chain of automotive aftermarket stores of at least 50 stores west of the
Mississippi River in the United States (for the purposes hereof any store the
sales of which are comprised of more than 30% in automotive aftermarket and/or
related products shall be deemed to be an automotive aftermarket store).
4. You shall be entitled to such insurance and medical benefits as
are generally available to our Vice Presidents.
5. This agreement constitutes the entire agreement between you and us
with respect to the subject matter hereof, supersedes any and all prior
employment, salary, bonus and benefit agreements between you and either us or
our affiliates, except with respect to your participation in our annual bonus
plan, and may not be modified except in writing. If any restrictions contained
in this agreement shall be deemed invalid or unenforceable by reason of the
extent, duration or geographical scope thereof or otherwise, such restrictions
shall be reduced in a manner so as to render the balance of this agreement
enforceable.
If the foregoing correctly sets forth our understanding, please sign
at the place provided below.
Very truly yours
NORTHERN AUTOMOTIVE CORPORATION
By: ______________________________
ACCEPTED: Julius Trump, Chairman
- ---------------------
Art Hicks
-2-
<PAGE>
EXHIBIT 10.8
AMENDED AND RESTATED
PARTICIPATION AGREEMENT
-----------------------
June 19, 1996
Mr. James Bazlen
Northern Automotive Corporation
645 East Missouri Ave.
Phoenix AZ 85012
Re: 1,212,000 share Participation
-----------------------------
Dear Jim:
This Amended and Restated Participation Agreement ("Agreement") amends and
restates in its entirety the letter agreement between you and Northern
Automotive Corporation (the "Company") dated March 4, 1992 relating to your
Participation Interest (as therein defined) with respect to shares of common
stock of the Company ("Common Stock"). This Agreement is being entered into
simultaneously with the separate grant to you of an option ("Option") to
purchase 1,212,000 shares of common stock of CSK Auto, Inc. (which is to be
merged with the Company) at an exercise price of $12.75 per share (as said price
may be adjusted from time to time in accordance with the terms of the Option
Agreement, the "Exercise Price").
1. Subject to the terms and conditions hereof, your Participation Interest
shall (only for the purposes described below) be equivalent to ownership of
1,212,000 shares of Common Stock assuming (for purposes of this Agreement)
that, on the date hereof, the Company's capital stock had been recapitalized
to have 30,300,000 shares of Common Stock outstanding (the "Assumed
Outstanding Stock").
2. Your right to the Participation Interest is fully vested as of the date
hereof regardless of whether or not, at the time of a Sale (as hereafter
defined), you are employed by the Company or the reason for or the party
terminating such employment.
3. In the event of the sale by the stockholders of the Company to a non-
affiliated entity of all or substantially all of the Common Stock (a "Stock
Sale"), or the sale to a non-affiliated entity of all or substantially all
of the assets of the Company (an "Asset Sale", and together with a Stock
Sale, collectively, a "Sale"), you shall, subject to the provisions of
paragraph 4 below, be entitled to receive in cash an amount (but not in
excess of the aggregate Exercise Price for all shares which may be purchased
pursuant to the Option) equal to that percentage of the net aggregate
proceeds of a Stock Sale (which shall be defined as all consideration
received by the stockholders of the Company on such Sale on account of
Common Stock less any transaction costs) or the net amount, determined in
good faith by the Board of Directors of the Company ("Board"), which would
be distributable to the stockholders on account of Common Stock after an
Asset Sale (giving
<PAGE>
effect to all liabilities including, without limitation, any income taxes
which would be payable in connection therewith including the eventual
liquidation of the Company) as your Participation Interest represents of the
then Assumed Outstanding Stock. In the event the number of shares of the
outstanding Common Stock is changed by reason of split-ups, combination of
shares, recapitalization, stock dividend or the like, your Participation
Interest and the Assumed Outstanding Stock shall be appropriately adjusted.
The Assumed Outstanding Stock shall be increased (without any change in the
number of shares represented by your Participation Interest) by an amount
equal to (i) the number of shares represented by your Participation Interest
and all other participation interests and/or shares of Common Stock
heretofore or hereafter issuable to employees of the Company, and (ii) any
and all shares of Common Stock issued by the Company for fair consideration.
4. In the event of a Sale, you shall not be entitled to any payments pursuant
to paragraph 3 above unless you remain in the employ of the Company or the
purchaser of the assets, as the case may be, for at least 1 year following
the Sale provided that (i) the management of the Company or the purchaser of
the assets has offered to continue your employment on substantially the same
terms for such 1 year period and (ii) the Company has not waived this
requirement. If your employment so continues, you shall receive the first
50% of the amount payable under paragraph 3 above within 30 days as provided
in paragraph 7 below and the balance (with interest at a rate per annum
equal to the 1 year Treasury bill rate on the closing date of the Sale)
after the end of the first year following the Sale as provided in paragraph
7 below, but only if you have been continuously so employed. The Company
shall have the right, in the event any portion of the consideration received
is not cash, to deliver such consideration to you in payment in the same
proportion as received by the Company or the stockholders, as the case may
be.
5. In the event any part of the consideration involved in a Sale is not cash,
such consideration shall be valued as determined by the Board in good faith.
A merger of the Company with a non-affiliated entity shall constitute a
Stock Sale of such Company under paragraph 3, unless the holders of capital
stock of the Company immediately prior to the merger hold stock possessing a
majority of the voting power to elect directors of the surviving corporation
immediately following the merger.
6. A public offering of Common Stock owned, directly or indirectly, by The
Carmel Trust ("Carmel") or a sale of all or less than all of the Common
Stock owned directly or indirectly by Carmel to a non-affiliated entity
shall also constitute a Sale, except that in each such event you shall be
entitled to receive an amount (but not in excess of the aggregate Exercise
Price for all shares which may be purchased pursuant to the Option
multiplied by the Applicable Percentage, as hereafter defined) equal to (i)
the percentage determined by dividing the aggregate number of shares of
Common Stock sold directly or indirectly by Carmel in such offering or sale
by the number of shares of Common Stock owned directly or indirectly by
Carmel immediately prior to such offering or sale (the "Applicable
Percentage"), multiplied by (ii) the percentage determined by dividing your
Participation
-2-
<PAGE>
Interest by the then Assumed Outstanding Stock, and then multiplied by (iii)
the product of (a) the net price per share of Common Stock received by
Carmel (after any transaction costs to the stockholder), multiplied by (b)
the then number of shares of Common Stock outstanding. An example of the
foregoing calculation is annexed hereto. Upon any payment in accordance with
this paragraph, the portion of your Participation Interest for which you
receive such payment shall terminate and the maximum amount payable to you
under paragraph 3 shall be reduced by the amount paid under this paragraph.
7. The first payment due to you pursuant to paragraph 4 shall be made within 30
days after receipt by the Company or its controlling stockholder of the
proceeds of the Sale and, under the conditions provided in paragraph 4, the
balance remaining within 30 days after the end of the first year (or 30 days
after such earlier date as the Company or the purchaser of the assets, as
applicable, shall fail to continue to offer you employment in accordance
with clause (i) of paragraph 4) and upon such payment you shall have no
further rights under this Agreement. Payments due to you hereunder pursuant
to paragraph 6 shall be made within 30 days after receipt by the Company or
its controlling stockholder of the proceeds of the Sale.
8. Your employment is governed by a separate employment agreement with the
Company, the terms of which are not varied or expanded hereby, and,
accordingly, this agreement shall not give you any separate right to remain
in the Company's (or its affiliates') employ. Nothing in this Agreement
shall give you any rights as or equivalent to a stockholder of the Company
or any other rights, except as explicitly provided herein. Your rights under
this agreement cannot be transferred or assigned. This Agreement constitutes
the entire agreement with respect to the subject matter hereof and may not
be modified except in writing.
If the foregoing correctly sets forth our understanding, will you please so
indicate at the space provided below.
Very truly yours,
NORTHERN AUTOMOTIVE CORPORATION
AGREED AND ACCEPTED: By:
----------------------------
Julius Trump, Chairman
- --------------------
James Bazlen
-3-
<PAGE>
Example of Section 6 Calculation
--------------------------------
Assumptions:
(i) 30,603,000 Common Shares are outstanding (including shares reflecting your
participation as contemplated by the last sentence of paragraph 3 of the
attached agreement and 30,300,000 shares owned by CSK Holdings), (ii) CSK
Holdings sells 6,000,000 of those shares for $10 per share, and (iii) you are
fully vested:
6,000,000 x 303,000 x ($10.00 x 30,603,000) = $600,000
- ---------- ---------- --------
30,300,000 31,603,000
| | | |
| | | |
| | | |
| | | |
| | | |
Holdings Your Amount Payable Payment to
Sells Vested for All You for the pro-rate
6,000,000 Percentage Outstanding common Shares Portion of Your
Shares of Outstanding Interest
-4-
<PAGE>
EXHIBIT 10.9
AMENDED AND RESTATED
PARTICIPATION AGREEMENT
-----------------------
June 19, 1996
Mr. Art Hicks
Northern Automotive Corporation
645 East Missouri Ave.
Phoenix AZ 85012
Re: 303,000 share Participation
---------------------------
Dear Art:
This Amended and Restated Participation Agreement ("Agreement") amends and
restates in its entirety the letter agreement between you and Northern
Automotive Corporation (the "Company") dated November 8, 1991 relating to your
Participation Interest (as therein defined) with respect to shares of common
stock of the Company ("Common Stock"). This Agreement is being entered into
simultaneously with the separate grant to you of an option ("Option") to
purchase 303,000 shares of common stock of CSK Auto, Inc. (which is to be merged
with the Company) at an exercise price of $12.75 per share (as said price may be
adjusted from time to time in accordance with the terms of the Option Agreement,
the "Exercise Price").
1. Subject to the terms and conditions hereof, your Participation Interest
shall (only for the purposes described below) be equivalent to ownership of
303,000 shares of Common Stock assuming (for purposes of this Agreement)
that, on the date hereof, the Company's capital stock had been recapitalized
to have 30,300,000 shares of Common Stock outstanding (the "Assumed
Outstanding Stock").
2. Your right to the Participation Interest is fully vested as of the date
hereof regardless of whether or not, at the time of a Sale (as hereafter
defined), you are employed by the Company or the reason for or the party
terminating such employment.
3. In the event of the sale by the stockholders of the Company to a non-
affiliated entity of all or substantially all of the Common Stock (a "Stock
Sale"), or the sale to a non-affiliated entity of all or substantially all
of the assets of the Company (an "Asset Sale", and together with a Stock
Sale, collectively, a "Sale"), you shall, subject to the provisions of
paragraph 4 below, be entitled to receive in cash an amount (but not in
excess of the aggregate Exercise Price for all shares which may be purchased
pursuant to the Option) equal to that percentage of the net aggregate
proceeds of a Stock Sale (which shall be defined as all consideration
received by the stockholders of the Company on such Sale on account of
Common Stock less any transaction costs) or the net amount, determined in
good faith by the Board of Directors of the Company ("Board"), which would
be distributable to the stockholders on account of Common Stock after an
Asset Sale (giving
<PAGE>
effect to all liabilities including, without limitation, any income taxes
which would be payable in connection therewith including the eventual
liquidation of the Company) as your Participation Interest represents of the
then Assumed Outstanding Stock. In the event the number of shares of the
outstanding Common Stock is changed by reason of split-ups, combination of
shares, recapitalization, stock dividend or the like, your Participation
Interest and the Assumed Outstanding Stock shall be appropriately adjusted.
The Assumed Outstanding Stock shall be increased (without any change in the
number of shares represented by your Participation Interest) by an amount
equal to (i) the number of shares represented by your Participation Interest
and all other participation interests and/or shares of Common Stock
heretofore or hereafter issuable to employees of the Company, and (ii) any
and all shares of Common Stock issued by the Company for fair consideration.
4. In the event of a Sale, you shall not be entitled to any payments pursuant
to paragraph 3 above unless you remain in the employ of the Company or the
purchaser of the assets, as the case may be, for at least 1 year following
the Sale provided that (i) the management of the Company or the purchaser of
the assets has offered to continue your employment on substantially the same
terms for such 1 year period and (ii) the Company has not waived this
requirement. If your employment so continues, you shall receive the first
50% of the amount payable under paragraph 3 above within 30 days as provided
in paragraph 7 below and the balance (with interest at a rate per annum
equal to the 1 year Treasury bill rate on the closing date of the Sale)
after the end of the first year following the Sale as provided in paragraph
7 below, but only if you have been continuously so employed. The Company
shall have the right, in the event any portion of the consideration received
is not cash, to deliver such consideration to you in payment in the same
proportion as received by the Company or the stockholders, as the case may
be.
5. In the event any part of the consideration involved in a Sale is not cash,
such consideration shall be valued as determined by the Board in good faith.
A merger of the Company with a non-affiliated entity shall constitute a
Stock Sale of such Company under paragraph 3, unless the holders of capital
stock of the Company immediately prior to the merger hold stock possessing a
majority of the voting power to elect directors of the surviving corporation
immediately following the merger.
6. A public offering of Common Stock owned, directly or indirectly, by The
Carmel Trust ("Carmel") or a sale of all or less than all of the Common
Stock owned directly or indirectly by Carmel to a non-affiliated entity
shall also constitute a Sale, except that in each such event you shall be
entitled to receive an amount (but not in excess of the aggregate Exercise
Price for all shares which may be purchased pursuant to the Option
multiplied by the Applicable Percentage, as hereafter defined) equal to (i)
the percentage determined by dividing the aggregate number of shares of
Common Stock sold directly or indirectly by Carmel in such offering or sale
by the number of shares of Common Stock owned directly or indirectly by
Carmel immediately prior to such offering or sale (the "Applicable
Percentage"), multiplied by (ii) the percentage determined by dividing your
Participation
-2-
<PAGE>
Interest by the then Assumed Outstanding Stock, and then multiplied by (iii)
the product of (a) the net price per share of Common Stock received by
Carmel (after any transaction costs to the stockholder), multiplied by (b)
the then number of shares of Common Stock outstanding. An example of the
foregoing calculation is annexed hereto. Upon any payment in accordance with
this paragraph, the portion of your Participation Interest for which you
receive such payment shall terminate and the maximum amount payable to you
under paragraph 3 shall be reduced by the amount paid under this paragraph.
7. The first payment due to you pursuant to paragraph 4 shall be made within 30
days after receipt by the Company or its controlling stockholder of the
proceeds of the Sale and, under the conditions provided in paragraph 4, the
balance remaining within 30 days after the end of the first year (or 30 days
after such earlier date as the Company or the purchaser of the assets, as
applicable, shall fail to continue to offer you employment in accordance
with clause (i) of paragraph 4) and upon such payment you shall have no
further rights under this Agreement. Payments due to you hereunder pursuant
to paragraph 6 shall be made within 30 days after receipt by the Company or
its controlling stockholder of the proceeds of the Sale.
8. Your employment is governed by a separate employment agreement with the
Company, the terms of which are not varied or expanded hereby, and,
accordingly, this agreement shall not give you any separate right to remain
in the Company's (or its affiliates') employ. Nothing in this Agreement
shall give you any rights as or equivalent to a stockholder of the Company
or any other rights, except as explicitly provided herein. Your rights under
this agreement cannot be transferred or assigned. This Agreement constitutes
the entire agreement with respect to the subject matter hereof and may not
be modified except in writing.
If the foregoing correctly sets forth our understanding, will you please so
indicate at the space provided below.
Very truly yours,
NORTHERN AUTOMOTIVE CORPORATION
AGREED AND ACCEPTED: By:
_____________________________
- --------------------
Art Hicks
-3-
<PAGE>
Example of Section 6 Calculation
--------------------------------
Assumptions:
(i) 31,512,000 Common Shares are outstanding (including shares reflecting your
participation as contemplated by the last sentence of paragraph 3 of the
attached agreement and 30,300,000 shares owned by CSK Holdings), (ii) CSK
Holdings sells 6,000,000 of those shares for $10 per share, and (iii) you are
fully vested:
6,000,000 x 1,212,000 x ($10.00 x 31,512,000) = $2,400,000
- ---------- ---------- ----------
30,300,000 31,512,000
| | | |
| | | |
| | | |
| | | |
| | | |
Holdings Your Amount Payable Payment to
Sells Vested for All You for the pro-rate
6,000,000 Percentage Outstanding common Shares Portion of Your
Shares of Outstanding Interest
-4-
<PAGE>
EXHIBIT 10.10
EX-10
Ex.10.10 - 1996 G&A Staff Incentive Plan
1996 G & A INCENTIVE
COMPENSATION PLAN
TABLE OF CONTENTS
Section 1 Plan Documents
Section 2 Announcement Memos and Graphs
Section 3 Cost Analysis
Section 4 Eligible Associate Lists
Section 5
Section 6
<PAGE>
Section 1
1996 GENERAL AND ADMINISTRATIVE STAFF
INCENTIVE COMPENSATION PLAN
FOR
NORTHERN AUTOMOTIVE CORPORATION
PURPOSE
1.0 PURPOSE: The 1996 General and Administrative Staff Incentive
Compensation Plan ("Plan") is a vital part of Northern Automotive
Corporation's ("Company") total compensation program. The purpose of
the Plan is to provide eligible associates with an opportunity to
directly share in the success of the Company by paying them bonuses
for outstanding achievement by the Company for the fiscal year 1996
(January 29, 1996 through February 2, 1997).
ELIGIBILITY
2.0 ELIGIBILITY: All associates in positions identified in Appendix A who
have an effective date of continuous employment no later than the
first day of the fourth fiscal period and are employed on the day
bonuses are paid are eligible to participate in the first half
portion of the Plan. Associates who have an effective date of
continuous employment no later than the first day of the seventh
fiscal period (the entire second half of the fiscal year) and are
employed on the day bonuses are paid are eligible to participate in
the year-end portion of the Plan.
2.1 DISQUALIFICATION FOR VIOLATION OF COMPANY POLICY: Notwithstanding
anything herein to the contrary, any associate who violates any
Company policy during the semi-annual bonus periods of the fiscal
year, or attempts to alter, manipulate, or falsely present any facts
which bear upon any aspect of this Plan may, at the sole discretion
of the Chief Executive Officer, forfeit any benefits hereunder, in
addition to any other disciplinary action to which such associate may
be subject.
<PAGE>
BONUSES
3.0 BONUS FACTORS: The calculation of an associate's bonus is based upon
the following four Factors:
3.01 POSITION: Each eligible associate is classified by position at
the end of the first half of the fiscal year and at the end of the
full fiscal year. In the event of a transfer from or to a store, an
associate's bonus will be calculated based upon the number of months
the associate was otherwise eligible under this Plan. Levels D and E
are determined by position job evaluation points. See Appendix B. All
eligible associates will be notified of their initial position
classification when this Plan is communicated.
3.02 COMPANY EBITDA: EBITDA (Earnings Before Interest, Taxes,
Depreciation, and Amortization) achieved for the first half of the
fiscal year and the full fiscal year, as reported on the internal
operating statements of the Company.
3.03 SALARY: The associate's base annual salary as of the end of the
first half of the fiscal year and as of the end of the full fiscal
year.
3.04 LENGTH OF SERVICE: The associate's length of service during the
plan year willdetermine whether the associate receives the full bonus
calculated or whether the bonus calculation will be pro-rated. The
first half bonus award will be pro-rated for associates who have not
been continuously employed for the entire first half of the fiscal
year provided they meet the eligibility requirements set forth in
Section 2.0. The year-end bonus will be pro-rated at six (6) months
for associates who meet the year-end eligibility requirements set
forth in section 2.0.
<PAGE>
3.1 BONUS CALCULATION: Each associate's bonus is calculated by
determining the associate's position and salary and the EBITDA
achieved. From Appendix A, the appropriate bonus percentage is
determined based upon the level of EBITDA achievement. The FIRST HALF
BONUS is calculated by multiplying the associate's base annual salary
times one-half of the corresponding percent assigned to each EBITDA
level for Executive/Vice President, and Director. Levels D and E are
based on one-half of a fixed dollar amount. Fifty percent (one-half)
of the first half bonus amount is paid out after the first half
results are determined. The balance is payable if the Company
achieves full fiscal year EBITDA targets. The YEAR-END BONUS is
calculated by first multiplying the associate's base annual salary
times the corresponding percent assigned to each EBITDA level for
Executive/Vice President, and Director. Levels D and E are based on a
fixed dollar amount. The amount of the first half bonus paid out is
subtracted from this bonus amount and the difference is the year-end
bonus due.
No proration is made of bonus percentages for EBITDA achieved between
applicable bonus percentages.
3.2 TIMING OF BONUS PAYMENT: Bonuses will be paid by check after the
completion of the Company's year-end audit and the bonus amounts
calculated. Appropriate payrolldeductions will be made.
<PAGE>
ADMINISTRATION
4.0 ADMINISTRATION: The plan is administered by the Chief Executive
Officer of the Company who will make such rules and regulations
regarding the Plan as deemed necessary to implement its terms. The
Chief Executive Officer shall be the sole arbiter of all Plan-related
questions, including eligibility, extent of participation,
and amount of bonuses paid hereunder. The Chief Executive Officer
may, at anytime and solely at his discretion, change or adjust
previously identified targets or amend or terminate the Plan without
obligation for results achieved to date.
4.1 LIFE OF PLAN: This Plan shall be effective for the Company's fiscal
year; January 29, 1996 through February 2, 1997.
4.2 Northern Automotive reserves the right to change, revise or rescind
the policies or statements described in this guide from time to time,
in its sole discretion, with or without prior notice.
<PAGE>
GENERAL PROVISIONS:
This plan is not a contract. No portion of the plan is to be construed as a
contract for compensation.
1. The designation of an employee as a participant will not give such employ any
right to continued employment with the Company. The Company reserves its rights
to suspend, demote, transfer or terminate the employee.
2. The Plan is an unfunded program. The Company does not have an obligation to
set aside, earmark or entrust any fund, policy or money with which to pay
obligations under the plan. The amount of money payable under the plan with
respect to participants will be paid from general revenues.
3. This program is completely discretionary on the part of Northern Automotive.
The guidelines presented are merely an attempt to inform participants about the
existence of the program and shall not be construed as a promise or guarantee of
payment or of payment in any amount. The Chief Executive Officer may, at any
time and solely at his discretion, change, modify, or terminate the program, or
deny monies to any participant, without obligation whatsoever for results which
may have been achieved to date. The amount of the program payout is expressly
subject to change in the sole and absolute discretion of the Chief Executive
Officer.
<PAGE>
4. The terms of the Plan are to be held strictly confidential and may not me
disclosed to anyone other than immediate family members. Any such disclosure
made by any associate in violation of the terms of the Plan may result in
forfeiture of said associate's benefits under the Plan.
TAX GUIDELINES:
All bonus awards are considered taxable income and subject to any and all taxes
required by law to be withheld.
<PAGE>
BONUS CALCULATION APPENDIX A
VICE PRESIDENT LEVEL
The following chart indicates how the bonus is calculated at each level of
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)
achieved for first half of the fiscal year and the entire year.
1st half of fiscal year
at semi-annual EBITDA achieved
<TABLE>
<CAPTION>
EBITDA % Achieved Bonus Amount
$MMs as % of Salary
- ---- ----------- --------------
<C> <C> <S>
28.5 100% One quarter of 50%
27.2 95% One quarter of 40%
26.0 90% One quarter of 30%
24.3 84% One quarter of 20%
22.3 78% One quarter of 10%
</TABLE>
Full fiscal year
At fiscal year EBITDA achieved
<TABLE>
<CAPTION>
EBITDA % Achieved Bonus Amount
$MMs as % of Salary
- ---- ----------- --------------
<S> <C> <C>
66.3 100% 50%
63.0 95% 40%
60.0 90% 30%
56.0 84% 20%
52.0 78% 10%
</TABLE>
<TABLE>
<CAPTION>
Example: VP at $100,000 Base Salary
<S> <C>
1st half of EBITDA achieved = 95% Fiscal year EBITDA achieved = 90%
Bonus award = $10,000 A. Total year bonus eligible for = $30,000
B. First half bonus paid = $10,000
C. Year end bonus due = $20,000 (A-B)
D. Total bonus award for fiscal year = $30,000 (B+C)
</TABLE>
Northern Automotive reserves the right to change, revise, or rescind the
policies or statements described in this guide from time to time, in its sole
discretion, with or without prior notice.
<PAGE>
BONUS CALCULATION APPENDIX A
DIRECTOR LEVEL
The following chart indicates how the bonus is calculated at each level of
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)
achieved for first half of the fiscal year and the entire year.
1st half of fiscal year
at semi-annual EBITDA achieved
<TABLE>
<CAPTION>
EBITDA % Achieved Bonus Amount
$MMs as % of Salary
- ---- ----------- --------------
<C> <C> <S>
28.5 100% One quarter of 35%
27.2 95% One quarter of 28%
26.0 90% One quarter of 21%
24.3 84% One quarter of 14%
22.3 78% One quarter of 7%
</TABLE>
Full fiscal year
At fiscal year EBITDA achieved
<TABLE>
<CAPTION>
EBITDA % Achieved Bonus Amount
$MMs as % of Salary
- ---- ----------- --------------
<S> <C> <C>
66.3 100% 35%
63.0 95% 28%
60.0 90% 21%
56.0 84% 14%
52.0 78% 7%
</TABLE>
<TABLE>
<CAPTION>
Example: Director at $60,000 Base Salary
<S> <C>
1st half of EBITDA achieved = 95% Fiscal year EBITDA achieved = 90%
Bonus award = $4,200 A. Total year bonus eligible for = $12,600
B. First half bonus paid = $4,200
C. Year end bonus due = $8,400 (A-B)
D. Total bonus award for fiscal year = $12,600 (B+C)
</TABLE>
Northern Automotive reserves the right to change, revise, or rescind the
policies or statements described in this guide from time to time, in its sole
discretion, with or without prior notice.
<PAGE>
BONUS CALCULATION APPENDIX A
LEVEL D
The following chart indicates how the bonus is calculated at each level of
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)
achieved for first half of the fiscal year and the entire year.
1st half of fiscal year
at semi-annual EBITDA achieved
<TABLE>
<CAPTION>
EBITDA % Achieved Bonus Amount
$MMs as % of Salary
- ---- ----------- --------------
<C> <C> <S>
28.5 100% One quarter of $6,000
27.2 95% One quarter of $4,800
26.0 90% One quarter of $3,600
24.3 84% One quarter of $2,400
22.3 78% One quarter of $1,200
</TABLE>
Full fiscal year
At fiscal year EBITDA achieved
<TABLE>
<CAPTION>
EBITDA % Achieved Bonus Amount
$MMs as % of Salary
- ---- ----------- --------------
<S> <C> <C>
66.3 100% $6,000
63.0 95% $4,800
60.0 90% $3,600
56.0 84% $2,400
52.0 78% $1,200
</TABLE>
50% (one half) of the bonus amount is paid out after the first half fiscal year
results are determined.
The balance may be payable depending on the full fiscal year EBITDA level
achieved.
<TABLE>
<CAPTION>
Example: Level D Associate at $42,000 Base Salary
<S> <C>
1st half of EBITDA achieved = 95% Fiscal year EBITDA achieved = 90%
Bonus award = $1,200 A. Total year bonus eligible for = $3,600
B. First half bonus paid = $1,200
C. Year end bonus due = $2,400 (A-B)
D. Total bonus award for fiscal year = $3,600 (B+C)
</TABLE>
Northern Automotive reserves the right to change, revise, or rescind the
policies or statements described in this guide from time to time, in its sole
discretion, with or without prior notice.
<PAGE>
BONUS CALCULATION APPENDIX A
LEVEL E
The following chart indicates how the bonus is calculated at each level of
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)
achieved for first half of the fiscal year and the entire year.
1st half of fiscal year
at semi-annual EBITDA achieved
<TABLE>
<CAPTION>
EBITDA % Achieved Bonus Amount
$MMs as % of Salary
- ---- ----------- --------------
<C> <C> <S>
28.5 100% One quarter of $3,000
27.2 95% One quarter of $2,400
26.0 90% One quarter of $1,800
24.3 84% One quarter of $1,200
22.3 78% One quarter of $ 600
</TABLE>
Full fiscal year
At fiscal year EBITDA achieved
<TABLE>
<CAPTION>
EBITDA % Achieved Bonus Amount
$MMs as % of Salary
- ---- ----------- --------------
<S> <C> <C>
66.3 100% $3,000
63.0 95% $2,400
60.0 90% $1,800
56.0 84% $1,200
52.0 78% $600
</TABLE>
<TABLE>
Example: Level E Associate at $30,000 Base Salary
<S> <C>
1st half of EBITDA achieved = 95% Fiscal year EBITDA achieved = 90%
Bonus award = $ 600 A. Total year bonus eligible for = $1,800
B. First half bonus paid = $ 600
C. Year end bonus due = $1,200 (A-B)
D. Total bonus award for fiscal year = $1,800 (B+C)
</TABLE>
Northern Automotive reserves the right to change, revise, or rescind the
policies or statements described in this guide from time to time, in its sole
discretion, with or without prior notice.
<PAGE>
G AND A BONUS LEVEL
DETERMINATION GUIDELINES
<TABLE>
<CAPTION>
LEVEL CLASSIFICATION JEP GUIDELINES
- ----------- -------------------------- ----------------------------------
<C> <S> <C>
D Manager (or 450-799
equivalent JEPs)
- ----------- -------------------------- ----------------------------------
E Supervisor/Individual 295-449
Contributor Specialist
- ----------- -------------------------- ----------------------------------
</TABLE>
<PAGE>
Section 2
---------
ANNOUNCING THE 1996
GENERAL AND ADMINISTRATIVE
INCENTIVE COMPENSATION PLAN
Northern Automotive believes in providing eligible associates with the
opportunity to directly share in the success of the Company. The 1996 General
and Administrative Staff Incentive Compensation Plan is a vital part of the
Company's total compensation program. Each year, as we strive to reach new
profit goals, each associate plays an essential role in the achievement of these
goals.
Bonuses will be paid semi-annually after final determination of the first half
and full fiscal year results.
This Plan offers rewards for Company achievement of earnings goals. Your bonus
will be determined by the EBITDA (Earnings Before Interest, Taxes, Depreciation,
and Amortization) achieved and by your position and salary as described on the
attached chart.
To be eligible for a first half semi-annual award, you must have an effective
date of continuous employment no later than first day of the fourth fiscal
period and be employed by the Company on the day the bonus is paid. The bonus
award paid will be pro-rated for an associate who has not been continuously
employed for the entire first half of the fiscal year. To be eligible for a
year-end award, you must have an effective date of continuous employment no
later than the first day of the seventh fiscal period (the entire second half of
the fiscal period) and be employed by the Company on the day the bonus is paid.
The year-end award will be pro-rated based on the number of months of continuous
service.
This communication is intended as a brief description of the Incentive
Compensation Plan. The formal Plan Document shall govern in determining
eligibility, ans award levels and resolving any disputes involving the plan.
If you would like a copy of the Plan Document or any additional information,
please contact your Department Head or the Human Resources Department for
details.
<PAGE>
Section 3
---------
<TABLE>
<CAPTION>
1996 G&A BONUS COST PROJECTION 04/15/96
$$
<S> <C> <C> <C> <C> <C>
First Half EBITDA 28,550,000 27,200,000 26,000,000 24,300,000 22,300,000
Second Half EBITDA 37,750,000 35,800,000 34,000,000 31,700,000 29,700,000
EBITDA 66,300,000 63,000,000 60,000,000 56,000,000 52,000,000
% OF PLAN 100% 95% 90% 84% 78%
==================================================================================================
</TABLE>
<TABLE>
<CAPTION>
BONUS BONUS BONUS BONUS BONUS BONUS BONUS BONUS BONUS BONUS
POSITION % COST % COST % COST % COST % COST
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EXECUTIVE (A) 50.0% 350,000 40.0% 280,000 30.0% 210,000 20.0% 140,000 10.0% 70,000
VICE PRES (B) 50.0% 705,000 40.0% 564,000 30.0% 423,000 20.0% 282,000 10.0% 141,000
DIRECTOR/BUYER(C) 35.0% 140,000 28.0% 112,000 21.0% 84,000 14.0% 56,000 7.0% 28,000
BUYERS (D) 6,000 18,000 4,800 14,400 3,600 10,800 2,400 7,200 1,200 3,600
MANAGERS (D) 6,000 660,000 4,800 528,000 3,600 396,000 2,400 264,000 1,200 132,000
SUPERVISORS (E) 3,000 375,000 2,400 300,000 1,800 225,000 1,200 150,000 600 75,000
HR MGRS (D) 6,000 30,000 4,800 24,000 3,600 18,000 2,400 12,000 1,200 6,000
TOTAL --------- --------- --------- --------- ---------
EBITA PLAN 2,813,675 2,250,940 1,688,205 1,125,470 562,735
One-half is 1,406,838 1,125,470 844,103 562,735 281,368
Payout at mid-year: 703,419 562,735 422,051 281,368 140,684
==========================================================================================================================
DIRECOTR OF R.E 10,000 30,000 10,000 30,000 10,000 30,000 10,000 30,000 10,000 30,000
RSM/DSM COMM'L 5,000 60,000 5,000 60,000 5,000 60,000 5,000 60,000 5,000 60,000
OTHER 0 0 0 0 0 0 0 0 0 0
TOTAL --------- --------- --------- --------- ---------
OTHER PLANS 90,000 90,0 90,000 90,000 90,000
(estimate
==========================================================================================================================
2,903,675 2,340,940 1,778,205 1,215,470 652,735
========= ========= ========= ========= =========
</TABLE>
<PAGE>
EXHIBIT 10.11
================================================================================
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF JUNE 21, 1996
AMONG
NORTHERN AUTOMOTIVE CORPORATION,
AS BORROWER,
TRANSAMERICA BUSINESS CREDIT CORPORATION
AND THE OTHER PARTIES HERETO IDENTIFIED
AS "LENDERS" HEREINBELOW,
AS LENDERS,
AND
TRANSAMERICA BUSINESS CREDIT CORPORATION,
AS AGENT FOR LENDERS
================================================================================
<PAGE>
TABLE OF CONTENTS
-i-
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
PREAMBLE: THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of June 21,
--------
1996 (the "New Closing Date"), is entered into by and among NORTHERN AUTOMOTIVE
----------------
CORPORATION, an Arizona corporation ("Borrower"), with its principal place of
--------
business at 645 East Missouri Avenue, Suite 400, Phoenix, Arizona 85012;
TRANSAMERICA BUSINESS CREDIT CORPORATION, a Delaware corporation (in its
individual capacity, called "Transamerica" or "TBCC"), with offices at Two
------------ ----
Ravinia Drive, Suite 700, Atlanta, Georgia 30346, for itself, as a Lender, and
as agent for each other Lender (the term "Lender" and other capitalized terms
------
used in the Recitals are defined in Section 1 of this Agreement); and each such
Lender.
RECITALS:
--------
WHEREAS, Borrower, Agent and Lenders are parties to a certain Credit
Agreement, dated as of February 15, 1995 (as heretofore amended, the "Original
--------
Agreement"), pursuant to which Lenders extended a certain term credit facility
- ---------
and a certain revolving credit facility to Borrower, to fund the repayment of
certain indebtedness of Bor rower, to provide working capital financing for
Borrower and to provide funds for other general corporate purposes of Borrower
consistent with the terms of the Original Agreement as amended and restated
pursuant to this Agreement; and
WHEREAS, Borrower secured all of its debts, liabilities and obligations to
Lenders arising under the Original Agreement and under the other Loan Documents
by granting to Agent, on behalf of Lenders, a security interest in and lien upon
all, or substantially all, of its personal property and certain of its real
property; and
WHEREAS, Borrower, Agent and Lenders desire to restate the Original
Agreement in its entirety for convenience of reference and to facilitate
compliance therewith, and in conjunction therewith to amend the same to delete
provisions contained therein that do not have continuing applicability;
NOW, THEREFORE, in consideration of the foregoing premises, the agreements,
provisions and covenants herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby mutually
acknowledged by all parties hereto, Borrower, Lenders, and Agent, intending to
be legally bound, do hereby covenant and agree as follows:
<PAGE>
SECTION 1.
----------
DEFINITIONS
-----------
1.1. Certain Defined Terms
---------------------
The terms defined below are used in this Agreement as so defined.
Terms defined in the Preamble and Recitals to this Agreement are used in this
Agreement as so defined.
"Accounts" means, on any date of determination, the unpaid portion of
--------
the obligations as stated on the respective invoices issued to a customer of
Borrower with respect to Inventory sold or services performed in the ordinary
course of business, net of any credits, rebates or offsets owed by Borrower to
the respective customer and net of any commissions payable by Borrower to third
parties.
"Additional Mortgaged Property" shall have the meaning specified in
-----------------------------
subsection 5.10(B).
"Advance" means an advance of borrowed funds under the Revolving Loan.
-------
"Affiliate", in respect of any Person, means any other Person: (a)
---------
directly or indirectly controlling, controlled by, or under common control with,
such Person; (b) directly or indirectly owning or holding ten percent (10%) or
more of any equity interest in such Person; or (c) ten percent (10%) or more of
whose voting stock or other equity interest is directly or indirectly owned or
held by such Person. For purposes of this definition, "control" (including with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with") means the possession directly or indirectly of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities or by contract or otherwise.
Without limitation of the foregoing provisions, Holdings and each Subsidiary of
Holdings and Borrower, in each case, whether existing on the Closing Date or
thereafter, shall constitute an Affiliate of Borrower.
"Agent" means TBCC acting in its capacity as agent for the Lenders
-----
under this Agreement and any successor agent acting in such capacity appointed
pursuant to subsection 9.2.
"Agreement" means this Amended and Restated Credit Agreement
---------
(including all schedules, exhibits, annexes and appendices hereto) as it may be
modified or amended from time to time in accordance with subsection 10.3; and
shall refer to this Agreement as the same may be in effect at the time such
reference becomes operative.
-2-
<PAGE>
"Alternate Base Rate", for any day, means a rate per annum (rounded
-------------------
upwards, if necessary, to the next 1/16th of 1%) equal to the sum of (a) the
Base Rate (as defined below) in effect on such day plus (b) the Applicable
----
Margin. For purposes hereof, "Base Rate" shall mean the higher of (i) the
--------- ------
highest among the rates of interest per annum publicly announced from time to
- -------
time by each of The First National Bank of Chicago, Northern Trust Company or
Citibank, N.A. as its prime rate, base rate or other equivalent rate (with each
change in the Base Rate to be deemed effective on the date that such change is
publicly announced); and (ii) the latest published annualized rate for 90-day
commercial paper which normally appears in the "Money Rates" section of The Wall
--------
Street Journal; provided that clause (i) hereof shall govern in all cases in
- -------------- --------
which clause (ii) hereof cannot be ascertained. Any change in the Alternate Base
Rate due to a change in the Base Rate shall be effective on the effective day of
such change in the Base Rate.
"Alternate Base Rate Loans" shall mean the collective reference to
-------------------------
Loans the rate of interest applicable to which is based upon the Alternate Base
Rate.
"Amendment Reserve" means a reserve in the amount of Five Million
-----------------
Dollars ($5,000,000) heretofore established by the Agent, at the direction of
Lenders.
"A/P Note Debt" shall mean all Indebtedness of Borrower to each and
-------------
every trade creditor which has been converted from an open account payable to
one or more promissory notes of Borrower to such creditor.
"Applicable Margin" means: (a) until such time (if ever) as the
-----------------
"Margin Reduction Events", as described hereinbelow, occur, one percent (1.0%)
per annum, in the case of Alternate Base Rate Loan, and three percent (3.0%) per
annum, in the case of Eurodollar Rate Loans; and (b) from and after the
occurrence of the Margin Reduction Events, one-half of one percent (0.50%) per
annum, in the case of Alternate Base Rate Loans, and two percent (2.0%) per
annum, in the case of Eurodollar Rate Loans. The "Margin Reduction Events"
shall be deemed to have occurred five (5) days after that date (if any) on which
Borrower delivers to Lenders financial statements demonstrating to the
reasonable satisfaction of Lenders that (x) the amount of Borrower's Accounts
Payable Days Outstanding did not exceed one hundred (100) for the fiscal quarter
to which such financial statements relate and (y) Borrower has achieved Fixed
Charge Coverage of at least 1.25:1.00 as at the end of such fiscal quarter,
determined on a rolling four quarters' basis; provided, however, that Lenders
-----------------------
are also satisfied that Borrower had Borrowing Availability of at least Five
Million Dollars ($5,000,000) on each day during such fiscal quarter and that no
Default or Event of Default has occurred and is continuing.
"Application" shall have the meaning given to such term in
-----------
subsection 2.1(C)(4).
-3-
<PAGE>
"Asset Disposition", as to any Person, means the disposition, whether
-----------------
by sale, lease, transfer, loss, damage, destruction, condemnation or otherwise
of any of the following: (a) any of the Capital Stock of any Subsidiary of such
Person or (b) any or all of the assets of such Person (other than sales of
Inventory in the ordinary course of business).
"Balloon Payment" shall have the meaning given to such term in
---------------
subsection 2.1(A).
"Bank Agency Agreement" means an agreement, satisfactory to Agent,
---------------------
among Agent, for the benefit of the Lenders, Borrower and each bank at which
Borrower maintains depository accounts respecting the manner of receipt,
collection and disposition of funds of Borrower constituting proceeds from the
sale of Inventory, the collection of Accounts and the disposition of other
Collateral. Without limitation, the foregoing shall include "blocked account"
agreements, agency agreements and "lockbox" agreements.
"Bankruptcy Code" means Title 11 of the United States Code entitled
---------------
"Bankruptcy", as amended from time to time and all rules and regulations
promulgated thereunder.
"Big Six Accounting Firm" means any of Arthur Andersen L.L.P., KPMG
-----------------------
Peat Marwick, Coopers & Lybrand, Ernst & Young, Deloitte & Touche and Price
Waterhouse or any of their respective successors.
"Borrower" shall have the meaning given to such term in the Preamble.
--------
"Borrowing Availability" means, as of the date of determination, the
----------------------
amount (if any) by which the Maximum Revolving Loan Amount on such date exceeds
the outstanding amount of the Revolving Loan on such date.
"Borrowing Base" has the meaning assigned to that term in subsection
--------------
2.1(B)(2).
"Borrowing Base Certificate" means a certificate, appropriately
--------------------------
completed and in substantially the form of Exhibit 1.1(A).
--------------
"Business Day" means any day, excluding (i) a Saturday, Sunday or any
------------ ---------
day which is a legal holiday under the laws of the States of Illinois or New
York, (ii) a day on which banking institutions located in the States of Illinois
or New York are authorized to close; or (iii) any date on which the Agent is
closed for business in Chicago, Illinois, New York, New York or Atlanta,
Georgia.
-4-
<PAGE>
"Capital Expenditures" means, without duplication, for any period, the
--------------------
aggregate of all expenditures on a consolidated basis including deposits
(whether paid in cash or property or accrued as liabilities) made by Borrower
and its Subsidiaries that, in conformity with GAAP, are required to be included
in the property, plant and equipment, or similar, fixed asset account.
"Capital Lease" means any lease of any property (whether real,
-------------
personal or mixed) that, in conformity with GAAP, should be accounted for as a
capital lease.
"Capital Stock" of any Person which is a corporation means all issued
-------------
and outstanding equity securities of such Person, including both common and
preferred stock, and any warrants or similar rights to acquire any such stock.
"Cash Equivalents", as to any Person, means: (a) marketable direct
----------------
obligations issued or unconditionally guarantied by the United States Government
or issued by any agency thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition thereof; (b) commercial paper maturing no more than one (1) year
from the date issued and, at the time of acquisition, having a rating of at
least A-1 from Standard & Poor's Corporation or at least P-1 from Moody's
Investors Service, Inc.; (c) certificates of deposit or bankers' acceptances
maturing within one (1) year from the date of issuance thereof issued by, or
overnight reverse repurchase agreements from, any commercial bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia having combined capital and surplus of not less than
$1,000,000,000 and not subject to setoff rights in favor of such bank; (d) time
deposits maturing no more than thirty (30) days from the date of creation
thereof with commercial banks having membership in the Federal Deposit Insurance
Corporation in amounts not exceeding the lesser of One Hundred Thousand Dollars
------
($100,000) or the maximum amount of insurance applicable to the aggregate amount
of such Person's deposits at such institution; and (e) deposits or investments
in mutual or similar funds offered or sponsored by brokerage or other companies
having membership in the Securities Investor Protection Corporation in amounts
not exceeding the lesser of One Hundred Thousand Dollars ($100,000) or the
------
maximum amount of insurance applicable to the aggregate amount of such Person's
deposits at such institution.
"Closing Date" means February 15, 1995.
------------
"Collateral" means, collectively: (a) all "Collateral", as that term
----------
is defined in the Security Agreement; (b) all Additional Mortgaged Property; and
(c) any property or interest in property at any time provided in addition to or
in substitution for any of the foregoing as security for the payment of the
Obligations.
-5-
<PAGE>
"Collateral Location" shall mean each store, distribution center,
-------------------
warehouse or other location, whether owned or leased by Borrower, at which any
Collateral is situated at any time or from time to time.
"Commitment" or "Commitments" means the commitment or commitments of a
---------- -----------
Lender or Lenders to make the Loans described in subsection 2.1 and of the
Issuer to issue Lender Letters of Credit as set forth in subsection 2.1.
"Compliance Certificate" means a certificate substantially in the form
----------------------
of Exhibit 1.1(B) (containing sufficient data, segregated by reporting period,
--------------
to verify the accuracy of the calculations confirmed thereby).
"Contingent Obligation", as applied to any Person, means any direct or
---------------------
indirect liability, contingent or otherwise, of that Person: (a) with respect to
any indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto; (b) with
respect to any letter of credit issued for the account of that Person or as to
which that Person is otherwise liable for reimbursement of drawings; (c) under
Interest Rate Agreements; or (d) under any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect
that Person against fluctuations in currency values. Contingent Obligations
shall include, without limitation: (i) the direct or indirect guaranty,
endorsement (other than for collection or deposit in the ordinary course of
business), co-making, discounting with recourse or sale with recourse by such
Person of the obligation of another, (ii) the obligation to make take-or-pay or
similar payments if required regardless of nonperformance by any other party or
parties to an agreement, and (iii) any liability of such Person for the
obligations of another through any agreement to purchase, repurchase or
otherwise acquire such obligation or any property constituting security
therefor, to provide funds for the payment or discharge of such obligation or to
maintain the solvency, financial condition or any balance sheet item or level of
income of another. The amount of any Contingent Obligation shall be equal to
the amount of the monetary obligation so guaranteed or otherwise supported or,
if not a fixed and determined amount, the maximum amount of the monetary
obligation so guaranteed.
"Contractual Obligation", as applied to any Person, means any
----------------------
indenture, mortgage, deed of trust, contract, undertaking, agreement or other
instrument to which that Person is a party or by which it or any of its
properties is bound or to which it or any of its properties is subject.
-6-
<PAGE>
"Default" means a condition or event that, after notice or lapse of
-------
time or both, would constitute an Event of Default if that condition or event
were not cured or removed within any applicable grace or cure period.
"Discretionary Reduction Limitation" means, in reference to (i)
----------------------------------
Inventory which may be declared ineligible pursuant to the operation of clause
(m) of the definition of Eligible Inventory and (ii) Other Lender Reserves which
may be imposed pursuant to the operation of clause (iv) of the definition of
Other Lender Reserves, the requirement that, so long as no Event of Default has
occurred and is continuing, the total reduction to the Maximum Revolving Loan
Amount caused by application of the foregoing provisions, either individually or
in combination, shall not exceed, within any fiscal month of Borrower, a sum
equal to four percent (4%) of Eligible Inventory reported as of the last day of
the immediately preceding fiscal month of Borrower.
"Dollars" and the sign "$" mean the lawful money of the United States
-------
of America.
"EBITDA" means, without duplication, for any period, the following,
------
each calculated for Borrower and its Subsidiaries on a consolidated basis, in
each instance determined in accordance with GAAP, for such period: (a) Net
Income; plus (b) any provision for income or franchise taxes included in the
----
determination of Net Income; plus (c) Interest Expense deducted in the
----
determination of Net Income; plus (d) amortization and depreciation expenses
----
deducted in the determination of Net Income; less (e) extraordinary gains, net
----
of extraordinary losses; plus (f) any cost attributable to changes in the value
----
of Borrower's Inventory caused by changes in Borrower's LIFO and cost
capitalization gross-ups or reserves (including purchase accounting inventory
writeups); less (g) any income attributable to changes in the value of
----
Borrower's Inventory caused by changes in Borrower's LIFO and cost
capitalization gross-ups or reserves (including purchase accounting inventory
writeups); plus (h) any accrued or actual expense amount shown on Borrower's
----
income statement with regard to Borrower's liability for damages in that certain
lawsuit captioned "Rossi v. Northern Automotive Corporation" (the "Rossi
-----
Lawsuit"); provided, however, that, the amount added to Net Income as a result
-----------------------
of this clause (h) in determining EBITDA hereunder shall not exceed One Million
Five Hundred Thousand Dollars ($1,500,000) in the aggregate during the term of
this Agreement and any reversal of any such accrued expense amount shall be
subtracted from Net Income for purposes of this definition.
"Eligible Inventory" means, as at any date of determination, the value
------------------
(determined at the lower of cost or market value on a first-in, first-out basis)
of all Inventory consisting of goods held for sale in the ordinary course of
Borrower's business which have been scheduled to Agent in accordance with
subsection 5.1(F) owned by and in the
-7-
<PAGE>
possession of Borrower and located in the United States of America; except that
------
the following Inventory shall not be considered "Eligible Inventory":
(a) Inventory with respect to which Agent does not have a valid, first
priority (subject to Permitted Encumbrances) and fully perfected security
interest;
(b) Inventory with respect to which there exists any Lien (other than
Permitted Encumbrances) in favor of any Person other than Agent on behalf of
Lenders;
(c) Inventory produced in violation of the Fair Labor Standards Act
and subject to the so-called "hot goods" provisions contained in Title 29 U.S.C.
215(a);
(d) Inventory which consists of promotional items, supplies or
warranty returns, or which is obsolete, unmerchantable or otherwise not in good
and saleable condition;
(e) Any Inventory which represents over fifty-two (52) weeks supply on
hand of that particular Inventory item, to the extent that the total amount of
all such Inventory on hand from time to time exceeds Six Million Dollars
($6,000,000);
(f) Inventory with respect to which any covenant, representation or
warranty contained in this Agreement, in the Security Agreement or in any other
Loan Document has been breached (unless cured or waived);
(g) Inventory which was purchased by Borrower in or as part of a
"bulk" transfer of assets of the seller (unless the seller and Borrower have
complied with all applicable "bulk" transfer laws or Borrower has been provided
an indemnity agreement reasonably acceptable to, and assigned to, Agent);
(h) Inventory located at any leased location or public warehouse that
was a Collateral Location on the Closing Date and is in a Lien State unless (A)
------
a Rent Reserve applies thereto or (B) Borrower has provided Agent with a Lien
Waiver with respect thereto;
(i) Inventory located at any leased location or public warehouse that
was not a Collateral Location on the Closing Date, whether or not in a Lien
State, unless (A) a Rent Reserve applies thereto or (B) Borrower has provided
------
Agent with a Lien Waiver with respect thereto;
(j) Inventory which is consigned;
(k) Inventory which is in transit;
-8-
<PAGE>
(l) Inventory which is subject to any purchase money Lien other than
in Agent's favor (including, in this respect, any otherwise constituting a
Permitted Encumbrance); and
(m) Any other Inventory which from time to time Agent, in the
reasonable exercise of its credit judgment, may declare to be ineligible or, at
the direction of the Requisite Lenders, acting in the reasonable exercise of
their collective credit judgment, shall declare to be ineligible, for purposes
hereof; provided, however, that, unless and except to the extent that an Event
-----------------
of Default has occurred and is continuing, Inventory shall not be declared
ineligible pursuant to this clause (m) except on at least thirty (30) days'
advance written notice to Borrower (which notice shall be deemed waived if a
Default has occurred and is then continuing) and, then, subject to the
Discretionary Reduction Limitation; less any reserves on the amount of Eligible
----
Inventory imposed by Agent, in the reasonable exercise of its credit judgment
or, at the direction of the Requisite Lenders, acting in the reasonable exercise
of their collective credit judgment, at any time or from time to time in respect
of Inventory shrinkage, price changes in Inventory, any inventory value
attributed to Borrower's cost capitalization gross-up (including purchase
accounting inventory writeups), and changes in Inventory mix (in the latter
case, to the extent that such changes in Inventory mix result in a reduction in
the effective liquidation value thereof expressed as a percentage of cost
calculated on the same or substantially similar assumptions as were used in the
initial appraisal thereof prepared by the Inventory Appraiser on or before the
Closing Date, as it may be updated from time to time, to reflect changes in
market value as then determined by the Inventory Appraiser).
"Employee Benefit Plan" means any employee benefit plan within the
---------------------
meaning of Section 3(3) of ERISA.
"Environmental Claims" has the meaning assigned to that term in
--------------------
subsection 4.15(A).
"Environmental Laws" means all present and future federal, state or
------------------
local laws, statutes, ordinances, codes, rules, regulations, orders, decrees or
directives imposing liability or standards of conduct for relating to the
environment, industrial hygiene, land use or the protection of human health and
safety, natural resources, pollution or waste management.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended, and all rules and regulations promulgated thereunder.
"ERISA Affiliate", as applied to any Loan Party, means any Person who
---------------
is a member of a group which controls, is controller by or is under common
control with any Loan Party (as those correlative terms are defined in the
definition of "Affiliate" above), who
-9-
<PAGE>
together with any Loan Party is treated as a single employer within the meaning
of Section 414, subsections (b) and (c) of the IRC.
"ERISA Termination Event" means: (a) a "Reportable Event" described in
-----------------------
Section 4043 of ERISA and the regulations issued thereunder; or (b) the
withdrawal of any Loan Party or any ERISA Affiliate from a Pension Plan during a
plan year in which it was a "substantial employer" as defined in Section
4001(a)(2) or 4068(f) of ERISA; or (c) the termination of a Pension Plan, the
filing of a notice of intent to terminate a Pension Plan or the treatment of a
Pension Plan amendment as a termination under Section 4041 of ERISA; or (d) the
institution of proceedings to terminate, or the appointment of a trustee with
respect to, any Pension Plan by the PBGC; or (e) any other event or condition
which would constitute grounds under Section 4042(a) of ERISA for the
termination of, or the appointment of a trustee to administer, any Pension Plan;
or (f) the partial or complete withdrawal of any Loan Party or any ERISA
Affiliate from a Multiemployer Plan; or (g) the imposition of a Lien pursuant to
Section 412 of the IRC or Section 302 of ERISA; or (h) any event or condition
which results in the reorganization or insolvency of a Multiemployer Plan under
Sections 4241 or 4245 of ERISA; or (i) any event or condition which results in
the termination of a Multiemployer Plan under Section 4041A of ERISA or the
institution by the PBGC of proceedings to terminate a Multiemployer Plan under
Section 4042 of ERISA.
"Eurocurrency Reserve Requirements", for any day, as applied to a
---------------------------------
Eurodollar Rate Loan, shall mean the aggregate (without duplication) of the
rates (expressed as a decimal fraction) of reserve requirements in effect on
such day (including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Federal Reserve Board or other
Governmental Authority having jurisdiction with respect thereto), dealing with
reserve requirements prescribed for eurocurrency funding (currently referred to
as "Eurocurrency Liabilities" in Regulation D of the Federal Reserve Board)
maintained by a member bank of the Federal Reserve System.
"Eurodollar Base Rate", with respect to each day during each Interest
--------------------
Period pertaining to a Eurodollar Rate Loan, shall mean the rate per annum equal
to the rate at which Transamerica or its designee (which shall be a prime bank
in the interbank eurodollar market or any Lender that is a bank) is offered
Dollar deposits at or about 10:00 a.m. New York City time two (2) Working Days
prior to the beginning of such Interest Period in the interbank eurodollar
market where the eurodollar and foreign currency and exchange operations in
respect of its Eurodollar Rate Loans are then being conducted for delivery on
the first day of such Interest Period for the number of days comprised therein
and in an amount comparable to the amount of the Eurodollar Rate Loan requested
by Borrower to be out standing during such Interest Period.
-10-
<PAGE>
"Eurodollar Rate Loans" shall mean Loans the rate of interest
---------------------
applicable to which is based upon the Eurodollar Rate.
"Eurodollar Rate" with respect to each day during each Interest Period
---------------
pertaining to a Eurodollar Rate Loan, a rate per annum determined for such day
by the Agent or its designee and notified to the Agent in accordance with the
following formula (rounded upwards to the nearest whole multiple of 1/100th of
one percent):
Eurodollar Base Rate
---------------------------------------------
1.00 - Eurocurrency Reserve Requirements
plus the Applicable Margin.
- ----
"Event of Default" means each of the events set forth in subsection
----------------
8.1.
"Excess Cash Flow" means, for any period, without duplication, the
----------------
total of the following for Borrower and its Subsidiaries on a consolidated
basis, in each instance determined in accordance with GAAP, each calculated for
such period: (a) EBITDA; less (b) any income or franchise taxes paid in cash
----
and included in the determination of Net Income; less (c) Unfinanced Capital
----
Expenditures; less (d) scheduled payments of principal of any Indebtedness
----
(whether or not actually made); less (e) the aggregate amount of all voluntary
----
prepayments of principal of any Indebtedness, including, without limitation, any
voluntary prepayment of the Term Loan made in accordance with subsection 2.4(F),
but excluding, however, any prepayments of the Revolving Loan; less (f)
----
Interest Expense; less (g) Other Capitalized Costs; less (h) any decrease in
---- ----
deferred revenue; less (i) any Restricted Junior Payments.
----
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and any rule or regulation promulgated thereunder from time to time.
"Expiry Date" means the earlier of (a) the termination of the
----------- -------
Revolving Loan Commitment pursuant to subsection 8.3 or (b) the Termination
Date.
"Extended Payables", as of any date, shall mean that amount equal to
-----------------
the amount by which Borrower's accounts payable, as determined in accordance
with GAAP (excluding, however, therefrom any constituting A/P Note Debt), on
------------------
such date exceeds seventy-two percent (72%) of the dollar amount of Borrower's
Inventory (determined at the lower of FIFO cost or market value) on such date.
"Federal Funds Rate" shall mean, for any period, a fluctuating
------------------
interest rate per annum equal for each day during such period to the weighted
average of the rates on
-11-
<PAGE>
overnight Federal funds transactions with member banks 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 next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a 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.
"Financial Condition Certificate" means a certificate delivered to
-------------------------------
Agent by Borrower pursuant to subsection 3.1(B).
"Financial Statements" shall mean the balance sheets, income
--------------------
statements and statements of cash flows of any Person, and all footnotes and
other supplementary or explanatory materials delivered in connection therewith.
"Fiscal Year" means the 52 or 53 week accounting period of Borrower
-----------
and its Subsidiaries ending on the Sunday closest to January 31 in each year.
For purposes hereof, references herein to April 30, July 31, October 31, and
January 31 shall refer to such date or the date closest thereto which represents
Borrower's fiscal quarter or Fiscal Year end, as the case may be.
"Fixed Charge Coverage" means, for any period, the quotient of (a)
---------------------
EBITDA, less Unfinanced Capital Expenditures, less Other Capitalized Costs, and
---- ----
less any income or franchise taxes paid in cash (regardless when accrued)
- ----
divided by (b) Fixed Charges.
- ----------
"Fixed Charges" means, without duplication, for any period, the total
-------------
of the following for Borrower and its Subsidiaries on a consolidated basis in
accordance with GAAP, each calculated for such period: (a) Interest Expense;
plus (b) scheduled payments of principal with respect to all Indebtedness of
- ----
Borrower and its Subsidiaries on a consolidated basis (whether or not actually
made), including, but not limited to, the principal component of any scheduled
---------
payments on Capital Leases and Subordinated Debt (whether or not actually made);
but excluding any repayments of the Revolving Loan.
- --- ---------
"Funding Date" means the date of each funding of a Loan or issuance
------------
of a Lender Letter of Credit.
"GAAP" or "Generally Accepted Accounting Principles" means generally
---- ----------------------------------------
accepted accounting principles as set forth in statements from Auditing
Standards No. 69 entitled "The Meaning of 'Present Fairly in Conformance with
Generally Accepted Accounting Principles in the Independent Auditors Reports'"
issued by the Auditing Standards Board of the American Institute of Certified
Public Accountants and statements
-12-
<PAGE>
and pronouncements of the Financial Accounting Standards Board that are
applicable to the circumstances as of the date of determination.
"Governmental Authority" means any nation or government or federal,
----------------------
state, county, province, canton, city, town, municipality, local or other
political subdivision thereof, and any department, commission, agency or
instrumentality exercising executive, legislative, judicial, regulatory or
administrative function of or pertaining to government.
"Hazardous Material" means all or any of the following: (a) substances
------------------
that are defined or listed in, or otherwise classified pursuant to, any
applicable Environmental Laws as "hazardous substances", "hazardous materials",
"hazardous wastes", "toxic substances" or any other formulation intended to
define, list or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity
or "TLCP" toxicity, "EP toxicity"; (b) oil, petroleum or petroleum derived
substances, natural gas, natural gas liquids or synthetic gas and drilling
fluids, produced waters and other wastes associated with the exploration,
development or production of crude oil, natural gas or geothermal resources; (c)
any flammable substances or explosives or any radioactive materials; and (d)
asbestos in any form or electrical equipment which contains any oil or
dielectric fluid containing levels of polychlorinated biphenyls in excess of
fifty parts per million.
"Holdings" means CSK Holdings, Ltd., a Delaware corporation,
--------
formerly known as CSK Group Holdings, Inc., and Lenders, by their
execution hereof, hereby consent to the foregoing name change, and
waive any Event of Default, heretofore existing, which may have
arisen from Holdings' failure to obtain such consent prior to such
name change becoming effective.
"Inchoate Indemnity Obligations" shall mean that portion, if any, of
------------------------------
Borrower's or any other Loan Party's Obligations consisting of indemnities of
Borrower or another Loan Party arising in favor of Agent or Lenders pursuant to
the terms hereof or of any Loan Document which are contingent, uncertain or
unknown. The foregoing shall include, but not be limited to, the indemnities
set forth in subsections 2.2(H), 2.8, 2.9, 10.1 and 10.2 of this Agreement.
"Indebtedness", as applied to any Person, means: (a) the Obligations
------------
and all other indebtedness for borrowed money; (b) that portion of obligations
with respect to Capital Leases that is properly classified as a liability on a
balance sheet in conformity with GAAP; (c) the A/P Note Debt and all other notes
payable and drafts accepted representing extensions of credit whether or not
representing obligations for borrowed money; (d) any obligation owed for all or
any part of the deferred purchase price of property or services if the purchase
price is due more than one year from the date the obligation is incurred or is
evidenced by a note, title retention agreement, conditional sale contract or
similar written instrument; (e) all indebtedness secured by any Lien on any
property or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is
nonrecourse to the credit of that Person; and (f) all
-13-
<PAGE>
Subordinated Debt. Obligations under Interest Rate Agreements constitute
Contingent Obligations and not Indebtedness.
"Interest Coverage" means, for any period, the quotient of: (a)
-----------------
EBITDA, divided by (b) Interest Expense.
----------
"Interest Expense" means, without duplication, for any period, (a)
----------------
interest expense deducted in the determination of Net Income, minus (b) that
-----
portion of interest expense representing amortization of deferred debt cost of
Borrower and its Subsidiaries on a consolidated basis determined in accordance
with GAAP.
"Interest Payment Date" shall mean: (i) as to any Alternate Base Rate
---------------------
Loan, the first day of each calendar month, commencing on the first such date
occurring after the Closing Date; (ii) as to any Eurodollar Rate Loan in respect
of which an Interest Period of three (3) months or less has been selected, the
last day of such Interest Period; (iii) as to any Eurodollar Rate Loan having an
Interest Period longer than three (3) months, each day that is three (3) months
after the commencement of such Interest Period and the last day of such Interest
Period; and (iv) in addition to and without limitation of the foregoing, for
each Loan, the maturity date of such Loan, whether by its terms or upon
acceleration of its maturity pursuant hereto.
"Interest Period" with respect to any Eurodollar Rate Loan:
---------------
(a) initially, the period commencing on the Funding Date or conversion
date, as the case may be, with respect to such Eurodollar Rate Loan and ending
two (2) months, three (3) months or six (6) months thereafter, as selected by
Borrower in its Notice of Borrowing not less than three (3) Working Days prior
to the intended Funding Date for such Eurodollar Rate Loan; and
(b) thereafter, for any continuation of a Eurodollar Rate Loan, each
period commencing on the last day of the next preceding Interest Period
applicable to such Eurodol lar Rate Loan and ending two (2) months, three (3)
months or six (6) months thereafter, as selected by Borrower in its Notice of
Borrowing not less than three (3) Working Days prior to the last day of the then
current Interest Period with respect to such Eurodollar Rate Loan;
provided that all of the foregoing provisions relating to Interest Periods are
- --------
subject to the following:
(1) if any Interest Period would otherwise end on a day which is not a
Working Day, that Interest Period shall be extended to the next succeeding
Working Day unless the result of such extension would be to carry such Interest
Period into another
-14-
<PAGE>
calendar month, in which event such Interest Period shall end on the immediately
preceding Working Day;
(2) any Interest Period that would otherwise extend beyond the
Termination Date shall end on the Termination Date;
(3) if Borrower shall fail to give notice as provided above, such
Borrower shall be deemed to have selected an Alternate Base Rate Loan to replace
the affected Eurodollar Rate Loan;
(4) any Interest Period that begins on the last Working Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall end on the last
Working Day of a calendar month; and
(5) Borrower shall select Interest Periods so as not to require a
payment or prepayment of any Eurodollar Rate Loan during an Interest Period for
such Loan.
"Interest Rate Agreement" means any interest rate protection
-----------------------
agreement, hedge contract, swap agreement or similar agreement or arrangement
designed to protect a Person against fluctuations in interest rates.
"Inventory" means inventory (as defined in Article 9 of the UCC) to
---------
the extent comprised of materials, products or goods of a type manufactured,
sold or consumed by a Person in the ordinary course of its business.
"Inventory Appraiser" shall mean Buxbaum Ginsberg & Associates or such
-------------------
other firm of independent appraisers as may be retained by the Agent, with the
reasonable approval of Borrower and the Requisite Lenders from time to time in
order to appraise (or update any existing appraisal of) the Inventory.
"Investment", as applied to any Person, means (a) any direct or
----------
indirect purchase or other acquisition by such Person of any beneficial interest
in, including stock, partnership interest or other Securities of, or all, or
substantially all, assets of, any other Person or (b) any direct or indirect
loan, advance or capital contribution by a Person to any other Person,
including, without limitation, all indebtedness and accounts receivable from
that other Person that are not current assets or did not arise from sales to
that other Person in the ordinary course of business. The amount of any
Investment shall be the original cost of such Investment plus the cost of all
additions thereto, without any adjustments for increases or decreases in value,
or write-ups, write-downs or write-offs with respect to such investment.
-15-
<PAGE>
"IRC" means the Internal Revenue Code of 1986, as amended, and any
---
rule or regulation promulgated thereunder from time to time.
"Issuer" means any Lender (which is a bank) as may be selected by
------
Borrower, with the approval of Agent, which agrees to be the issuer of a Lender
Letter of Credit.
"Joint Venture" means a joint venture, partnership or other similar
-------------
arrangement, regardless of the legal form of such arrangement.
"Lender" or "Lenders" means TBCC and each other Person identified as a
------ -------
"Lender" on the signature pages to this Agreement, together with each successor
and permitted assign of such Person pursuant to subsection 9.1.
"Lender Addition Agreement" means an agreement among Agent, a Lender
-------------------------
and such Lender's assignee regarding their respective rights and obligations
with respect to assignments of the Loans, the Commitments and other interests
under this Agreement and the other Loan Documents.
"Lender Reimbursement Liability" means, as to each Lender Letter of
------------------------------
Credit, all reimbursement obligations of Borrower to the Issuer thereof, whether
contingent or otherwise, including with respect to any Lender Letter of Credit:
(a) the amount available to be drawn or which may become available to be drawn;
(b) all amounts which have been paid or made available by the issuing bank to
the extent not reimbursed; and (c) all unpaid interest, fees and expenses.
"Lender Reimbursement Reserve" means, at any time, an amount equal to
----------------------------
(a) the aggregate amount of Lender Reimbursement Liability with respect to all
Lender Letters of Credit outstanding at such time plus (b) to the extent not
----
included in clause (a), the aggregate amount theretofore paid by any Issuer
under Lender Letters of Credit for which such Issuer has not been reimbursed or
which has not been debited to the Loan Account pursuant to subsection 2.1(C)(2).
"Lender Letter of Credit" has the meaning assigned to that term in
-----------------------
subsection 2.1(C).
"Lending Office" shall mean the office of each Lender specified as
--------------
such on the signature pages to this Agreement opposite its name, or such other
office of such Lender as such Lender may from time to time specify in writing to
the Agent.
"Lien" means any lien, mortgage, pledge, security interest, charge or
----
encumbrance of any kind, whether voluntary or involuntary (including any
conditional sale
-16-
<PAGE>
or other title retention agreement, any lease in the nature thereof, and any
agreement to give any security interest).
"Lien State" means all those States listed on Schedule 1.1(A) plus any
---------- ---------------
other State in which on or subsequent to the Closing Date a landlord's Lien for
unpaid rent is recognized, by statute or common law, as prior in right and claim
to the rights and claims of Agent as secured party on behalf of Lenders in
respect of any Inventory.
"Lien Waiver" shall mean a written agreement, in substantially the
-----------
form of Exhibit 1.1(G) or as otherwise is reasonably acceptable to the Agent,
--------------
pursuant to which a Person shall waive or subordinate its rights and claims as
landlord in any Inventory of Borrower for unpaid rents, grant access to Agent
for the repossession and sale of such Inventory and make other agreements
relative thereto.
"Loan" or "Loans" means an extension of credit made under or pursuant
---- -----
to either the Term Loan Commitment or the Revolving Loan Commitment.
"Loan Account" has the meaning assigned to that term in subsection
------------
2.6.
"Loan Documents" means this Agreement, the Notes, the Security
--------------
Documents and all other instruments, documents and agreements executed by or on
behalf of any Loan Party and delivered concurrently herewith or at any time
hereafter to or for the benefit of Agent or any Lender in connection with the
Loans and other transactions contemplated by this Agreement, all as amended,
supplemented or modified from time to time.
"Loan Party" means, collectively, Borrower, Holdings and any
----------
Subsidiary of Borrower which, pursuant to Section 5.11(B) hereof, is or becomes
a party to any Loan Document.
"Loan Year" means each period of twelve (12) consecutive months
---------
commencing on the Closing Date and ending on each anniversary thereof.
"Material Adverse Change" means any material, adverse change occurring
-----------------------
in (a) the business, operations, properties, assets or financial condition of
Borrower or of Borrower and its Subsidiaries taken as a whole or (b) the ability
of any Loan Party to perform its obligations under any Loan Document to which it
is a party or of Agent or any Lender to enforce or collect any of the
Obligations, or (c) the net realizable value to Lenders in any subsequent
foreclosure or liquidation of the whole, or any material portion, of the
Collateral. In determining whether any individual event would result in a
Material Adverse Change, notwithstanding that such event does not of itself have
such effect, a Material Adverse Change shall be deemed to have occurred if the
cumulative effect of such event and
-17-
<PAGE>
all other then existing events would reasonably be expected to result in a
Material Adverse Change.
"Material Adverse Effect" means any effect which has resulted in, will
-----------------------
result in, or which would reasonably be expected to result in, a Material
Adverse Change.
"Material Subsidiary" means any Subsidiary of Borrower (i) which has
-------------------
an individual net worth which equals or exceeds, at the relevant time period,
ten percent (10%) of the Net Worth of Borrower and all of its Subsidiaries on a
consolidated basis (including such Subsidiary), (ii) which has a Net Income
which equals or exceeds, as of the relevant time period, ten percent (10%) of
the Net Income of Borrower and all of its Subsidiaries on a consolidated basis
(including such Subsidiary) or (iii) the divestiture of which by Borrower
otherwise could reasonably be expected to have a Material Adverse Effect
(regardless of its relative net worth).
"Maximum Revolving Loan Amount" has the meaning assigned to that term
-----------------------------
in subsection 2.1(B)(1).
"Mortgage" means each of the mortgages, deeds of trust, leasehold
--------
mortgages, leasehold deeds of trust, collateral assignments of leases or other
real estate security documents delivered by any Loan Party to Agent, with
respect to Mortgaged Property or Additional Mortgaged Property, all in form and
substance satisfactory to Agent.
"Multiemployer Plan" means a "multiemployer plan" as defined in
------------------
Section 4001(a)(3) of ERISA.
"Net Income" means, for any period, the net income (or loss) of
----------
Borrower and its Subsidiaries on a consolidated basis after provision for or
benefit from income and franchise taxes determined in accordance with GAAP.
"Net Proceeds" means cash proceeds received by Borrower from any Asset
------------
Disposition (including payments under notes or other debt securities received in
connection with any Asset Disposition and insurance proceeds and awards of
condemnation), net of (a) the costs of such sale, lease, transfer or other
disposition (including commissions and taxes
-18-
<PAGE>
attributable to such sale, lease or transfer) and (b) amounts applied to
repayment of Indebtedness (other than the Obligations) secured by a lien,
security interest, claim or encumbrance on the asset or property disposed.
"Net Worth" means, on any date of determination, the total assets of
---------
Borrower and its Subsidiaries on a consolidated basis less the total
liabilities of Borrower and its Subsidiaries on a consolidated basis, in each
instance determined in accordance with GAAP.
"New Closing Date" means the date specified as such in the Preamble
----------------
to this Agreement.
"New Distribution Center Property" shall mean the property and
--------------------------------
improvements thereon comprising Borrower's new distribution center to be
constructed in Phoenix, Arizona.
"New Distribution Center Property Debt" shall mean any Indebtedness
-------------------------------------
incurred by Borrower owing to any Person other than Lenders in connection with
the acquisition, construction and/or improvement of the New Distribution Center
Property, exclusive, however, of Capital Leases of such property, or portions
thereof.
"Note" or "Notes" means one or more of the Term Notes or Revolving
---- -----
Notes, or any combination thereof.
"Notice of Borrowing" means a notice substantially in the form of
-------------------
Exhibit 1.1(C).
- --------------
"Obligations" means the Term Loan, all Advances, all reimbursement
-----------
obligations of Borrower with respect to Lender Letters of Credit and any and all
other obligations, liabilities and Indebtedness of every nature of each Loan
Party from time to time owed to Agent or any Lender hereunder and under the Loan
Documents including the principal amount of all debts, claims and indebtedness,
accrued and unpaid interest and all fees, costs and expenses, whether primary,
secondary, direct, contingent, fixed or otherwise, heretofore, now and/or from
time to time hereafter owing, due or payable whether before or after the filing
of a proceeding under the Bankruptcy Code by or against the Loan Party obligated
thereon. With respect to any specified Loan Party, "Obligations" of such
specified Loan Party means all obligations, liabilities and Indebtedness of such
Loan Party to any Lender or the Agent under any Loan Document to which such Loan
Party is a party. Without limi tation, "Inchoate Indemnity Obligations" shall
constitute a part of "Obligations."
-19-
<PAGE>
"Other Capitalized Costs", for Borrower and its Subsidiaries, means
-----------------------
all site selection and pre-opening expenses, and all capitalized internal and
external software devel opment costs.
"Other Lender Reserves" means (i) reserves for costs, expenses and
---------------------
liabilities of any Loan Party arising hereunder or under any Loan Document which
have become due and payable pursuant to the terms hereof or thereof and as to
which Agent is authorized to charge the amount thereof to the Loan Account
pursuant hereto; (ii) reserves for any taxes payable by Borrower at any time or
from time to time to the State of Texas or any Governmental Authority of the
State of Texas; (iii) reserves for sales, excise or similar taxes not otherwise
being timely paid or fully reserved against by Borrower in a manner rea sonably
satisfactory to Agent; and (iv) other reserves (excluding, however, the Term
------------------
Loan Reserve, the Rent Reserve and the Lender Reimbursement Reserve) which
Agent, in the reasonable exercise of its credit judgment, or at the direction of
the Requisite Lenders, in the reasonable exercise of their collective credit
judgment, may elect to impose from time to time hereafter on Borrowing
Availability in respect of the Revolving Loan Commitments; provided, however,
-----------------
that, unless and except to the extent that an
Event of Default has occurred and is continuing, reserves imposed pursuant to
clause (iv) above shall not be imposed except on at least thirty (30) days'
advance written notice to Borrower (which shall be deemed waived if a Default
has occurred and is continuing) and, then, subject to the Discretionary
Reduction Limitation.
"Other Letters of Credit" shall mean any letters of credit, other than
-----------------------
the Lender Letters of Credit, whether now or hereafter existing, issued by any
bank for the account of Borrower in connection with the importation of
Inventory.
"PBGC" means the Pension Benefit Guaranty Corporation or any
----
successor thereto.
"Pension Plan" means any Employee Benefit Plan, other than a
------------
Multiemployer Plan, which is subject to the provisions of Part 3 of Title I of
ERISA, Title IV of ERISA or Section 412 of the IRC.
"Permitted Encumbrances" means the following:
----------------------
(a) Liens (other than Liens relating to Environmental Claims or
ERISA) for taxes, assessments or other governmental charges not yet due and
payable or if being contested in accordance with Section 5.4;
(b) Statutory Liens of carriers, mechanics, materialmen,
landlords, warehousemen, and other similar liens imposed by law, which are
incurred in the ordinary
-20-
<PAGE>
course of business for sums not yet due or not more than thirty (30) days
delinquent or which are being contested in good faith; provided that a reserve
--------
(including, as applicable, a Rent Reserve), bond or other appropriate provision
reasonably satisfactory to Agent shall have been made therefor;
(c) Liens (other than any Lien imposed by ERISA) incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security, or to
secure the performance of tenders, statutory obligations, surety, stay, customs
and appeal bonds, bids, leases, government contracts, trade contracts,
performance and return-of-money bonds and other similar obligations (exclusive
of obligations for the payment of borrowed money);
(d) Liens for Purchase Money Indebtedness; provided that: (i) the
--------
Indebtedness secured by any such Lien is permitted under subsection 7.1; and
(ii) any such Lien encumbers only the asset so purchased, constructed or
improved; and (iii) such Lien is released upon the Indebtedness secured thereby
being fully paid;
(e) Any attachment or judgment Lien not constituting an Event of
Default under subsection 8.1(I) of this Agreement;
(f) Leases or subleases granted to others not interfering in any
material respect with the business of any Loan Party or any of its Subsidiaries;
(g) Easements, rights-of-way, restrictions, and other similar charges
or encumbrances not interfering in any material respect with the ordinary
conduct of the business of any Loan Party or any of its Subsidiaries;
(h) Any interest or title of a lessor or sublessor under any Capital
Lease not restricted by Section 6.2 of this Agreement;
(i) Any interest or title of a lessor or sublessor under any operating
lease;
(j) Liens arising from filing precautionary UCC financing statements
regarding leases and consignments permitted by this Agreement;
(k) Liens in favor of Agent, on behalf of Lenders;
(l) Liens existing on real estate when purchased by Borrower, which is
purchased by Borrower subject thereto or as to which Borrower has assumed any
Indebtedness to the extent permitted in Section 7.1(E);
-21-
<PAGE>
(m) Liens existing in favor of the issuer of any Other Letter of
Credit on Inventory-in-transit (only) to Borrower given in support of Borrower's
reimbursement obligations arising in respect of such Other Letter of Credit;
(n) Liens, whether now or hereafter existing, granted to secure the
repayment of the New Distribution Center Property Debt in those assets or
property of Borrower related to the New Distribution Center Property described
on Schedule 1.1(E);
(o) Other Liens existing on the Closing Date and renewals, extensions
and refinancings thereof, which Liens (if any) are set forth on Schedule 1.1(B);
---------------
(p) Liens in the nature of zoning restrictions, easements, licenses,
restrictive covenants, riparian and other rights, mining and mineral rights and
similar encumbrances on title to real property of a customary nature or other,
minor irregularities of title thereto; provided that the same do not,
--------
individually or in the aggregate, materially impair the use, value or
marketability of such real property; and
(q) Liens on cash collateral in an amount not in excess of $2,300,000
(plus interest and other investment income earned thereon while held as cash
collateral) granted to a bonding company to secure Borrower's Contingent
Obligation in respect of the appeal bond pertaining to the Rossi Lawsuit
described in Section 7.4(G) hereof.
"Permitted Tax Payment", in respect of the Tax Sharing Arrangement,
---------------------
and notwithstanding any terms thereof to the contrary, for any tax period and
any taxes covered thereby, shall mean the lesser of: (i) the allocable amount
------
of such taxes for such period which is owing by Borrower thereunder; or (ii) the
amount of such taxes for such period which would have been owing by Borrower and
its Subsidiaries to the applicable Governmental Authority, computed as if
Borrower and its Subsidiaries were not affiliated with any other corporations
and the Tax Sharing Arrangement did not exist.
"Person" means and includes natural persons, corporations, limited
------
liability companies, limited partnerships, general partnerships, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions thereof
and their respective permitted successors and assigns (or in the case of a
governmental person, the successor functional equivalent of such Person).
"Prior Indebtedness" means the prior indebtedness of Borrower to LM
------------------
Finance (Curacao) N.V. identified on Schedule 1.1(C), which was paid in full on
---------------
the Closing Date.
-22-
<PAGE>
"Pro Rata Share" means the percentage obtained by dividing (i) the
--------------
Total Loan Commitment of a Lender by (ii) the Total Loan Commitments of all
Lenders, in either case as such percentage may be adjusted by assignments
permitted pursuant to subsection 9.1.
"Projections" means a Person's forecasted Financial Statements, each
-----------
prepared on a division-by-division, Subsidiary-by-Subsidiary and consolidated
and consolidating basis, in each case as applicable, and otherwise consistent
with Borrower's historical financial statements, together with, if requested by
Agent, in the reasonable exercise of its discretion, appropriate supporting
details and statements of underlying assumptions and a budget for Capital
Expenditures.
"Purchase Money Indebtedness" shall mean any Indebtedness of Borrower
---------------------------
or any Subsidiary incurred in connection with its purchase, construction or
improvement of any machinery, equipment, or real property solely for the purpose
of financing such purchase, construction or improvement constituting either the
deferred purchase price of the property so purchased, constructed or improved or
money borrowed in respect thereof; but, expressly excluding herefrom any Capital
Leases.
"Rent Reserve" shall mean a reserve equal to the sum of three (3)
------------
months' rent at each affected leased Collateral Location, as determined in
accordance with clauses (h) and (i) of the definition of Eligible Inventory.
"Requirement of Law", as to any Person, shall mean any law, treaty,
------------------
rule or regulation or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject.
"Requisite Lenders" means any number of Lenders having either (a)
-----------------
sixty-six percent (66%) or more of the Total Loan Commitments if the Total Loan
Commitments have not been terminated; or (b) if all Total Loan Commitments have
been terminated, sixty-six percent (66%) or more of the aggregate outstanding
principal amount of the Lender Reim bursement Liability, the Revolving Loan and
the Term Loan.
"Restricted Junior Payment" means: (a) any dividend or other
-------------------------
distribution, direct or indirect, on account of any shares of any class of stock
of Borrower or any of its Subsidiaries now or hereafter outstanding, except a
------
dividend payable solely in shares of a class of stock to the holders of that
class; (b) any redemption, conversion, exchange, retirement, sinking fund or
similar payment, purchase or other acquisition for value, direct or indirect, of
any shares of any class of stock of Borrower or any of its Subsidiaries now or
hereafter outstanding; (c) any payment or prepayment of principal of, premium,
if any, or interest on, redemption, conversion, exchange, purchase, retirement,
defeasance, sinking
-23-
<PAGE>
fund or similar payment with respect to, any Subordinated Debt; (d) any payment
made to retire, or to obtain the surrender of, any outstanding warrants, options
or other rights to acquire shares of any class of stock of Borrower or any of
its Subsidiaries now or hereafter outstanding; and (e) any payments at any time
owing under the Tax Sharing Arrangement in excess of the Permitted Tax Payments.
"Revolving Loan" means all Advances made by Lenders pursuant to
--------------
subsection 2.1(B) and any amounts added to the principal balance of the
Revolving Loan pursuant to this Agreement.
"Revolving Loan Commitment" means (a) as to any Lender, the commitment
-------------------------
of such Lender to make available its Pro Rata Share of the Advances under the
Revolving Loan and to purchase its Pro Rata Share of participations in Lender
Letters of Credit and (b) as to all Lenders, the aggregate commitment of all
Lenders to make available their Pro Rata Shares of the Advances under the
Revolving Loan and to purchase their Pro Rata Shares of participations in Lender
Letters of Credit. The Revolving Loan Commitments shall be limited as
prescribed in subsection 2.1(B).
"Revolving Note" means each promissory note of Borrower substantially
--------------
in the form of Exhibit 1.1(D).
------- ------
"Sale Assets" means fixed assets held for sale from time to time by
-----------
Borrower in the ordinary course of its business, excluding, however, therefrom
------------------
any Additional Mortgaged Property, and including, particularly, but without
limitation, the fixed assets described on Schedule
--------
1.1(D).
- ------
"Scheduled Installment" has the meaning assigned to that term in
---------------------
subsection 2.1(A).
"Securities" means any stock, shares, voting trust certificates,
----------
bonds, debentures, options, warrants, notes, or other evidences of indebtedness,
secured or unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities" or any certificates of interest,
shares or participations in temporary or interim certificates for the purchase
or acquisition of, or any right to subscribe to, purchase or acquire, any of the
foregoing.
"Security Agreement" means the security agreement executed and
------------------
delivered by Borrower in favor of Agent for the benefit of Lenders,
substantially in the form of Exhibit 1.1(E).
------- ------
-24-
<PAGE>
"Security Documents" means all instruments, documents and agreements
------------------
executed by or on behalf of any Loan Party to guaranty or provide collateral
security with respect to the Obligations and other transactions contemplated by
this Agreement including, without limitation, the Mortgages, the Security
Agreement and all instruments, documents and agreements executed pursuant to the
terms of the foregoing, including, without limitation, those executed pursuant
to the Security Agreement.
"Solvent" shall mean that any Person (a) has capital sufficient to
-------
carry on its business as in existence on the Closing Date and all other or
additional business and transactions in which it is about to engage, (b) is able
to pay its Indebtedness as it matures and (c) owns property having a value, both
at fair valuation and at then present fair saleable value, greater than the sum
of its total liabilities plus all known contingent liabilities, computed at the
amount that, in light of all facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or
matured li ability in accordance with Generally Accepted Accounting Principles.
"Subordinated Debt" means unsecured Indebtedness of Borrower which has
-----------------
been subordinated in right of payment and claim to the rights and claims of the
Lenders in respect of the Obligations pursuant to a written agreement containing
subordination terms reasonably satisfactory to the Requisite Lenders which are
consistent, in any event, with the terms of subsection 7.5.
"Subsidiary" means, with respect to any Person, any corporation,
----------
partnership, association or other business entity of which fifty percent (50%)
or more of the total voting power of shares of stock (or equivalent ownership or
controlling interest) entitled (without regard to the occurrence of any
contingency which has not yet occurred) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by that Person or by one or more of the other Subsidiaries of that
Person or a combination thereof.
"Tangible Net Worth" shall mean Net Worth, plus any accrued or actual
------------------ ----
expense liability shown on Borrower's balance sheet with regard to Borrower's
liability for damages in the Rossi lawsuit, not to exceed One Million Five
Hundred Thousand Dollars ($1,500,000); provided, however, that any reversal of
-----------------------
any such accrued expense liability shall be subtracted from Net Worth for
purposes of this definition; less all intangible assets, as determined for
----
Borrower and its Subsidiaries on a consolidated basis under GAAP, to include in
any event, goodwill, cost capitalization gross ups or reserves and LIFO gross
ups or reserves.
"Tax Sharing Arrangement" shall mean: The Tax Sharing Agreement,
-----------------------
dated as of March 1, 1995, among Holdings and its Subsidiaries (including
Borrower), a copy of which, as executed and in effect on the New Closing Date,
is attached to Schedule 1.1(D).
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<PAGE>
"Term Loan" means the advance made pursuant to subsection 2.1(A).
---------
"Term Loan Commitment" means (a) as to any Lender, the commitment of
--------------------
such Lender to make available its Pro Rata Share of the Term Loan and (b) as to
all Lenders, the aggregate commitments of all Lenders to make available their
Pro Rata Shares of the Term Loan.
"Term Loan Reserve" means, at any time, an amount equal to the then
-----------------
unpaid principal balance of the Term Loan.
"Term Note" means each promissory note of Borrower substantially in
---------
the form of Exhibit 1.1(F).
--------------
"Termination Date" has the meaning assigned to that term in
----------------
subsection 2.5.
"Total Loan Commitment" means (a) as to any Lender, the aggregate
---------------------
commitments of any Lender with respect to the Revolving Loan Commitment and the
Term Loan Commitment as set forth on the signature page of this Agreement
opposite such Lender's signature or in the most recent Lender Addition
Agreement, if any, executed by such Lender; and (b) as to all Lenders, the
aggregate commitments of all Lenders with respect to all Revolving Loan
Commitments and all Term Loan Commitments.
"UCC" means the Uniform Commercial Code as in effect on the date
---
hereof in the State of New York; or as the Uniform Commercial Code is in effect
in any other jurisdiction in which Collateral is located, to the extent such
code is applicable to the exercise of any rights or remedies in respect of such
Collateral.
"Unfinanced Capital Expenditures" shall mean Capital Expenditures
-------------------------------
which do not constitute Capital Leases and which were not financed with Purchase
Money Indebtedness.
"Working Day" means any Business Day on which dealings in foreign
-----------
currencies and exchange between banks may be carried on in London, England.
-26-
<PAGE>
1.2. Accounting Terms; Utilization of GAAP for Purposes of Calculations Under
------------------------------------------------------------------------
Agreement
- ---------
For purposes of this Agreement, all accounting terms not otherwise
defined herein shall have the meanings assigned to such terms in conformity with
GAAP. Financial statements and other information furnished to Agent or any
Lender pursuant to subsection 5.1 shall be prepared in accordance with GAAP as
in effect at the time of such preparation. Unless otherwise approved by the
Requisite Lenders, no "Accounting Changes" (as defined below) shall affect the
calculation of financial covenants, standards or terms in this Agreement (which
shall be calculated using GAAP as in effect on the Closing Date); provided,
--------
however, that Borrower shall prepare footnotes to each Compliance Certificate
- -------
and the financial statements required to be delivered hereunder that show the
differences between the financial statements delivered (which reflect such
Accounting Changes) and the basis for calculating financial covenant compliance
(without reflecting such Accounting Changes). "Accounting Changes" means: (a)
------------------
changes in accounting principles required by GAAP and implemented by Borrower;
(b) changes in accounting principles determined to be necessary by Borrower's
certified public accountants; and (c) changes in carrying value of Borrower's
(or any of its Subsidiaries') assets, liabilities or equity accounts.
1.3. Other Definitional Provisions
-----------------------------
References herein to "Sections", "subsections", "Exhibits" and
-------- ----------- --------
"Schedules" shall be to Sections, subsections, Exhibits and Schedules,
- ----------
respectively, of this Agreement unless otherwise specifically provided. Any of
the terms defined in subsection 1.1 may, unless the context otherwise requires,
be used in the singular or the plural depending on the reference. In this
Agreement, "hereof," "herein," "hereto," "hereunder" and the like mean and refer
------ ------ ------ ---------
to this Agreement as a whole and not merely to the specific section, paragraph
or clause in which the respective word appears; words importing any gender
include the other genders; references to "writing" include printing, typing,
lithography and other means of reproducing words in a tangible visible form; the
words "including," "includes" and "include" shall be deemed to be followed by
--------- -------- -------
the words "without limitation"; references to agreements and other contractual
instruments shall be deemed to include subsequent amendments, assignments, and
other modifications thereto, but only to the extent such amendments, assignments
and other modifications are not prohibited by the terms of this Agreement or any
other Loan Document; references to Persons include their respective permitted
successors and assigns or, in the case of governmental Persons, Persons
succeeding to the relevant functions of such Persons; and all references to
statutes and related regulations shall include, as to any statute, its related
regulations, any amendments of same and any successor statutes and regulations.
-27-
<PAGE>
SECTION 2.
----------
AMOUNTS AND TERMS OF LOANS
--------------------------
2.1. Loans
-----
(A) Term Loan. On the Closing Date, each Lender loaned to Borrower
---------
its Pro Rata Share of the Term Loan. The aggregate amount of the Term Loan, as
of the Closing Date, was Five Million Dollars ($5,000,000). Amounts of the
Term Loan which are repaid may not be reborrowed. Borrower shall make principal
payments in the amounts of the applicable Scheduled Installments (or such lesser
principal amount of the Term Loan as shall then be outstanding) on the dates and
in the amounts set forth below. For purposes hereof, "Scheduled Installments"
----------------------
means consecutive, equal, monthly principal installments of Eighty-Three
Thousand Three Hundred Thirty-Three Dollars ($83,333) each (based on a five-year
level principal amortization), due and payable on the first day of each calendar
month occurring prior to the Termination Date, together with a final principal
installment equal in amount to the then entire unpaid principal balance of the
Term Loan (the "Balloon Payment"), which shall be due and payable on the
---------------
Termination Date. The amount of the Balloon Payment owing at any one time shall
change from time to time, coincident with each extension (if any) of the
Termination Date, as described in Section 2.5 hereof, and shall be determined by
reference to the then effective remaining amortization of the Term Loan after
giving effect to such extension.
(B) Revolving Loan. Subject to the terms and conditions of this
--------------
Agreement and in reliance upon the representations and warranties of Borrower
contained herein, each Lender agrees, severally and not jointly, (i) to continue
outstanding its Pro Rata Share of the Revolving Loan originally made under the
Original Agreement and (ii) to lend to Borrower from time to time during the
period from the New Closing Date to and excluding the Expiry Date its Pro Rata
Share of the Revolving Loan. The aggregate amount of all Revolving Loan
Commitments shall be equal at any one time to One Hundred Million Dollars
($100,000,000) minus the amount of the Term Loan Reserve; and the amount of each
-----
Lender's Revolving Loan Commitment shall be equal at any one time to its Pro
Rata Share of all Revolving Loan Commitments minus the amount of its Pro Rata
-----
Share of the Term Loan Reserve. Amounts borrowed under this subsection 2.1(B)
(including any amount originally borrowed under the Original Agreement and
continued under this subsection and now outstanding hereunder) may be repaid and
reborrowed at any time prior to the Expiry Date. No Lender shall have any
obligation to make Advances under this subsection 2.1(B) to the extent any
requested Advance would cause the principal balance of the Revolving Loan then
outstanding to exceed the Maximum Revolving Loan Amount. Notwithstanding the
foregoing, however, (i) with the consent of the Requisite Lenders, Borrower may
from time to time obtain Advances in excess of the Maximum Revolving Loan
Amount (herein called "Permitted
---------
-28-
<PAGE>
Overadvances"); provided, however, that, in such event, unless all Lenders
- ------------ -----------------
otherwise consent thereto, (i) the total amount of all Permitted Overadvances
shall not exceed at any time Two Million Dollars ($2,000,000), (ii) each such
Permitted Overadvance must be reduced to zero not later than fifteen (15)
Business Days after the date of its incurrence, and (iii) the maximum number of
Business Days within any period of three hundred sixty-five (365) days in which
Permitted Overadvances are outstanding, taking into consideration the limitation
set forth in clause (ii) above, shall be sixty (60); (iv) such Permitted
Overadvances shall not, in any event, cause any Lender's outstanding Advances
ever to exceed the maximum amount of its respective Revolving Loan Commitment,
minus its Pro Rata Share of the Lender Reimbursement Reserve then in effect.
- -----
(1) "Maximum Revolving Loan Amount" means, as of any date of
-----------------------------
determination, the lesser of (a) the Revolving Loan Commitments minus the sum of
------ -----
the Lender Reimbursement Reserve and the Other Lender Reserves; or (b) the sum
of (x) the Borrowing Base plus any Permitted Overadvances minus (y) the sum of
---- -----
the Lender Reimbursement Reserve, the Rent Reserve, the Other Lender Reserves
and the Amendment Reserve, each such amount calculated as of such date of
determination.
(2) "Borrowing Base" means, as of any date of determination, the
--------------
sum of sixty percent (60%) of Eligible Inventory. The Borrowing Base shall be
determined based on the most recent Borrowing Base Certificate delivered to
Agent pursuant to subsection 5.1(F).
(C) Letters of Credit. Subject to the terms and conditions of this
-----------------
Agreement and in reliance upon the representations and warranties of Borrower
herein set forth, the Revolving Loan Commitment may, in addition to Advances
under the Revolving Loan, be utilized, upon the request of Borrower, for the
issuance of letters of credit by the Issuer (each such letter of credit,
together with any letter of credit issued under the Original Agreement and
outstanding as of the New Closing Date, a "Lender Letter of Credit"). Each
-----------------------
Lender agrees to purchase, and shall be deemed to have purchased, a
participation in each such Lender Letter of Credit upon its issuance in an
amount equal to its Pro Rata Share of the unpaid amount thereof from time to
time together with accrued interest thereon.
(1) Maximum Amount. The aggregate amount of Lender Reimbursement
--------------
Liability with respect to all Lender Letters of Credit outstanding at any time
shall not exceed Three Million Dollars ($3,000,000).
(2) Reimbursement. Borrower shall be irrevocably and
-------------
unconditionally obligated forthwith, without presentment, demand, protest or
other formalities of any kind, to reimburse the Issuer for any amounts paid by
the Issuer with respect to a Lender Letter of Credit, including, but not limited
to, all fees, costs and expenses
-29-
<PAGE>
actually paid by the Issuer to any bank that issues letters of credit. Borrower
hereby authorizes and directs Agent, at Agent's option, to debit the Loan
Account (by increasing the principal balance of the Revolving Loan) in the
amount of any payment made by the Issuer with respect to any Lender Letter of
Credit. All amounts paid by the Issuer with respect to any Lender Letter of
Credit that are not immediately repaid by Borrower with the proceeds of the
Revolving Loan or otherwise shall bear interest at the interest rate applicable
to Revolving Loans from the date paid by the Issuer. In the event that Borrower
shall fail to reimburse the Issuer on the date of any payment by the Issuer
under a Lender Letter of Credit in an amount equal to the amount of such
payment, the Issuer shall notify Agent. Agent, in turn, shall promptly notify
each Lender of the unreimbursed amount of such payment together with accrued
interest thereon. On the Business Day of its receipt of notice from Agent to
such effect, each Lender shall deliver to Agent an amount equal to its
respective participation therein in same day funds, at the place and on the date
and by the time notified by Agent. The obligation of each Lender to deliver to
Agent an amount equal to its respective participation pursuant to the foregoing
sentence shall be absolute and unconditional and such remittance shall be made
notwithstanding the occurrence or continuation of an Event of Default or Default
or the failure to satisfy any condition set forth in Section 3. In the event any
Lender fails to make available to Agent the amount of such Lender's
participation in such Lender Letter of Credit as provided in this subsection
2.1(C)(2), Agent shall be entitled to recover such amount on demand from such
Lender together with interest at the Federal Funds Rate.
(3) Conditions of Issuance of Lender Letters of Credit. In
--------------------------------------------------
addition to all other terms and conditions set forth in this Agreement, the
issuance by the Issuer of any Lender Letter of Credit shall be subject to the
conditions precedent that the Lender Letter of Credit shall support a
transaction entered into by Borrower in the ordinary course of its business
(except as is otherwise approved by the Requisite Lenders) and each Lender
Letter of Credit shall be in such form, be for such amount, and contain such
terms as may be reasonably satisfactory to the Issuer and Agent. The expiration
date of each Lender Letter of Credit shall be on a date which is the earlier of
-------
(a) one (1) year from its date of issuance, or (b) the Termination Date.
(4) Request for Letters of Credit. Borrower shall give Agent at
-----------------------------
least five (5) Business Days prior notice specifying the date a Lender Letter of
Credit is to be issued, identifying the Issuer and beneficiary and describing
the nature of the transactions proposed to be supported thereby. The notice
shall be accompanied by the form of the Lender Letter of Credit, together with
Borrower's signed application and agreement for the issuance thereof, in a form
acceptable to the Issuer (herein, an "Application").
-----------
(D) Borrowing Mechanics. Borrower may obtain Loans on any Business
-------------------
Day if the Loan is an Alternate Base Rate Loan or on any Working Day if the Loan
is a
-30-
<PAGE>
Eurodollar Rate Loan. When Borrower desires to borrow under the Revolving
Credit Commitments, it shall deliver to Agent a fully and properly completed
irrevocable Notice of Borrowing no later than 1:00 p.m. (Atlanta time) on the
proposed Funding Date, in the case of an Alternate Base Rate Loan, and at least
three (3) Working Days prior to the proposed Funding Date, in the case of an
Eurodollar Rate Loan, specifying (i) the amount to be borrowed, (ii) whether the
borrowing is to be a Eurodollar Rate Loan, an Alternate Base Rate Loan, or a
combination thereof, (iii) the requested Funding Date, and (iv) if the borrowing
is to be entirely or partly a Eurodollar Rate Loan, the length of the Interest
Period for such Loan. Neither Agent nor any Lender shall incur any liability to
Borrower for acting upon any Notice of Borrowing that Agent believes in good
faith to have been given by a duly authorized officer or other person authorized
to borrow on behalf of Borrower or for otherwise acting in good faith under this
subsection 2.1(D). Each such Advance to Borrower under the Revolving Loan
shall, on the Funding Date, be deposited, in immediately available funds, in
such account as Borrower may from time to time designate to Agent in writing.
(E) Notes. In accordance with the terms of the Original Agreement,
-----
Borrower executed and delivered to each Lender (1) a Revolving Note to evidence
the Revolving Loan, and (2) a Term Note to evidence the Term Loan. In the event
of an assignment under subsection 9.1, Borrower shall, upon surrender of the
assigning Lender's Notes, issue new Notes to reflect the new Commitments of the
assigning Lender and its assignee.
2.2. Interest
--------
(A) Rate of Interest. The unpaid principal amount of the Revolving
----------------
Loan and the Term Loan from time to time outstanding (including any outstanding
under the Original Agreement and continued under this Agreement) shall bear
interest at either the Alternate Base Rate or, subject to all terms and
conditions hereof relevant thereto, the Eurodollar Rate. Any other Obligations
shall bear interest at the interest rate specified herein or in the applicable
Loan Document evidencing such Obligations or, if no such interest rate is
specified, at the Alternate Base Rate. Notwithstanding the foregoing, at the
election of the Requisite Lenders, after the occurrence of an Event of Default
and for so long as such Event of Default continues, the Loans and all other
Obligations shall bear interest until paid in full at a rate per annum that is
two percent (2%) in excess of the interest rate(s) then or thereafter otherwise
applicable to all such Obligations.
(B) Computation and Payment of Interest. Interest on the Loans and
-----------------------------------
all other Obligations shall be computed on the daily principal balance on the
basis of a 360-day year for the actual number of days elapsed in the period
during which it accrues. In computing interest on any Loan, the date of funding
of the Loan shall be included and the date of payment of such Loan shall be
excluded; provided that if a Loan is repaid on the
--------
-31-
<PAGE>
same day on which it is made, one (1) day's interest shall be paid on that Loan
(with the oldest outstanding Advances being considered as first paid at all
times). Interest on the Loans and all other Obligations shall be payable to
Agent, for the ratable benefit of Lenders, on the applicable Interest Payment
Dates, on the date of any prepayment (in full) of Loans and at maturity, whether
by acceleration or otherwise.
(C) Interest Laws. Notwithstanding any provision to the contrary
-------------
contained in this Agreement or the other Loan Documents, Borrower shall not be
required to pay, and neither Agent nor any Lender shall be permitted to collect,
any amount of interest in excess of the maximum amount of interest permitted by
law ("Excess Interest"). If any Excess Interest is provided for or determined
---------------
by a court of competent jurisdiction to have been provided for in this Agreement
or in any of the other Loan Documents, then in such event: (1) the provisions of
this subsection shall govern and control; (2) neither Borrower nor any other
Loan Party shall be obligated to pay any Excess Interest; (3) any Excess
Interest that Agent or any Lender may have received hereunder shall be, at
Agent's option, (a) applied as a credit against the outstanding principal
balance of the Obligations or accrued and unpaid interest (not to exceed the
maximum amount permitted by law), (b) refunded to the payor thereof, or (c) any
combination of the foregoing; (4) the interest rate(s) provided for herein shall
be automatically reduced to the maximum lawful rate allowed from time to time
under applicable law (the "Maximum Rate"), and this Agreement and the other Loan
------------
Documents shall be deemed to have been and shall be, reformed and modified to
reflect such reduction; and (5) neither Borrower nor any other Loan Party shall
have any action against Agent or any Lender for any damages arising out of the
payment or collection of any Excess Interest. Notwithstanding the foregoing, if
for any period of time interest on any Obligation is calculated at the Maximum
Rate rather than the applicable rate under this Agreement, and thereafter such
applicable rate becomes less than the Maximum Rate, the rate of interest payable
on such Obligations shall remain at the Maximum Rate until each Lender shall
have received the amount of interest which such Lender would have received
during such period on such Obligations had the rate of interest not been limited
to the Maximum Rate during such period.
(D) Conversion Options; Minimum Amount of Loans.
-------------------------------------------
(i) Each Eurodollar Rate Loan shall be converted automatically to
an Alternate Base Rate Loan effective on the last day of the Interest Period
corresponding thereto, unless it (or a portion thereof) is continued as a new
Eurodollar Rate Loan continued in accordance with the succeeding sentence
hereof. Borrower may elect to continue any existing Eurodollar Rate Loan (or
portion thereof) as an Eurodollar Rate Loan as of the end of the Interest Period
corresponding thereto by giving the Agent at least three (3) Working Days' prior
irrevocable notice of such election pursuant to a prior irrevocable Notice of
Borrowing, appropriately completed. Upon receipt of such Notice of Borrowing,
the Agent
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<PAGE>
shall promptly notify each Lender thereof. Borrower may also elect from time to
time to convert Alternate Base Rate Loans to Eurodollar Rate Loans by giving the
Agent at least three (3) Working Days' prior irrevocable Notice of Borrowing,
appropriately completed. Upon receipt of such Notice of Borrowing, the Agent
shall promptly notify each Lender thereof. All or any part of outstanding
Eurodollar Rate Loans and Alternate Base Rate Loans may be converted as provided
herein, provided that (A) no Loan may be converted into a Eurodollar Rate Loan
--------
when any Default or an Event of Default has occurred and is continuing or the
Required Lenders have determined that such a conversion is not appropriate, (B)
partial conversions of Eurodollar Rate Loans shall be in an aggregate principal
amount of at least One Million Dollars ($1,000,000) or a whole multiple of Five
Hundred Thousand Dollars ($500,000) in excess thereof and (C) any such
conversion may only be made if, after giving effect thereto, subsection (E)
hereof shall not have been contravened.
(ii) Any Eurodollar Rate Loans may be continued as such upon the
expiration of an Interest Period with respect thereto by compliance by a
Borrower with the notice provisions contained in clause (i) hereof; provided
--------
that no Eurodollar Rate Loan may be continued as such when any Default or an
Event of Default has occurred and is continuing, but shall be automatically
converted to an Alternate Base Rate Loan on the last day of the then current
Interest Period with respect thereto. The Agent shall notify the Lenders
promptly that such automatic conversion contemplated by this subsection will
occur.
(E) Minimum Amounts of Eurodollar Rate Loans; Maximum Number of
-----------------------------------------------------------
Eurodollar Rate Loans; Interest Premium.
- ----------------------------------------
(i) All borrowings, conversions, payments, prepayments and
selection of Interest Periods hereunder by Borrower shall be in such amounts and
be made pursuant to such elections so that, after giving effect thereto, the
aggregate principal amount of each Eurodollar Rate Loan made to Borrower shall
not be less than One Million Dollars ($1,000,000) or an integral multiple of
Five Hundred Thousand Dollars ($500,000) in excess thereof.
(ii) There shall be no more than five (5) Eurodollar Rate Loans
outstanding at any time.
(iii) [Intentionally Omitted]
(iv) At the election of Agent, Agent may, or if Agent is
directed to do so by the Requisite Lenders, Agent shall, at any time from and
after the second time subsequent to the Closing Date on which Borrower prepays a
Eurodollar Rate Loan on a day which is not the last day of an Interest Period
with respect thereto, notify Borrower that, thereafter, Borrower shall not be
permitted to borrow Eurodollar Rate Loans at any time
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<PAGE>
when (x) the principal amount of Eurodollar Rate Loans to Borrower exceeds
sixty-six and two-thirds percent (66-2/3%) of the total principal amount of the
Loans outstanding to Borrower or (y) such borrowing would result in the
aggregate amount of Eurodollar Rate Loans outstanding to Borrower exceeding
sixty-six and two-thirds percent (66-2/3%) of the total principal amount of
Loans then outstanding to Borrower. In respect of the foregoing limitation, if,
at the end of any calendar month after the effective date of its imposition, the
daily average for such month of the aggregate principal amount of all Eurodollar
Rate Loans outstanding to Borrower shall exceed sixty-six and two-thirds percent
(66-2/3%) of the daily average for such month of the total principal amount of
all Loans outstanding (the amount of such excess over such percentage amount
being called herein the "excess principal amount"), then, Borrower will pay to
Agent, as additional interest (for the ratable benefit of the Lenders), on the
first day of the succeeding calendar month, that amount, if any, by which the
interest that would have accrued during such preceding monthly period on such
excess principal amount of Borrower's Eurodollar Rate Loans at the Alternate
Base Rate (if the Alternate Base Rate had applied to such Loans during such
period) is greater than the interest actually accrued during such period on such
excess principal amount of such Borrower's Eurodollar Loans at the Eurodollar
Rate.
(F) Inability to Determine Interest Rate.
------------------------------------
In the event that: (a) Agent has determined, or been notified by its
designee that it has determined (which determination, in either case, shall be
conclusive and binding upon Borrower) that, by reason of circumstances affecting
the interbank eurodollar market, adequate and reasonable means do not exist for
ascertaining the Eurodollar Rate for any requested Interest Period; or (b) the
Agent shall have received notice prior to the first day of such Interest Period
from Lenders constituting the Requisite Lenders that the interest rate
determined for such Interest Period does not accurately reflect the cost to such
Lenders (as conclusively certified by such Lenders) of making or maintaining
their affected Loans during such Interest Period; then, the Agent shall
forthwith give notice of such determination to Borrower and the other Lenders
as soon as practicable thereafter. If such notice is given (x) any then
requested Eurodollar Rate Loans shall be made as Alternate Base Rate Loans, (y)
any Alternate Base Rate Loans that were to have been converted to Eurodollar
Rate Loans shall be continued as Alternate Base Rate Loans and (z) any
outstanding Eurodollar Rate Loans shall be converted, on the last day of the
then current Interest Period with respect thereto, to Alternate Base Rate Loans;
and no further Eurodollar Rate Loans shall be made or continued as such, nor
shall Borrower have the right to convert Alternate Base Rate Loans to Eurodollar
Rate Loans unless and until the circumstances causing such suspension of
Eurodollar Rate Loans no longer exist.
(G) Illegality. Notwithstanding any other provisions herein, if any
----------
Requirement of Law or any change therein or in the interpretation or application
thereof shall make
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<PAGE>
it unlawful for any Lender to make or maintain Eurodollar Rate Loans as
contemplated by this Agreement, (a) the commitment of such Lender hereunder to
make Eurodollar Rate Loans, continue Eurodollar Rate Loans as such or convert
Alternate Base Rate Loans to Eurodollar Rate Loans shall forthwith be cancelled
and (b) such Lender's Loans then outstanding as Eurodollar Rate Loans, if any,
shall be converted automatically to Alternate Base Rate Loans on the respective
last day's of the then current Interest Periods with respect to such Loans or
within such earlier period as required by law. If any such conversion of a
Eurodollar Rate Loan occurs on a day which is not the last day of the then
current Interest Period with respect thereto, Borrower shall be obliged to pay
to such Lender, upon its demand, such amounts, if any, as may be required
pursuant to subsection (H) below.
(H) Indemnity. Borrower agrees to indemnify each Lender and to hold
---------
each Lender harmless from any loss or expense which such Lender may sustain or
incur as a consequence of (a) default by Borrower in payment when due of the
principal amount of or interest on any Eurodollar Rate Loans of such Lender, (b)
default by Borrower in making, continuing or converting a borrowing after
Borrower has given a Notice of Borrowing in respect thereto, (c) default by
Borrower in making any prepayment after Borrower has given a voluntary
prepayment notice in accordance with Section 2.4(F) hereof, or (d) the making of
a prepayment of a Eurodollar Rate Loan on a day which is not the last day of the
Interest Period with respect thereto, including, without limitation, in each
case, any such loss or expense arising from the reemployment of funds obtained
by each Lender to maintain its Eurodollar Rate Loans hereunder or from fees
payable to terminate the deposits from which such funds were obtained. In
addition to the foregoing, and separate and apart from any indemnity otherwise
payable to Lenders under this subsection (H), Borrower shall pay to Agent, for
its own account, an administrative fee of Five Thousand Dollars ($5,000) for
each occurrence described in clause (d) above, effective with its occurrence.
2.3. Fees
----
(A) [Intentionally Omitted]
(B) Unused Line Fee. From and after the New Closing Date, Borrower
---------------
shall pay to Agent, for the ratable benefit of Lenders, a fee in an amount equal
to the maximum amount of the Revolving Loan Commitment (determined without
regard to the Term Loan Reserve) less the sum of the average daily balance of
----
the Revolving Loan, the average daily balance of the Term Loan Reserve and the
average daily face amount of the Lender Reimbursement Reserve, in each case,
computed for the preceding calendar month, multiplied by one-half of one percent
(1/2%) per annum, such fee to be payable monthly in arrears on the first day of
each month.
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<PAGE>
(C) Letter of Credit Fees. Borrower shall pay to Agent, for the
---------------------
ratable benefit of the Lenders, fees for each Lender Letter of Credit for the
period from and including the date of issuance of same to and excluding the date
of expiration or termination, equal to the daily average undrawn face amount of
Lender Reimbursement Liability multiplied by two percent (2%) per annum, such
fees to be payable monthly in arrears on the first day of each month following
the issuance date of any Lender Letter of Credit. Borrower shall also reimburse
the Issuer for any and all customary fees and expenses, if any, actually charged
or incurred by such Issuer in connection with such Lender Letter of Credit.
(D) Agent's Fees. Borrower shall pay to Agent such fees in the
------------
amounts and at the times agreed upon between Agent and Borrower in a letter
dated on or prior to the Closing Date.
(E) [Intentionally Omitted]
(F) Computation and Payment of Fees. All fees payable on a per annum
-------------------------------
basis shall be computed on the basis of a 360-day year for the actual number of
days elapsed in the period during which such fees accrue.
2.4. Payments and Prepayments
------------------------
(A) Manner and Time of Payment. All payments by Borrower of the
--------------------------
Obligations shall be made without deduction, defense, setoff or counterclaim and
in same day funds and delivered to Agent by wire transfer to Agent's account,
ABA No. 071000013, Account No. 5297176 at The First National Bank of Chicago,
One First National Plaza, Chicago, IL 60670, Reference: "Transamerica Business
Credit Corporation for the benefit of Northern Automotive Corporation" or at
such other place as Agent may direct from time to time by notice to Borrower.
Borrower shall receive credit for such funds on the date received if Borrower
has given Agent telephonic notice by 2:00 p.m. (Atlanta time) of the transfer of
such funds and such funds are received by Agent by 2:00 p.m. (Chicago time) on
such day. In the absence of timely notice and receipt, such funds shall be
deemed to have been paid by Borrower on the next succeeding Business Day. In
order to cause timely payment to be made to Agent of all Obligations as and when
due, Borrower hereby authorizes and directs Agent, at Agent's option, to debit
the Loan Account (by increasing the principal balance of the Revolving Loan) for
any amounts of principal, accrued interest, fees, charges or expenses at any
time owing hereunder or under any Loan Documents as and when such Obligations
become due.
(B) Lockbox Accounts. Agent and Borrower shall establish and maintain
----------------
one or more special lockbox accounts or blocked accounts owned by Borrower or
special
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<PAGE>
accounts owned by Agent, or some combination thereof, or one concentration
account owned by Agent in lieu of the foregoing, all as Agent may elect, for the
collection of all proceeds from the sale of Borrower's Inventory, including,
without limitation, all cash proceeds and all Accounts. Each such special
account shall be opened with a bank selected by Borrower, but satisfactory to
Agent, which bank shall agree to a Bank Agency Agreement. All collections of
proceeds of Accounts shall be received at, and deposited on a daily basis to,
such account or series of accounts for ultimate application as provided in
subsection 2.4(C). Borrower shall provide Agent with copies of all bank
statements it receives relative to such accounts as soon as practicable but in
any event within ten (10) days from the date each such statement is received by
Borrower, and shall provide the Agent with a reconciliation report with respect
to each such bank statement for each such account as soon as practicable after
Borrower's receipt of each such bank statement but in any event within twenty
(20) days from the date of such receipt.
(C) Credit for Collections. All payments and other collections
----------------------
received by Agent, or any depository bank, for application to outstanding
Obligations, whether received pursuant to subsections 2.4(A) and 2.4(B) or
otherwise, will be applied to outstanding Obligations on the date of receipt by
Agent of same in immediately available funds at its designated account during
regular banking hours, with such application to be made, first, to all expenses
-----
of Agent or the depository bank, to the extent reasonably incurred, incurred in
effecting such collections; next, to any Obligations then past due and unpaid;
----
next, to any accrued interest or fees otherwise then due and payable; next, to
- ---- ----
any other Obligations then due and payable; next, to the Advances then
----
outstanding (with any Advances then constituting Alternate Base Rate Loans
deemed paid first); and lastly, provided that no Event of Default has occurred
------
and is continuing, any remainder shall be remitted to Borrower. If an Event of
Default has occurred and is continuing, without limiting any other rights and
remedies of Lenders hereunder, Agent may, at its option, and Agent will, at the
direction of the Requisite Lenders, apply any remainder to any other Obligations
then outstanding, regardless of whether then past due, or hold the same as
additional cash Collateral pending the due dates for payment of such
Obligations. Payments applied pursuant to this subsection 2.4(C) to outstanding
Advances shall not reduce the Revolving Loan Commitments.
(D) Payments on Business Days. Whenever any payment to be made
-------------------------
hereunder shall be stated to be due on a day that is not a Business Day, the
payment may be made on the next succeeding Business Day and such extension of
time shall be included in the computation of the amount of interest or fees due
hereunder.
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<PAGE>
(E) Mandatory Prepayments
---------------------
(1) Revolving Loan Overadvance. On any day that the principal balance
--------------------------
of the Revolving Loan exceeds the Maximum Revolving Loan Amount, unless and
except to the extent that the Requisite Lenders have consented to the making by
Lenders of a Permitted Overadvance, Borrower shall, on such date, repay the
Revolving Loan to the extent necessary to reduce the principal balance to an
amount that is equal to or less than the Maximum Revolving Loan Amount.
(2) Prepayments from Asset Dispositions. Immediately upon receipt by
-----------------------------------
Borrower of Net Proceeds of any Asset Disposition, which proceeds exceed Fifty
Thousand Dollars ($50,000) (it being understood that if the proceeds exceed
Fifty Thousand Dollars ($50,000), the entire proceeds and not just the portion
in excess of the foregoing amount shall be subject to this subsection) for any
single transaction or series of related transactions or which proceeds when
aggregated with all other Net Proceeds from Asset Dispositions received during
the same Fiscal Year exceed Fifty Thousand Dollars ($50,000) (it being
understood that if the proceeds exceed Fifty Thousand Dollars ($50,000), the
entire proceeds and not just the portion in excess of the foregoing amount shall
be subject to this subsection), Borrower shall prepay the Loans in an amount
equal to the Net Proceeds of such Asset Disposition in accordance with
subsection 2.4(E)(5). With respect to any Net Proceeds of any Asset
Disposition not covered hereby, such Net Proceeds shall be paid over by
Borrower, as and when received, to Agent for application to the Obligations in
accordance with subsection 2.4(C).
(3) Prepayment from Equity Offerings. In the event that Borrower
--------------------------------
issues any Capital Stock (other than to an employee stock option plan or as part
of any management incentive program), no later than the third Business Day
following the date of receipt of the proceeds from any sale of such Capital
Stock (other than: (a) proceeds of the issuance of Capital Stock received on or
before the Closing Date; or (b) proceeds, if any, from the issuance of
Borrower's Capital Stock to members of the management of Borrower), Borrower
shall prepay the Loans in an amount equal to one hundred percent (100%) of such
proceeds, net of underwriting discounts and commissions and other reasonable
costs associated therewith, with the amount of such prepayment to be applied in
accordance with subsection 2.4(E)(5).
(4) Prepayment From Pension Plan Reversion. Upon the return to
--------------------------------------
Borrower or any of its Subsidiaries of any surplus assets of any Pension Plan,
Borrower shall prepay the Loans in an amount equal to such returned surplus
assets net of transaction costs (including income, excise or other taxes)
incurred in obtaining such return with the amount of such prepayment to be
applied in accordance with subsection 2.4(E)(5).
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<PAGE>
Concurrently with the making of any such payment, Borrower shall deliver to
Agent a certificate of Borrower's chief executive officer or chief financial
officer or controller demonstrating its calculation of the amount required to be
paid.
(5) Application of Proceeds. With respect to the mandatory
-----------------------
prepayments described in subsections 2.4(E)(2) through 2.4(E)(4), such
prepayments shall first be applied in payment of the Term Loan in the manner
prescribed in subsection 2.4(G) and, at any time after the Term Loan shall have
been prepaid in full, such payments shall be applied to the Obligations in
accordance with subsection 2.4(C); provided, however, that, notwithstanding the
-----------------
foregoing, with respect to Section 2.4(E)(2), (i) the Net Proceeds of any Asset
Disposition of any Sale Assets and (ii) any Net Proceeds of any Asset
Disposition (other than of Additional Mortgaged Property) consisting of
insurance proceeds shall be paid over by Borrower, as and when received, to
Agent for application to the Obligations in accordance with subsection 2.4(C).
(F) Voluntary Prepayments and Repayments. Borrower may, upon at least
------------------------------------
five (5) Business Days prior notice to Agent, prepay the Term Loan in whole at
any time or from time to time in part without premium or penalty; and Borrower
may repay the Revolving Loan in whole at any time or from time to time in part
without premium or penalty; provided that (1) concurrently with such payment
--------
Borrower pays any fees due under subsection 2.2(H) and 2.3(E) if such prepayment
is made in conjunction with any early termination of this Agreement by
Borrower. Upon any prepayment in full of the Term Loan and termination of the
Revolving Loan Commitment made in conjunction with any early termination of this
Agreement by Borrower, Borrower shall cause Agent and each Lender to be released
from all liability under all Lender Letters of Credit or, at Agent's option,
Borrower will deposit cash collateral with Agent in an amount equal to the
Lender Reimbursement Liability with respect to each Lender Letter of Credit that
will remain outstanding after prepayment in full. After notice of prepayment is
given, the amount specified to be prepaid in such notice shall become due and
payable on the prepayment date. Any voluntary partial prepayment of the Term
Loan pursuant to this subsection 2.4(F) shall be applied in payment of the
Scheduled Installments in the manner specified in subsection 2.4(G).
(G) Application of Prepayments and Repayments. All prepayments (in
-----------------------------------------
full) and repayments under Section 2.4 shall include payment of accrued interest
on the principal amount so prepaid and repaid and shall be applied to the
payment of interest before application to principal. All prepayments (whether
mandatory or voluntary) of the Term Loan, which do not result in its full
payment shall be applied as follows: (i), to the Balloon Payment, until it is
fully paid; and, (ii), to the remainder of the Scheduled Installments, on a pro
rata basis, determined by reducing each such Scheduled Installment by an amount
equal
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<PAGE>
to the quotient obtained by dividing the amount of such prepayment by the number
of Scheduled Installments then remaining to be paid.
2.5. Term of this Agreement
----------------------
(A) Initial Term. This Agreement shall be effective until the earlier
------------ -------
of: (a) the date on which all Loans are paid in full and all other Obligations
have been satisfied and the Revolving Loan Commitment has been terminated, or
(b) the later of: (i) the second anniversary of the Closing Date or (ii) any
-----
extended date beyond such second anniversary date described in subsection (B)
below (the earlier of the dates described in clauses (a) and (b) above called
-------
herein the "Termination Date"), and the Commitments shall (unless earlier
----------------
terminated) terminate concurrently on the Termination Date. Borrower shall have
the right to terminate this Agreement at any time hereafter, provided that: (i)
--------
Borrower gives Agent written notice of its intent to terminate at least ninety
(90) days in advance of the date of early termination; and (ii) on the date of
early termination, Borrower fully pays and satisfies the applicable prepayment
fee specified in Section 2.3(E), complies in all respects with subsection 2.4(F)
and otherwise pays and performs all other Obligations (other than any In choate
Indemnity Obligations). In addition, this Agreement may be terminated as set
forth in Section 8.3 hereof. Upon termination in accordance with this Section
2.5, Section 8.3 or on the Termination Date, whichever is the earliest, all
Obligations shall become immediately due and payable without notice or demand.
Notwithstanding any termination, until all Lender Letters of Credit have been
terminated (or cash collateral has been provided in regard thereto, if required
pursuant to subsection 2.4(F)), and all Obligations (other than any Inchoate
Indemnity Obligations) have been fully paid and satisfied, Agent, on behalf of
Lenders, shall be entitled to retain security interests in and Liens upon all
Collateral, and Agent shall release such security interests and Liens, on behalf
of all Lenders, only on that date on which all such conditions have been
fulfilled. Notwithstanding full payment and satisfaction of all Obligations
(other than Inchoate Indemnity Obligations), Borrower's Inchoate Indemnity
Obligations shall continue in accordance with, and subject to, the terms and
conditions of this Agreement or any Loan Document giving rise thereto.
(B) Extended Term. Notwithstanding the foregoing provisions of
-------------
Subsection (A) above in respect of the definition of "Termination Date" (but
subject to all other provisions thereof), Borrower shall have the right to
extend the term of this Agreement beyond the second anniversary of the Closing
Date in one (1) year increments, commencing on the second anniversary of the
Closing Date, and continuing on an annual basis thereafter for a total of four
(4) additional years; that is, to the sixth anniversary of the Closing Date,
subject, however, to the following terms and conditions: (i) Borrower must give
- ----------------
written notice to Agent of its intent to exercise this right not earlier than
one hundred eighty (180) days prior to the then pertinent anniversary of the
Closing Date and not later than one hundred twenty (120) days prior thereto;
(ii) such extension will become effective for the
-40-
<PAGE>
next succeeding loan year on that date which is sixty (60) days prior to the
pertinent anniversary of the Closing Date (herein, the "Rollover Lock Date"),
------------------
provided that (1) on or prior to such date Borrower has delivered to Lenders its
- -------------
financial statements for its fiscal quarter ending on or about October 31 in the
then current Fiscal Year in accordance with the provisions of Section 5.1(A)
hereof, (2) such financial statements demonstrate, to the reasonable
satisfaction of Lenders, that (x) the amount of Borrower's Accounts Payable Days
Outstanding did not exceed one hundred five (105) for such fiscal quarter and
(y) Borrower has achieved Fixed Charge Coverage of at least 1.25:1.00 for such
fiscal quarter, (3) Lenders are satisfied that Borrower's Borrowing Availability
during such fiscal quarter averaged at least Three Million Dollars ($3,000,000)
and (4) on such date, no Default or Event of Default has occurred and is
continuing; (iii) Borrower shall pay to Agent for the ratable benefit of Lenders
on each such Rollover Lock Date a non-refundable extension fee of Two Hundred
Fifty Thousand Dollars ($250,000); and (iv) Borrower shall execute amendments to
any Mortgage recognizing such extension, pay any incremental recording tax or
fee thereon and obtain any title insurance endorsements in regard thereto which
Agent reasonably determines to be necessary in order to preserve its Lien or the
priority thereof on the Mortgaged Property covered thereby in light of such
extension.
2.6. Borrower's Loan Account and Statements
--------------------------------------
Agent shall maintain a loan account (the "Loan Account") on its books
------------
to record: (a) all Loans and payments made under Lender Letters of Credit; (b)
all payments made by Borrower; and (c) all other appropriate debits and credits
as provided in this Agreement with respect to the Obligations. All entries in
the Loan Account shall be made in accordance with Agent's customary accounting
practices as in effect from time to time. Borrower promises to pay all of its
Obligations as such amounts become due or are declared due pursuant to the
terms of this Agreement. After the occurrence and during the continuance of an
Event of Default, Borrower irrevocably waives the right to direct the
application of any and all payments at any time or times thereafter received by
Agent or any Lender from or on behalf of Borrower, and Borrower hereby
irrevocably agrees that Agent shall have the continuing exclusive right to apply
any and all payments received at any time or times after the occurrence and
during the continuance of an Event of Default against the Obligations in such
manner as Agent may deem advisable notwithstanding any previous entry by Agent
upon the Loan Account or any other books and records. The balance in the Loan
Account, as recorded on Agent's most recent printout or other written statement,
shall be presumptive evidence of the amounts due and owing to Lenders by
Borrower; provided, however, that any failure so to record or any error in so
-------- -------
recording shall not limit or otherwise affect Borrower's obligation to pay the
Obligations. Not more than twenty (20) days after the last day of each calendar
month, Agent shall render to Borrower a statement setting forth the principal
balance of the Loan Account and the calculation of interest paid thereon as of
the last day of such calendar month. Each statement shall be subject to
subsequent ad-
-41-
<PAGE>
justment by Agent but shall, absent manifest errors or omissions,
be presumptive evidence of the amounts due and owing to Lenders by Borrower, and
shall constitute an account stated unless, within thirty (30) days after receipt
of such statement, Borrower shall deliver to Agent its written objection thereto
specifying the error or errors, if any, contained in such statement.
2.7. Other Letter of Credit Provisions
---------------------------------
(A) Obligations Absolute. The obligation of Borrower to reimburse the
--------------------
Issuer, Agent and Lenders for payments made under any Lender Letter of Credit
shall be unconditional and irrevocable and shall be paid strictly in accordance
with the terms of this Agreement under all circumstances including the following
circumstances:
(1) any lack of validity or enforceability of any Lender Letter
of Credit or any other agreement;
(2) the existence of any claim, set-off, defense or other right
which Borrower or any of its Affiliates, the Issuer, Agent or any Lender may at
any time have against a beneficiary or any transferee of any Lender Letter of
Credit (or any persons for whom any such transferee may be acting), the Issuer,
Agent, any Lender, or any other Person, whether in connection with this
Agreement, the transactions contemplated herein or any unrelated transaction
(including any underlying transaction between Borrower or any of its Affiliates
and the beneficiary for which the Lender Letter of Credit was procured);
(3) any draft, demand, certificate or any other document presented
under any Lender Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or inaccurate
in any respect;
(4) payment by the Issuer, Agent or any Lender under any Lender
Letter of Credit against presentation of a demand, draft or certificate or other
document which does not comply with the terms of such Lender Letter of Credit;
provided, however, that, in the case of any payment by the Issuer, Agent or any
- -------- -------
Lender under any Lender Letter of Credit, Agent or such Lender has not acted
with gross negligence or willful misconduct (as determined by a court of
competent jurisdiction) in determining that the demand for payment under such
Lender Letter of Credit complies on its face with any applicable requirements
for a demand for payment under such Lender Letter of Credit;
(5) any other circumstance or happening whatsoever, which is
similar to any of the foregoing; or
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<PAGE>
(6) the fact that a Default or an Event of Default shall have
occurred and be continuing.
(B) Nature of Lenders' Duties. As between the Issuer and Borrower and
-------------------------
the Agent, each Lender and Borrower, Borrower assumes all risks of the acts and
omissions of, or misuse of any Lender Letter of Credit by beneficiaries of any
Lender Letter of Credit. In furtherance and not in limitation of the foregoing,
neither the Issuer, Agent nor any Lender shall be responsible: (i) for the
form, validity, sufficiency, accuracy, genuineness or legal effect of any
document by any party in connection with the application for and issuance of any
Lender Letter of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Lender Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may prove to
be invalid or ineffective for any reason; (iii) for failure of the beneficiary
of any Lender Letter of Credit to comply fully with conditions required in order
to demand payment under such Lender Letter of Credit; provided that, in the case
--------
of any payment by the Issuer under any Lender Letter of Credit, the Issuer has
not acted with gross negligence or willful misconduct (as determined by a court
of competent jurisdiction) in determining that the demand for payment under such
Lender Letter of Credit complies on its face with any applicable requirements
for a demand for payment under such Lender Letter of Credit; (iv) for errors,
omissions, interruptions or delays in transmission or delivery of any messages,
by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher;
(v) for errors in interpretation of technical terms; (vi) for any loss or delay
in the transmission or otherwise of any document required in order to make a
payment under any Lender Letter of Credit or of the proceeds thereof; (vii) for
the credit of the proceeds of any drawing under any Lender Letter of Credit; and
(viii) for any consequences arising from causes beyond the control of the
Issuer, Agent or any Lender. None of the above shall affect, impair, or prevent
the vesting of any of Agent's or any Lender's rights or powers hereunder. In
furtherance and extension of and not in limitation of, the specific provisions
hereinabove set forth, any action taken or omitted by Agent or any Lender under
or in connection with any Lender Letter of Credit, if taken or omitted in good
faith, shall not put the Issuer, Agent or any Lender under any resulting
liability to Borrower.
(C) Applications for Lender Letters of Credit. Borrower shall comply
-----------------------------------------
with the terms of the Application pertaining to any Lender Letter of Credit;
provided, however, that in the event of any conflict between the terms of any
- -----------------
Application and the terms of this Agreement, the terms of this Agreement shall
govern and control. Upon Lenders' purchase of participations in any Lender
Letter of Credit, Lenders shall be fully subrogated to the rights and remedies
of the Issuer under the Application pertaining thereto, and the Agent, on behalf
of Lenders, shall have the right to exercise all such rights and remedies.
-43-
<PAGE>
2.8. Requirements of Law.
-------------------
(A) In the event that any change in any Requirement of Law or in the
interpretation or application thereof or compliance by any Lender with any
request or directive (whether or not having the force of law) from any central
bank or other Governmental Authority made subsequent to the Closing Date:
(1) does or shall subject any Lender to any tax of any kind whatsoever
(other than any Tax Liability or any taxes on net income which are
excluded from such definition) which shall be exclusively governed by
Section 2.9 hereof, with respect to this Agreement, any Note, any
Letter of Credit, any Application or any Eurodollar Rate Loans made by
it, or change the basis of taxation of payments to such Lender of
principal, fees, interest or any other amount payable hereunder; or
(2) 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,
advances or loans by, or other extensions of credit by it, or any
other acquisition of funds by, any office of such Lender which are not
otherwise included in the determination of the Eurodollar Rate;
and the result of either of the foregoing is to increase the cost to
such Lender, by any amount which such Lender deems to be material, of
making, converting into, continuing or maintaining advances or
extensions of credit or to reduce any amount receivable hereunder, in
each case, in respect of its Eurodollar Rate Loans or issuing or
participating in Lender Letters of Credit or to reduce any amount
receivable hereunder in respect thereof, then, in any such case, the
Borrower shall be obliged to pay such Lender, upon its demand (with a
copy of such demand to the Agent), any additional amounts necessary to
compensate such Lender for such increased cost or reduced amount
receivable in respect of its Eurodollar Rate Loans or Lender Letters
of Credit. If a Lender becomes entitled to claim any additional
amounts pursuant to this Section, it shall promptly notify Borrower,
through the Agent, of the event by reason of which it has become so
entitled. A certificate as to any additional amounts payable pursuant
to this Section submitted by such Lender, through the Agent, to
Borrower shall be presumptive evidence of the amount due and owing
thereunder in the absence of manifest error. This covenant shall
survive the termination of this Agreement and payment of the
outstanding Notes and all other amounts payable hereunder.
(B) In the event that any Lender shall have determined that the
adoption of any change in any Requirement of Law or in the interpretation or
application thereof or compliance by any Lender or any corporation controlling
such Lender with any request or
-44-
<PAGE>
directive regarding capital adequacy (whether or not having the force of law)
from any central bank or Governmental Authority, made subsequent to the Closing
Date does or shall have the effect of reducing the rate of return on such
Lender's or such corporation's capital as a consequence of its obligations
hereunder or under any Letter of Credit to a level below that which such Lender
or such corporation could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's or such corporation's
policies with respect to capital adequacy) by an amount deemed by such Lender to
be material, then from time to time, after submission by such Lender to Borrower
(with a copy to the Agent) of a written request therefor, Borrower shall be
obliged to pay to such Lender such additional amount or amounts as will
compensate such Lender for such reduction. A certificate as to any additional
amounts payable pursuant to this Section submitted by such Lender, through the
Agent, to Borrower, shall be presumptive evidence of the amount due and owing
thereunder in the absence of manifest error.
(C) For the purpose of subclauses (A) and (B) above, without limiting
the generality of the provisions therein set forth, any final adoption or
implementation by any Governmental Authority of any risk-based capital standards
in accordance with the International Convergence of Capital Measurement and
Capital Standards agreed upon by the Basle Committee on Banking Regulations and
Supervisory Practices made after the Closing Date shall be deemed to be an
introduction, change, guideline or request made prior to the Closing Date.
(D) Before making any demand for payment under this Section, each
Lender agrees to use reasonable efforts (consistent with its internal policy and
legal and regulatory restrictions and so long as such efforts would not be
disadvantageous to it, in its reasonable discretion, in any legal, economic or
regulatory manner) to designate a different Lending Office or take such other
action if the making of such a designation or the taking of such other action
would reduce or obviate the need for Borrower to make payments under this
Section.
2.9. Taxes
-----
(A) No Deductions. Any and all payments or reimbursements made
-------------
hereunder or under the Notes shall be made free and clear of and without
deduction for any and all taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto; excluding, however, the
following: taxes imposed on the net income of a Lender or Agent by the
jurisdiction under the laws of which such Lender or Agent is organized or doing
business or any political subdivision thereof and taxes imposed on its net
income by the jurisdiction of such Lender's or Agent's applicable lending office
or any political subdivision thereof (all such taxes, levies, imposts,
deductions, charges or withholdings and all liabilities with respect thereto,
excluding such taxes imposed on net
-45-
<PAGE>
income, herein called "Tax Liabilities"). If Borrower shall be required by law
---------------
to deduct any such amounts from or in respect of any sum payable hereunder to
any Lender or Agent, then the sum payable hereunder shall be increased as may be
necessary so that, after making all required deductions, such Lender or Agent
receives an amount equal to the sum it would have received had no such
deductions been made.
(B) Changes in Tax Laws. In the event that, subsequent to the Closing
-------------------
Date, (1) any changes in any existing law, regulation, treaty or directive or in
the interpretation or application thereof, (2) any new law, regulation, treaty
or directive enacted or any interpretation or application thereof, or (3)
compliance by Agent or any Lender with any request or directive (whether or not
having the force of law) from any governmental authority, agency or
instrumentality: (i) does or shall subject Agent or any Lender to any tax of
any kind whatsoever with respect to this Agreement, the other Loan Documents or
any Loans made or Lender Letters of Credit issued hereunder, or change the basis
of taxation of payments to Agent or such Lender of principal, fees, interest or
any other amount payable hereunder (except for net income taxes, or franchise
taxes imposed in lieu of net income taxes, imposed generally by federal, state
or local taxing authorities with respect to interest or commitment or other fees
payable hereunder or changes in the rate of tax on the overall net income of
Agent or such Lender); or (ii) does or shall impose on Agent or any Lender any
other condition or increased cost in connection with the transactions
contemplated hereby or participations herein; and the result of any of the
foregoing is to increase the cost to Agent or any such Lender of issuing any
Lender Letter of Credit or making or continuing any Loan hereunder, as the case
may be, or to reduce any amount receivable hereunder, then, in any such case,
Borrower shall pay to Agent or such Lender, within fifteen (15) days after
notice and demand, any additional amounts necessary to compensate Agent or such
Lender, on an after-tax basis, for such additional cost or reduced amount
receivable, as determined by Agent or such Lender with respect to this Agreement
or the other Loan Documents; provided, however, that Borrower shall not be
--------- -------
bound to compensate any Lender hereunder in respect of any claims arising more
than six (6) months prior to the date any such demand is made. If Agent or such
Lender becomes entitled to claim any additional amounts pursuant to this
subsection, it shall promptly notify Borrower of the event by reason of which
Agent or such Lender has become so entitled. A certificate as to any additional
amounts payable pursuant to the foregoing sentence submitted by Agent or such
Lender to Borrower and Agent shall, absent manifest error, be presumptive
evidence of the amount due and owing thereunder.
(C) Foreign Lenders. Each Lender (if any) organized under the laws of
---------------
a jurisdiction outside the United States (a "Foreign Lender") as to which
--------------
payments to be made under this Agreement or under the Notes are exempt from
United States withholding tax or are subject to United States withholding tax at
a reduced rate under an applicable statute or tax treaty shall provide to
Borrower and Agent (1) a properly completed and executed
-46-
<PAGE>
Internal Revenue Service Form 4224 or Form 1001 or other applicable form,
certificate or document prescribed by the Internal Revenue Service of the United
States certifying as to such Foreign Lender's entitlement to such exemption or
reduced rate of withholding with respect to payments to be made to such Foreign
Lender under this Agreement and under the Notes (a "Certificate of Exemption")
------------------------
or (2) a letter from any such Foreign Lender stating that it is not entitled to
any such exemption or reduced rate of withholding (a "Letter of Non-Exemption").
-----------------------
Prior to becoming a Lender under this Agreement and within thirty (30) days
after a reasonable written request of Borrower or Agent from time to time
thereafter, each Foreign Lender that becomes a Lender under this Agreement shall
provide a Certificate of Exemption or a Letter of Non-Exemption to Borrower and
Agent. If a Foreign Lender is entitled to an exemption with respect to payments
to be made to such Foreign Lender under this Agreement (or to a reduced rate of
withholding) and does not provide a Certificate of Exemption to Borrower and
Agent within the time periods set forth in the preceding paragraph, Borrower
shall withhold taxes from payments to such Foreign Lender at the applicable
statutory rates and Borrower shall not be required to pay any additional amounts
as a result of such withholding; provided, however, that all such withholding
-------- -------
shall cease upon delivery by such Foreign Lender of a Certificate of Exemption
to Borrower and Agent.
2.10. Optional Prepayment/Replacement of Lender in Respect of Increased Costs
-----------------------------------------------------------------------
Within fifteen (15) days after receipt by Borrower of written notice
and demand from any Lender (an "Affected Lender") for payment of additional
---------------
costs as provided in subsections 2.8 or 2.9, Borrower may, at its option, notify
Agent and such Affected Lender of its intention to do one of the following:
(A) Borrower may obtain, at Borrower's expense, a replacement Lender
("Replacement Lender") for such Affected Lender, which Replacement Lender shall
------------------
be reasonably satisfactory to Agent. In the event Borrower obtains a
Replacement Lender within ninety (90) days following notice of its intention to
do so, the Affected Lender shall sell and assign its Loans and Commitments to
such Replacement Lender provided that Borrower has reimbursed such Affected
Lender for its increased costs for which it is entitled to reimbursement under
this Agreement through the date of such sale and assignment.
(B) With the approval of the Requisite Lenders, Borrower may prepay in
full all outstanding Obligations owed to such Affected Lender and terminate such
Affected Lender's Commitments. Borrower shall, within ninety (90) days
following notice of its intention to do so, prepay in full all outstanding
Obligations owed to such Affected Lender (including such Affected Lender's
increased costs for which it is entitled to reimbursement under this Agreement
through the date of such prepayment), and terminate such Affected Lender's
Commitments.
-47-
<PAGE>
2.11. One General Obligation
----------------------
The Term Loan, all Advances under the Revolving Loan, each Lender
Letter of Credit, together with any and all other extensions of credit and
financial accommodations which may be made by Lenders to Borrower pursuant to
this Agreement or any Loan Document shall be one general obligation of Borrower,
secured by Agent's security interests (for the benefit of all Lenders) in all
Collateral, and the Additional Mortgaged Property.
SECTION 3.
----------
CONDITIONS TO LOANS
-------------------
The obligations of each Lender to make Loans and the obligations of
each Issuer to issue Lender Letters of Credit are subject to satisfaction of all
of the applicable conditions set forth below.
3.1. Conditions to this Agreement Becoming Effective
-----------------------------------------------
The obligations of Lenders enter into this Agreement and continue to
make Loans and issue Lender Letters of Credit are, in addition to the conditions
precedent specified in subsection 3.2, subject to the prior or concurrent
satisfaction of the conditions set forth below.
(A) Opinions of Counsel. The Lenders shall have received written
-------------------
opinions of legal counsel for Borrower, in form and substance satisfactory to
the Lenders and their counsel, dated as of the New Closing Date.
(B) Loan Documents. On or before the New Closing Date, Borrower shall
--------------
deliver or cause to be delivered to Agent the documents listed below, each,
unless otherwise noted, dated the New Closing Date, duly executed, in form and
substance satisfactory to Agent and in quantities designated by Agent.
(1) Agreement. This Agreement.
---------
(2) Officer's Certificate. A certificate executed by the chief
---------------------
executive officer or chief financial officer of Borrower, stating that: (a) on
such date, and after giving effect to the transactions contemplated herein, no
Default or Event of Default has occurred and is continuing; (b) no Material
Adverse Change has occurred since January 28, 1996; (c) the representations and
warranties set forth in Section 4 are true and
-48-
<PAGE>
correct in all material respects on and as of such date with the same effect as
though made on and as of such date; and (d) Borrower on such date is in
compliance with all the terms and provisions set forth in this Agreement on its
part to be observed and performed.
(3) Charter and Good Standing. Copies of the certificate of
-------------------------
incorporation of each Loan Party together with good standing certificates
(including verification of tax status) from the state of its incorporation,
from the state in which its principal place of business is located and from all
states in which the laws thereof require each Loan Party to be qualified and/or
licensed to do business, each to be dated a recent date prior to the New Closing
Date and certified by the applicable Secretary of State or other authorized
governmental entity and in the case of the certificate of incorporation, also
certified as of the New Closing Date by its corporate secretary or assistant
secretary.
(4) Bylaws. Copies of the bylaws of each Loan Party certified as of
------
the New Closing Date by its corporate secretary or an assistant secretary.
(5) Resolutions. Resolutions of the Board of Directors of each Loan
-----------
Party approving and authorizing the execution, delivery and performance of this
Agreement and the other Loan Documents to which each Loan Party is a party,
certified as of the New Closing Date by its corporate secretary or an assistant
secretary as being in full force and effect without modification or amendment.
(6) Incumbency Certificates. Signature and incumbency certificates of
-----------------------
the officers of each Loan Party executing the Loan Documents.
(7) Consents of Guarantors. An acknowledgment, consent and agreement
----------------------
from each of Holdings and each Subsidiary of Borrower which is a guarantor of
the payment of the Obligations in respect of this Agreement.
(8) Other Loan Documents. Such other documents respecting Borrower
--------------------
or any Loan Party as Agent may reasonably request.
3.2. Conditions to All Loans
-----------------------
The obligations of Agent and each Lender to make Loans or the
obligation of the Issuer to issue Lender Letters of Credit on each Funding Date
are subject to the further conditions precedent set forth below.
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<PAGE>
(A) Notice of Borrowing. Agent shall have received, in accordance
-------------------
with the provisions of subsection 2.1, a Notice of Borrowing or notice
requesting issuance of a Lender Letter of Credit.
(B) Representations Still True. The representations and warranties
--------------------------
contained herein and in the Loan Documents shall be true, correct and complete
in all material respects on and as of the Funding Date to the same extent as
though made on and as of the New Closing Date, except for any representation or
warranty limited by its terms to a specific date and taking into account any
updates to the Schedules or Exhibits and any events which would cause any such
representations and warranties no longer to be true, correct or complete, in
each case as disclosed in writing by Borrower to Agent after the Closing Date,
and, if not consistent with the covenants corresponding thereto, approved by
Agent, or, as required by Section 10.3, the Requisite Lenders.
(C) No Suspension or Termination of Commitments. The Commitments of
-------------------------------------------
Lenders shall not have been suspended or terminated pursuant to the operation of
Section 8.2.
(D) No Restraining Order. Agent shall not have received notice or
--------------------
knowledge of any pending or threatened order, judgment or decree of any court,
arbitrator or Governmental Authority which purports to enjoin or restrain Agent
or any Lender from making any Loans or issuing any Lender Letters of Credit.
SECTION 4.
----------
BORROWER'S REPRESENTATIONS AND WARRANTIES
-----------------------------------------
In order to induce Agent and each Lender to enter into this Agreement,
to make Loans and to issue Lender Letters of Credit, Borrower represents and
warrants to Agent and each Lender that the following statements are and, after
giving effect to the transactions contemplated herein, will be true, correct
and complete:
4.1. Organization, Powers, Capitalization, Good Standing, Business and
-----------------------------------------------------------------
Subsidiaries
- ------------
(A) Organization and Powers. Each of the Loan Parties is a
-----------------------
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation (which jurisdiction is set forth on
Schedule 4.1(A)). Each of the Loan Parties has all requisite corporate power
- ---------------
and authority to own and operate its properties, to carry on its business and to
enter into each Loan Document to which it is a party and to carry out the
transactions contemplated therein.
-50-
<PAGE>
(B) Capitalization. The authorized Capital Stock of each of the Loan
--------------
Parties is as set forth on Schedule 4.1(B). All issued and outstanding shares
---------------
of Capital Stock of each of the Loan Parties are duly authorized and validly
issued, fully paid and non assessable, as to Borrower's Capital Stock, free and
clear of all Liens other than Permitted Encumbrances and such shares were issued
in compliance with all applicable state and federal laws concerning the issuance
of securities. The Capital Stock of each of the Loan Parties is owned by the
stockholders and in the amounts set forth on Schedule 4.1(B). No shares of the
---------------
Capital Stock of any Loan Party, other than those described above, are issued
and outstanding. Holdings is the owner and holder of all issued and outstanding
Capital Stock of Borrower.
(C) Qualification. Each of the Loan Parties is duly qualified and in
-------------
good standing wherever necessary to carry on its present business and
operations, except in jurisdictions in which the failure to be qualified and in
good standing could not reasonably be expected to have a Material Adverse
Effect. All jurisdictions in which each Loan Party is qualified to do business
are set forth on Schedule 4.1(C).
---------------
(D) Conduct of Business. Each Loan Party is engaged only in the
-------------------
businesses described on Schedule 4.1(D).
---------------
(E) Subsidiaries. Borrower has no Subsidiaries except as set forth on
------------
Schedule 4.1(E). Schedule 4.1(E) accurately sets forth the percentage ownership
- --------------- ---------------
by Borrower of each of its Subsidiaries. As of the New Closing Date, none of
Borrower's Subsidiaries is a Material Subsidiary.
4.2. Authorization of Borrowing, etc.
--------------------------------
(A) Authorization of Borrowing. Borrower has the corporate power and
--------------------------
authority to incur the Obligations. The execution, delivery and performance of
this Agree ment and each of the other Loan Documents and the consummation of the
transactions by Borrower contemplated therein have been duly authorized by all
necessary corporate and shareholder action. On the New Closing Date, the
execution, delivery and performance of this Agreement and each of the other Loan
Documents by each other Loan Party signatory thereto will have been duly
authorized by all necessary corporate and shareholder action.
(B) No Conflict. The execution, delivery and performance by each Loan
-----------
Party of this Agreement and each other Loan Document to which it is a party and
the consummation of the transactions contemplated herein do not and will not:
(1) violate any Requirement of Law applicable to Borrower or any Loan Party, the
articles or certificate of incorporation or bylaws of Borrower or any Loan
Party, or any order, judgment or decree
-51-
<PAGE>
of any court or other agency of government binding on Borrower or any Loan
Party; (2) conflict with, result in a breach of or constitute (with due notice
or lapse of time or both) a default under any Contractual Obligation of Borrower
or any Loan Party; (3) result in or require the creation or imposition of any
Lien upon any of the properties or assets of Borrower or any Loan Party (other
than Liens in favor of Agent, for the benefit of Lenders); or (4) require any
approval or consent of any Person under any Contractual Obligation of Borrower
or any Loan Party; except, with respect to each of the clauses (1) through (4)
above, for (a) such approvals or consents which have been obtained on or before
the New Closing Date, and (b) such violations, conflicts, breaches, Liens and
defaults as are disclosed on Schedule 4.2(B) or which do not presently have, and
could not reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect.
(C) Governmental Consents. The execution, delivery and performance by
---------------------
each Loan Party of this Agreement and each Loan Document to which it is a party,
and the consummation of the transactions contemplated therein do not and will
not require any registration with, consent or approval of, or notice to, or
other action to, with or by, any Governmental Authority except for filings
required by federal or state securities laws (which filings have been made and
true and complete copies of which have been delivered to Agent), filings
required in connection with the perfection of security interests granted
pursuant to the Loan Documents, and other filings, authorizations, consents and
approvals, all of which have been made or obtained or the absence of which would
not be reasonably expected to have a Material Adverse Effect.
(D) Binding Obligation. This Agreement is, and the other Loan
------------------
Documents, including, without limitation, the Notes, when executed and delivered
will be, the legally valid and binding obligations of the applicable Loan
Parties and Borrower, respectively, each enforceable against such Loan Parties
or Borrower, as applicable, in accordance with their respective terms, except
as such enforcement is subject to the effect of (i) any applicable bankruptcy,
insolvency, fraudulent transfer, reorganization or other law relating to or
affecting creditors' rights generally and (ii) general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
4.3. Financial Condition
-------------------
All Financial Statements concerning any Loan Party which have been or
will hereafter be furnished by Borrower to Agent or any Lender pursuant to this
Agreement have been or will be prepared in accordance with GAAP consistently
applied (except as may be disclosed therein and subject to routine year-end
audit adjustment) and do or will present fairly the financial condition of the
corporations covered thereby as at the dates thereof and the results of their
operations for the periods then ended.
-52-
<PAGE>
4.4. Indebtedness and Contingent Obligations
---------------------------------------
As of the New Closing Date, after giving effect to the transactions
contemplated herein, neither Borrower nor any of its Subsidiaries has any
Indebtedness or Contingent Obligations except as set forth on Schedule 4.4.
------------
4.5. No Material Adverse Change
--------------------------
During the period from January 28, 1996 to and including the New
Closing Date, except as set forth on Schedule 4.5, no event or change has
occurred that has caused or evidences, either individually or together with such
other events or changes, or could reasonably be expected to have, a Material
Adverse Effect. [None of Borrower or any of its Subsidiaries has, during the
aforesaid period, directly or indirectly declared, ordered, paid or made or set
apart any sum or property for any Restricted Junior Payment or agreed to do so
except as may be permitted by subsection 7.5.]
4.6. Title to Properties; Liens
--------------------------
Each of the Loan Parties has good, sufficient and legal title, subject
to Permitted Encumbrances, to all their respective material properties and
assets. Except for Permitted Encumbrances, all such properties and assets are
free and clear of Liens. To the best knowledge of Borrower after due inquiry,
there are no actual, threatened or alleged defaults with respect to any leases
of real property under which Borrower is lessee or lessor which, either
individually or in the aggregate, presently has, or could reasonably be expected
to have, a Material Adverse Effect.
4.7. Litigation; Adverse Facts
-------------------------
Except as set forth on Schedule 4.7, as of the New Closing Date, (i)
------------
there are no judgments outstanding against any Loan Party or affecting any
property of any Loan Party and (ii) there is no action, charge, claim, demand,
suit, proceeding, petition, governmental investigation or arbitration now
pending or, to the best knowledge of Borrower after reasonable investigation,
threatened against any Loan Party or affecting any property of any Loan Party
which, if adversely determined, could reasonably be expected to have a Material
Adverse Effect. No Loan Party has received any opinion or memorandum or legal
advice from legal counsel to the effect that it is exposed to any liability or
disadvantage which could reasonably be expected to have a Material Adverse
Effect. The actions, charges, claims, demand, suits, proceedings, petitions,
investigations and arbitrations set forth on Schedule 4.7 or disclosed pursuant
------------
to subsection 5.1(N), if adversely determined, will not result or could not
reasonably be expected to result, either individually or in the aggregate, in
any
-53-
<PAGE>
Material Adverse Effect and do not relate to and will not affect the
consummation of the transactions contemplated herein.
4.8. Payment of Taxes
----------------
Except as set forth on Schedule 4.8 or to the extent permitted by
------------
subsection 5.4, as of the New Closing Date: (i) all material tax returns and
reports of the Loan Parties and each of their respective Subsidiaries (and their
predecessors in interest) required to be filed by any of them have been timely
filed, and all taxes, assessments, fees and other governmental charges upon such
Persons and upon their respective properties, assets, income and franchises
which are shown on such returns as due and payable have been paid when due and
payable; (ii) none of the United States income tax returns of any Loan Party or
any Person which filed consolidated tax returns on its behalf are under audit;
(iii) no tax Liens have been filed and no claims are being asserted with respect
to any such taxes. The charges, accruals and reserves on the books of Borrower
and each of its Subsidiaries in respect of any taxes or other governmental
charges are in accordance with GAAP and sufficient to pay all such taxes and
charges. Without limitation of the foregoing, Borrower has sufficient net
operating losses available to it for federal and, if any, state income tax
purposes to offset all income or gains recognized (or recognizable) by Borrower
as a result of the June 1994 forgiveness of debt and the forgiveness of debt,
if any, in connection with the payment of the Prior Indebtedness. No Loan Party
is, as of the New Closing Date, party to any tax sharing arrangement or
agreement with any Person, other than the Tax Sharing Arrangement, or has
incurred any Indebtedness or Contingent Liability in respect of the Tax Sharing
Arrangement or any other such agreement or arrangement to which, heretofore, it
was a party or by which it was bound.
4.9. Adverse and Affiliate Contracts
-------------------------------
(A) Adverse Contracts. None of the Loan Parties and none of its
-----------------
respective Subsidiaries is a party to nor is it or any of its property subject
to or bound by any forward purchase contract, futures contract, covenant not to
compete, unconditional purchase, take or pay or other agreement which restricts
in any material respect its ability to conduct its business or, either
individually or in the aggregate, has a Material Adverse Effect or could
reasonably be expected to have a Material Adverse Effect.
(B) Affiliate Contracts. None of the Loan Parties and none of its
-------------------
respective Subsidiaries is a party to nor is it or any of its property subject
to or bound by, any contract with any Affiliate, except as disclosed on Schedule
--------
4.9(B).
- ------
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<PAGE>
(C) Co-Op Contracts. Neither Borrower nor any of its Subsidiaries is
---------------
party to any co-op advertising contracts or arrangements requiring Borrower's
performance of advertising or other marketing functions, except as disclosed on
Schedule 4.9(C); and, except as disclosed on Schedule 4.9(C), neither Borrower
- --------------- ---------------
nor any of its Subsidiaries is in default in the observance or performance of
any duties or obligations under any such contracts.
4.10. Performance of Agreements
-------------------------
None of the Loan Parties is in default in any material respect in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any material Contractual Obligation of any such Person
which will continue after the New Closing Date (and no condition exists that,
with the giving of notice or the lapse of time or both, would constitute such a
material default) which could reasonably be expected to have a Material Adverse
Effect.
4.11. Governmental Regulation
-----------------------
None of the Loan Parties is or after giving effect to any Loan will
be, subject to regulation under the Public Utility Holding Company Act of 1935,
the Federal Power Act or the Investment Company Act of 1940 or to any federal or
state statute or regulation limiting its ability to incur indebtedness for
borrowed money.
4.12. Employee Benefit Plans
----------------------
(A) No Other Plans. No Loan Party nor any ERISA Affiliate maintains
--------------
or contributes to, or has any obligation under, any Employee Benefit Plan or any
Multiemployer Plan other than those identified on Schedule 4.12. Borrower has
-------------
provided Agent accurate and complete copies of all contracts, agreements and
documents described on Schedule 4.12.
-------------
(B) ERISA and IRC Compliance and Liability. Each Loan Party and each
--------------------------------------
ERISA Affiliate is in compliance with all applicable provisions of ERISA and the
regulations and published interpretations thereunder with respect to all
Employee Benefit Plans except where failure to comply would not result in a
material liability to any Loan Party and except for any required amendments for
which the remedial amendment period as defined in Section 401(b) of the IRC has
not yet expired. Each Employee Benefit Plan that is intended to be qualified
under Section 401(a) of the IRC has been determined by the Internal Revenue
Service ("IRS") to be so qualified, and each trust related to such plan has
---
been determined to be exempt under Section 501(a) of the IRC. No material
liability has been incurred by any Loan Party or by any ERISA Affiliate which
remains unsatisfied for any taxes or penalties with respect to any Employee
Benefit Plan or any Multiemployer Plan.
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<PAGE>
(C) Funding. No Pension Plan has been terminated, nor has any
-------
accumulated funding deficiency (as defined in Section 412 of the IRC) been
incurred (without regard to any waiver granted under Section 412 of the IRC),
nor has any funding waiver from the IRS been received or requested with respect
to any Pension Plan, nor has any Loan Party or any ERISA Affiliate failed to
make any contributions or to pay any amounts due and owing as required by
Section 412 of the IRC, Section 302 of ERISA or the terms of any Pension Plan
prior to the due dates of such contributions under Section 412 of the IRC or
Section 302 of ERISA, nor has there been any event requiring any disclosure
under Section 4041(c)(3)(C), 4063(a) or 4068(f) of ERISA with respect to any
Pension Plan.
(D) Prohibited Transactions and Payments. No Loan Party nor Borrower
------------------------------------
nor any ERISA Affiliate has: (1) engaged in a nonexempt prohibited transaction
described in Section 406 of ERISA or Section 4975 of the IRC; (2) incurred any
liability to the PBGC which remains outstanding other than the payment of
premiums and there are no premium payments which are due and unpaid; (3) failed
to make a required contribution or payment to a Multiemployer Plan; or (4)
failed to make a required installment or other required payment under Section
412 of the IRC.
(E) No ERISA Termination Event. No ERISA Termination Event
--------------------------
has occurred or is reasonably expected to occur.
(F) ERISA Litigation. No material proceeding, claim, lawsuit and/or
----------------
investigation is existing or, to the best knowledge of Borrower after due
inquiry, threatened concerning or involving any (1) employee welfare benefit
plan (as defined in Section 3(1) of ERISA) currently maintained or contributed
to by any Loan Party or any ERISA Affiliate, (2) Pension Plan or (3)
Multiemployer Plan.
4.13. Intellectual Property
---------------------
Borrower and each of its Subsidiaries owns, is licensed to use or
otherwise has the right to use, all patents, trademarks, trade names,
copyrights, technology, know-how and processes used in or necessary for the
conduct of its business as currently conducted that are material to the
condition (financial or other), business or operations of Borrower or its
Subsidiaries (collectively called "Intellectual Property") and all such
---------------------
Intellectual Property consisting of registered trademarks or issued patents is
identified on Schedule 4.13 and fully protected and/or duly and properly
-------------
registered, filed or issued in the appropriate office and jurisdictions for such
registrations, filing or issuances. All Intellectual Property that is
registered or for which application for registration is pending is identified
on Schedule 4.13. Except as disclosed in Schedule 4.13, no claim has been
------------- -------------
asserted by any Person with respect to the use of any Intellectual Property, or
challenging or questioning the validity or effective-
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<PAGE>
ness of any Intellectual Property. Except as disclosed in Schedule 4.13, the use
-------------
of such Intellectual Property by Borrower and its Subsidiaries does not infringe
on the rights of any Person, subject to such claims and infringements as do not,
in the aggregate, give rise to any liabilities on the part of Borrower and its
Subsidiaries that are material to Borrower or its Subsidiaries.
4.14. Broker's Fees
-------------
No broker's or finder's fee, commission or similar compensation will
be pay able with respect to the issuance of the Notes or any of the other
transactions contemplated hereby or by any Loan Documents. No other similar
fees or commissions will be payable by any Loan Party for any other services
rendered to Borrower or any of its Subsidiaries ancillary to the transactions
contemplated hereby.
4.15. Environmental Compliance
------------------------
(A) No Environmental Claims. Except as set forth on Schedule 4.15(A),
----------------------- ----------------
there are no judgments or orders or, to Borrower's knowledge, after reasonable
investigation, claims, liabilities, investigations, litigation or administrative
proceedings, whether pending or threatened, relating to any Hazardous Materials
(collectively called "Environmental Claims") asserted or threatened against any
--------------------
Loan Party or relating to any real property currently or, to the knowledge of
Borrower, formerly owned, leased or operated by any Loan Party. No Loan Party
or any other Person has caused or permitted any Hazardous Material to be used,
generated, reclaimed, transported, released, treated, stored or disposed of in
any manner not in material compliance with any Environmental Laws. Except as
set forth on Schedule 4.15(A), no Loan Party has assumed (by contract or by
----------------
operation of law) any liability of any Person for cleanup, remediation
compliance or required Capital Expenditures in connection with any Environmental
Claim. The items disclosed on Schedule 4.15(A), pursuant to this subsection
----------------
4.15(A) could not reasonably be expected, either individually or in the
aggregate, to have a Material Adverse Effect.
(B) Storage of Hazardous Materials. Except as set forth on Schedule
------------------------------ --------
4.15(B), to Borrower's knowledge, after reasonable investigation, no Hazardous
- -------
Materials are or were stored or otherwise located, and no underground storage
tanks or surface impoundments are or were located, on real property currently
or, to the knowledge of Borrower, formerly owned, leased or operated by any Loan
Party or to the best knowledge of Borrower, on adjacent parcels of real
property, and no part of such real property or, to the knowledge of Borrower, no
part of such adjacent parcels of real property, including the groundwater
located thereon, is presently contaminated by Hazardous Materials. The items
disclosed on Schedule 4.15(B) pursuant to this subsection 4.15(B) could not
----------------
reasonably be expected, either individually or in the aggregate, to have a
Material Adverse Effect.
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<PAGE>
(C) Compliance with Environmental Laws. Except as set forth on
----------------------------------
Schedule 4.15(C), each Loan Party has been and is currently in material
- ----------------
compliance with all applicable Environmental Laws, including obtaining and
maintaining in effect all permits, licenses or other authorizations required by
applicable Environmental Laws. The items disclosed on Schedule 4.15(C) pursuant
----------------
to this subsection 4.15(C) could not reasonably be expected, either individually
or in the aggregate, to have a Material Adverse Effect.
4.16. Employee Matters
----------------
Except as set forth on Schedule 4.16, as of the Closing Date (a) no
-------------
Loan Party nor any of the respective employees of any Loan Party is subject to
any collective bargaining agreement, (b) no petition for certification or union
election is pending with respect to the employees of any Loan Party and no union
or collective bargaining unit has sought such certification or recognition with
respect to the employees of any Loan Party and (c) there are no strikes,
slowdowns, work stoppages or controversies pending or, to the best knowledge of
Borrower after due inquiry, threatened between any Loan Party and its respective
employees, other than employee grievances arising in the ordinary course of
business which could not reasonably be expected to have, either individually or
in the aggregate, a Material Adverse Effect. Except as set forth on Schedule
--------
4.16, neither Borrower nor any of its Subsidiaries is subject to an employment
- ----
contract in respect of any executive officers.
4.17. Solvency
--------
As of and from and after the date of this Agreement and after giving
effect to the consummation of the transactions contemplated herein, Borrower
will be Solvent.
4.18. Disclosure
----------
To Borrower's knowledge, after reasonable investigation, no
representation or warranty of Borrower, any of its Subsidiaries or any other
Loan Party contained in this Agreement, the Financial Statements referred to in
subsection 4.3, the other Loan Documents, or any other document, certificate or
written statement furnished to Agent or any Lender by or on behalf of any such
Person for use in connection with the Loan Documents or the Loan Documents
contain any untrue statement of a material fact or omitted, omits or will omit
to state a material fact necessary in order to make the statements contained
herein or therein not misleading in light of the circumstances in which the same
were made. The Projections and pro forma financial information contained in
such materials are based upon good faith estimates and assumptions believed by
such Persons to be reasonable at the time made, it being recognized by Lenders
that such projections as to future events are not to be viewed as facts and that
actual results during the period or periods covered by any such
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<PAGE>
projections may differ from the projected results. There is no material fact
known to Borrower that could reasonably be expected to have a Material Adverse
Effect and that has not been disclosed herein or in such other documents,
certificates and statements furnished to Agent or any Lender for use in
connection with the transactions contemplated hereby.
4.19. Use of Proceeds and Margin Security
-----------------------------------
Borrower shall use the proceeds of all Loans for proper business
purposes (as described in the Recitals to this Agreement) consistent with all
applicable laws, statutes, rules and regulations. No portion of the proceeds of
any Loan shall be used by Borrower or any of its Subsidiaries in any manner that
might cause the borrowing or the application of such proceeds to violate
Regulation G, Regulation U, Regulation T or Regulation X or any other regulation
of the Board of Governors of the Federal Reserve System or to violate the
Exchange Act.
4.20. Insurance
---------
Schedule 4.20 sets forth a complete and accurate description of all
-------------
policies of insurance that will be in effect as of the Closing Date for Borrower
and its Subsidiaries. Borrower and its Subsidiaries are adequately insured under
such policies, no notice of cancellation has been received with respect to any
of such policies and Borrower and its Subsidiaries are in compliance with all
conditions contained in such policies.
4.21. Bank Accounts
-------------
Schedule 4.21 sets forth the account numbers and location of all
-------------
bank accounts of Borrower and its Subsidiaries.
4.22. Compliance with Laws
--------------------
To Borrower's knowledge, after reasonable investigation, each Loan
Party and each of its respective Subsidiaries are not in violation of any law,
ordinance, rule, regulation, order, policy, guideline or other requirement of
any domestic or foreign government or any instrumentality or agency thereof,
having jurisdiction over the conduct of their respective businesses or the
ownership of their respective properties, including, without limitation, any
violation relating to any use, release, storage, transport or disposal of any
Hazardous Material, which violation would subject any Loan Party or any such
Subsidiary, or any of their respective officers to criminal liability or could
reasonably be expected to have, either individually or together with all such
other violations, a Material Adverse Effect and no such violation has been
alleged. Each Loan Party has filed in a timely manner all reports, documents
and other materials required to be filed by them with any governmental bureau,
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<PAGE>
agency or instrumentality (and the information contained in each of such filings
is true, correct and complete in all material respects), except where failure to
make such filings could not reasonably be expected to have a Material Adverse
Effect. Each Loan Party has retained all records and documents required to be
retained by it pursuant to any law, ordinance, rule, regulation, order, policy,
guideline or other requirement of any governmental authority, except where
failure to retain such records would not subject any Loan Party or such Sub-
sidiary or any of their respective officers to criminal liability and could not
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.
4.23. Investments
-----------
Except as set forth on Schedule 4.23, neither Borrower nor any of its
-------------
Subsidiaries has an Investment in any Person other than Investments permitted
under subsection 7.3.
4.24. Trade Relations
---------------
To Borrower's knowledge, after reasonable investigation: (i) there
exists no actual or, to Borrower's knowledge, after reasonable investigation,
threatened, termination, cancellation or limitation of, or any modification or
change in, the business relationship of Borrower with any supplier or group of
suppliers the loss of whose business, either individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect, and Borrower
reasonably believes that, notwithstanding the consummation of the transactions
contemplated by this Agreement, each such supplier or group of suppliers will
continue a business relationship with Borrower on a basis no less favorable to
Borrower (including particularly as to payment terms and credit lines) than that
which was heretofore conducted with Borrower; and (ii) there exists no condition
or state of facts or circumstances which would materially adversely affect
Borrower or prevent Borrower from conducting its business after the consummation
of the transactions contemplated by this Agreement in essentially the same
manner in which it has heretofore been conducted by it.
SECTION 5.
----------
BORROWER'S AFFIRMATIVE COVENANTS
--------------------------------
Borrower covenants and agrees that, so long as any of the Commitments
hereunder shall be in effect and until payment in full of all Obligations (other
than Inchoate Indemnity Obligations) and termination of all Lender Letters of
Credit, unless the Requisite Lenders shall otherwise give their prior written
consent, Borrower shall perform and comply
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<PAGE>
with, and shall cause each of its Subsidiaries to perform and comply with, all
covenants in this Section 5 applicable to such Person.
5.1. Financial Statements and Other Reports
--------------------------------------
Borrower will maintain, and cause each of its Subsidiaries to
maintain, a system of accounting established and administered in accordance with
sound business practices to permit preparation of Financial Statements in
conformity with GAAP. Borrower will deliver to each Lender (unless herein
specified to be delivered to Agent only) the financial statements and other
reports described below.
(A) Monthly Financials. As soon as available and in any event within
------------------
thirty-five (35) days after the end of each fiscal month (except any fiscal
month which is also a fiscal quarter, in which case the required delivery date
shall be, instead, forty-five (45) days after such fiscal month end) Borrower
will deliver the consolidated and consolidating balance sheet of Borrower
(showing intercompany eliminations), as at the end of such month and the related
consolidated and consolidating statements of income (showing intercompany
eliminations), stockholders' equity and cash flow for such month and for the
period from the beginning of the then current fiscal year to the end of such
month.
(B) Year-End Financials. As soon as available and in any event within
-------------------
ninety-five (95) days after the end of each Fiscal Year, Borrower will deliver:
(1) the consolidated balance sheet of Borrower as at the end of such year and
the related con solidated statements of income, stockholders' equity and cash
flow for such fiscal year; (2) a schedule of the outstanding Indebtedness for
borrowed money of Borrower and its Subsidiaries describing in reasonable detail
each such debt issue or loan outstanding and the principal amount and amount of
accrued and unpaid interest with respect to each such debt issue or loan; (3) a
report with respect to the Financial Statements from a Big Six Accounting Firm
selected by Borrower, which report shall be without Qualification and shall
state that (a) such consolidated financial statements present fairly the
consolidated financial position of Borrower and its Subsidiaries as at the dates
indicated and the results of their operations and cash flow for the periods
indicated in conformity with GAAP applied on a basis consistent with prior years
and (b) that the examination by such accountants in connection with such
consolidated Financial Statements has been made in accordance with generally
accepted auditing standards; and (4) copies of the consolidating Financial
Statements of Borrower and its Subsidiaries, including (a) consolidating
balance sheets of Borrower and its Subsidiaries as at the end of such Fiscal
Year showing intercompany eliminations and (b) related consolidating statements
of earnings of Borrower and its Subsidiaries showing inter company eliminations.
As used in this subsection 5.1(B), "Qualification" means, with respect to any
-------------
certificate covering financial statements, a qualification to such certificate
(such as a "subject to" or "except for" statement or emphasis paragraph therein)
---------- ----------
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<PAGE>
(a) resulting from a limitation on the scope of examination of such financial
statements or the underlying data, (b) as to the capability of the Person whose
financial statements are certified to continue operations as a going concern, or
(c) which could be eliminated by changes in financial statements or notes
thereto covered by such certificate (such as by the creation of or increase in a
reserve or a decrease in the carrying value of assets) and which if so
eliminated by the making of any such change and after giving effect thereto
would occasion an Event of Default; provided, however, that, without limitation,
-------- -------
neither of the following shall constitute a Qualification: (x) a consistency
exception relating to a change in accounting principles with which the
independent public accountants for the Person whose financial statements are
being certified have concurred, or (y) a qualification relating to the outcome
or disposition of threatened litigation, pending litigation being contested in
good faith, pending or threatened claims or other contingencies, the impact of
which litigation, claims or contingencies cannot be determined with sufficient
certainty to permit quantification in such financial statements.
(C) Borrower Compliance Certificate. Together with each delivery of
-------------------------------
financial statements of Borrower and its Subsidiaries pursuant to subsections
5.1(A) and 5.1(B), Borrower will deliver a fully and properly completed
Compliance Certificate signed by Borrower's chief financial officer, vice
president-finance or controller.
(D) Accountants' Certification. Together with each delivery of
--------------------------
consolidated financial statements of Borrower and its Subsidiaries pursuant to
subsection 5.1(B), Borrower will deliver a written statement by its independent
certified public ac countants which shall, to the extent consistent with any
AICPA guidelines applicable thereto, (a) state that the examination has included
a review of the terms of this Agreement as same relate to accounting matters and
(b) state whether, in connection with the examination, any condition or event
that constitutes a Default or an Event of Default has come to their attention
and, if such a condition or event has come to their attention, specifying the
nature and period of existence thereof.
(E) Accountants' Reports. Promptly upon receipt thereof, Borrower
--------------------
will deliver copies of all significant reports submitted to Borrower by
independent public accountants in connection with each annual, interim or
special audit of the financial statements of Borrower made by such accountants,
including the comment letter submitted by such accountants to management in
connection with their annual audit.
(F) Borrowing Base Certificate and Agings; Schedule of Inventory. On
------------------------------------------------------------
the third (3rd) Business Day of each fiscal week, Borrower will deliver to Agent
a Borrowing Base Certificate, accompanied by a weekly Inventory summary, as of
the last Business Day of the preceding fiscal week. In addition, on the fourth
(4th) Business Day after each fiscal month end, Borrower will deliver to Agent a
Borrowing Base Certificate, in form satisfactory
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<PAGE>
to Agent, accompanied by a detailed schedule of all Inventory, segregated by
Collateral Location, as of the last Business Day of the preceding fiscal month-
end. In addition, within four (4) Business Days after the end of each fiscal
month end, Borrower will deliver to Agent a summary aging of all then existing
Accounts, an open accounts payable listing (excluding, however, A/P Note Debt),
a summary aging of held checks and outstanding A/P Note Debt and a report
listing all new Collateral Locations (including relocations) and all closed Col
lateral Locations since the last such report.
(G) Physical Counts of Inventory. Borrower shall conduct a physical
----------------------------
inventory and test count of its Inventory at each store location, distribution
center, warehouse and other Collateral Locations where any material amount of
Inventory is located not less often than once per Loan Year (or more frequently,
in each case, from and after the occurrence of any Event of Default, and during
its continuance, at the direction of the Requisite Lenders). Borrower shall
give each Agent and each Lender reasonable advance notice (but not less than one
calendar week, however) of its intention to conduct such physical inventory and
test count, and permit each Lender to attend and observe such activity. In any
event, Borrower shall provide each Lender with a summary of each such physical
count of Inventory accompanied by Borrower's report as to the value (at the
lower of its cost or its market value) of such Inventory and an analysis of the
book value of such Inventory in relation to the physical count thereof.
(H) Management Report. Together with each delivery of financial
-----------------
statements of Borrower and its Subsidiaries pursuant to subsections 5.1(A) and
5.1(B), Borrower will deliver a management report: (1) describing the operations
and financial condition of Borrower and its Subsidiaries for the month then
ended and the portion of the current fiscal year then elapsed (or for the Fiscal
Year then ended in the case of year-end financials); (2) setting forth in
comparative form the corresponding figures for the cor responding periods of the
previous Fiscal Year and the corresponding figures from the most recent
Projections for the current Fiscal Year delivered to Lenders pursuant to 5.1(J);
(3) discussing the reasons for any significant variations; and (4) including a
report on sales revenue and contribution to profits on a store-by-store basis
(including comparisons of same store revenue activity month-to-month). The
information above shall be presented in rea sonable detail and shall be
certified by the chief financial officer or controller of Borrower to the effect
that such information fairly presents the results of operations and financial
con dition of Borrower and its Subsidiaries as at the dates and for the periods
indicated.
(I) Appraisals. Agent shall have the right to obtain and, at the
----------
direction of the Requisite Lenders, will obtain, from the Inventory Appraiser
(1) quarterly "desk top"updates to any existing appraisals on Inventory, (2)
liquidation value appraisals of the Inventory twice in each calendar year (at
six month intervals) of a scope satisfactory to the Requisite Lenders and (3)
commencing on the second and each succeeding anniversary of
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the Closing Date, coincident with any extension of the Termination Date, a full
appraisal of the Inventory, in substantially the same form as delivered to Agent
on or before the Closing Date in conjunction with the origination of this
transaction. In addition, at any time while and so long as an Event of Default
shall have occurred and be continuing (but not more frequently than annually in
any event), from time to time, if Agent or any Lender determines that obtaining
appraisals is necessary in order for Agent or such Lender to comply with
applicable laws or regulations Agent may obtain appraisal reports in form and
substance and from appraisers satisfactory to Agent stating the then current
fair market value of all or any portion of the Inventory or the Additional
Mortgaged Property. The reasonable costs of all such appraisals described herein
shall be borne by Borrower.
(J) Projections. As soon as available and in any event no later than
-----------
thirty (30) days prior to the end of each Fiscal Year of Borrower, Borrower will
deliver Projections of Borrower and its Subsidiaries for the forthcoming three
Fiscal Years, year by year, and for the forthcoming Fiscal Year, month by month,
in form satisfactory to Agent.
(K) SEC Filings and Press Releases. Promptly but in any event within
------------------------------
ten (10) Business Days after their becoming available, Borrower will deliver
copies of: (1) all financial statements, reports, notices and proxy statements
sent or made available by Borrower or any of its Subsidiaries to their security
holders; (2) all regular and periodic reports and all registration statements
and prospectuses, if any, filed by Borrower or any of its Subsidiaries with any
securities exchange or with the Securities and Exchange Commission or any
governmental or private regulatory authority; and (3) all press releases and
other statements made available by Borrower or any of its Subsidiaries to the
public concerning developments in the business of any such Person.
(L) Events of Default. Promptly and in any event within ten (10)
-----------------
Business Days after any executive officer of Borrower obtains knowledge of any
of the following events or conditions, Borrower shall deliver a certificate of
Borrower's chief executive officer or other executive officer specifying the
nature and period of existence of such condition or event and what action
Borrower has taken, is taking and proposes to take with respect thereto: (1) any
condition or event that constitutes an Event of Default or Default; (2) any
notice that any Person has given to Borrower or any of its Subsidiaries or any
other action taken with respect to a claimed default or event or condition of
the type referred to in subsection 8.1(B); or (3) any Material Adverse Effect.
(M) Litigation. Promptly and in any event within ten (10) Business
----------
Days after any executive officer of Borrower obtaining knowledge of (1) the
institution of any action, suit, proceeding, governmental investigation or
arbitration against or affecting any Loan Party or any property of any Loan
Party not previously disclosed by Borrower to Agent or (2) any material
development in any action, suit, proceeding, governmental investigation
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<PAGE>
or arbitration at any time pending against or affecting any Loan Party or any
property of any Loan Party, which, in each case, is reasonably likely to have a
Material Adverse Effect, Borrower will promptly give notice thereof to Agent and
each Lender and provide such other information as may be reasonably available to
it to enable Agent, Lenders and their counsel to evaluate such matter.
(N) Employee Benefit Plans. With reasonable promptness, and in any
----------------------
event within thirty (30) days after the same occur, Borrower will give notice of
and/or deliver to Agent copies of: (1) the establishment of any new Employee
Benefit Plan, Pension Plan or Multiemployer Plan the commencement of
contributions to any Employee Benefit Plan, Pension Plan or Multiemployer Plan
to which any Loan Party or any of its ERISA Affiliates was not previously
contributing or any increase in the benefits of any existing Employee Benefit
Plan, Pension Plan or Multiemployer Plan; (2) each funding waiver request filed
with respect to any Employee Benefit Plan and all communications received or
sent by any Loan Party or any ERISA Affiliate with respect to such request; and
(3) the failure of any Loan Party or ERISA Affiliate to make a required
installment or payment under Section 302 of ERISA or Section 412 of the IRC by
the due date.
(O) ERISA Termination Events. Promptly and in any event within ten
------------------------
(10) Business Days after any executive officer of Borrower becoming aware of the
occurrence of or forthcoming occurrence of any (1) ERISA Termination Event or
(2) "prohibited transaction", as such term is defined in Section 406 of ERISA or
Section 4975 of the IRC, in connection with any Pension Plan or any trust
created thereunder, Borrower will deliver to Agent a notice specifying the
nature thereof, what action the applicable Loan Party has taken, is taking or
proposes to take with respect thereto and, when known, any action taken or
threatened by the Internal Revenue Service, the Department of Labor or the PBGC
with respect thereto.
(P) ERISA Notices. With reasonable promptness but in any event within
-------------
thirty (30) days after their becoming available, Borrower will deliver to Agent
copies of: (1) any favorable or unfavorable determination letter from the
Internal Revenue Service regarding the qualification of an Employee Benefit Plan
under Section 401(a) of the IRC; (2) all notices received by any Loan Party or
any ERISA Affiliate of the PBGC's intent to terminate any Pension Plan or to
have a trustee appointed to administer any Pension Plan; (3) each Schedule B
(Actuarial Information) to the annual report (Form 5500 Series) filed by any
Loan Party or any ERISA Affiliate with the Internal Revenue Service with respect
to each Pension Plan; and (4) all notices received by any Loan Party or any
ERISA Affiliate from a Multiemployer Plan sponsor concerning the imposition or
amount of withdrawal liability pursuant to Section 4202 of ERISA. Borrower will
notify Agent in writing within ten (10) Business Days of any Loan Party
obtaining knowledge or reason to know that any Loan
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<PAGE>
Party or any ERISA Affiliate has filed or intends to file a notice of intent to
terminate any Pension Plan under a distress termination within the meaning of
Section 4041(c) of ERISA.
(Q) Insurance. As soon as available, but in any event not later than
---------
ten (10) Business Days prior to the end of each Fiscal Year of Borrower,
Borrower will deliver a report in form and substance reasonably satisfactory to
Agent outlining all material insurance coverage maintained as of the date of
such report by Borrower and its Subsidiaries and all material insurance coverage
planned to be maintained by such Persons in the subsequent Fiscal Year.
(R) Supplemented Schedules; Notice of Corporate Changes. As soon as
---------------------------------------------------
practicable after any executive officer of Borrower becomes aware thereof, but
in any event concurrently with Borrower's delivery of the financial statements
required to be delivered by subsection 5.1(A), Borrower shall supplement in
writing and deliver to Agent revisions of the Schedules annexed to this
Agreement to the extent necessary to disclose new or changed facts or
circumstances occurring within any fiscal month after the Closing Date in
respect of any material data set forth in, or which are the subject of, any such
Schedules; provided that subsequent disclosures shall not constitute a cure or
--------
waiver of any Default or Event of Default resulting from the matters disclosed
therein. Borrower shall provide written notice to the Agent and each Lender of
(1) all jurisdictions in which Borrower or any Subsidiary becomes qualified
after the Closing Date to transact business, (2) any material change after the
Closing Date in the authorized and issued Capital Stock or other equity
interests of Borrower or any Subsidiary or any other material amendment to
their charter, by-laws or other organization documents and (3) any Subsidiary
created or acquired by Borrower or any Subsidiary after the Closing Date,
(presuming a consent is obtained in respect thereof pursuant to subsection
7.14), such notice, in each case, to identify the applicable jurisdictions,
capital structures or Subsidiaries, as applicable.
(S) Other Information. With reasonable promptness, Borrower will
-----------------
deliver such other information and data with respect to itself, any other Loan
Party or any Subsidiary of any Loan Party as from time to time may be
reasonably requested by Agent or any Lender.
5.2. Access to Accountants
---------------------
Borrower authorizes Lenders to discuss the financial condition of
Borrower and its Subsidiaries with Borrower's independent public accountants
upon reasonable notice to Borrower of its intention to do so. Borrower shall be
given the reasonable opportunity to participate in any such discussion. Borrower
shall deliver a letter to such accountants authorizing them to comply with the
provisions of subsection 5.1 and this subsection 5.2.
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<PAGE>
5.3. Corporate Existence, etc.
-------------------------
Except as otherwise permitted by subsection 7.6, Borrower will, and
will cause each of its Subsidiaries to, at all times preserve and keep in full
force and effect its corporate existence and all rights and franchises material
to its business.
5.4. Payment of Taxes and Claims; Tax Consolidation
----------------------------------------------
Borrower will, and will cause each of its Subsidiaries to, pay (a) all
taxes, assessments and other governmental charges imposed upon it or any of its
properties or assets or with respect to any of its franchises, business, income
or property before any penalty accrues thereon and (b) all claims (including
claims for labor, services, materials and supplies) for sums that have become
due and payable and that by law have or may become a Lien upon any of its
properties or assets before any penalty or fine in any material amount is
incurred with respect thereto; provided that no such tax, charge or claim need
--------
be paid if Borrower or one of its Subsidiaries is contesting same in good faith
by appropriate proceedings promptly instituted and diligently conducted and if
Borrower or such Subsidiary has established such reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP. Borrower will
not and will not permit any of its Subsidiaries to file or consent to the filing
of any consolidated income tax return with any Person (other than Borrower, any
of its Subsidiaries or any other parties to the Tax Sharing Arrangement) or
enter into a tax sharing or similar arrangement, except for the Tax Sharing
------
Arrangement, and, then, subject to the limitations that: (i) notwithstanding any
terms thereof to the contrary, Borrower shall make no payments thereunder except
for Permitted Tax Payments or as may be permitted under subsection 7.5; and (ii)
Borrower shall not enter into, consent to, or acquiesce in, any amendment,
modification, alteration, expansion or waiver of any term or condition of the
Tax Sharing Arrangement, except with the prior written consent of the Requisite
Lenders.
5.5. Maintenance of Properties; Insurance; Condemnation
--------------------------------------------------
Borrower will maintain or cause to be maintained in good repair,
working order and condition all material properties used in the business of
Borrower and its Subsidiaries and will make or cause to be made all appropriate
repairs, renewals and replacements thereof. Unless and except to the extent
that, with the prior approval of the Requisite Lenders, Borrower elects to self-
insure or co-insure in one or more respects, Borrower will maintain or cause to
be maintained, with insurers having an A.M. Best & Co. rating of "A-"
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<PAGE>
or better or which otherwise are reasonably acceptable to Agent, public
liability and property damage insurance with respect to its business and
properties and the business and properties of its Subsidiaries against loss or
damage of the kinds customarily carried or maintained by corporations of
established reputation engaged in similar businesses and in amounts acceptable
to Agent and will deliver evidence thereof to Agent. If, at any time hereafter,
Borrower determines that any of its insurers has less than the required rating
prescribed above, Borrower shall promptly notify Agent thereof and, if Agent so
requests, within thirty (30) days thereafter, Borrower shall cause such insurer
to be replaced with another insurer having at least the required rating or which
is otherwise reasonably acceptable to Agent. Borrower shall cause Agent, for the
benefit of Lenders, to be named as loss payee (in the case of property
insurance) and additional insured (in the case of liability insurance) on all
insurance policies pursuant to appropriate endorsements in form and substance
reasonably satisfactory to Agent. If, subsequent to the Closing Date, all or
any material portion of any of Borrower's properties shall be destroyed or
damaged by fire or any other casualty, whether insured or uninsured, or if any
executive officer of Borrower obtains knowledge of the institution of any
proceedings for the condemnation of all or any material part of its property,
Borrower shall promptly, but within ten (10) Business Days after the occurrence
or receipt of knowledge thereof, notify the Agent thereof. If and to the extent
that as a result of the occurrence of any of the foregoing matters, Agent, as
loss payee or mortgagee, receives any Net Proceeds of insurance or condemnation,
Agent shall apply same (less any expenses incurred by the Agent or Lenders in
the collection thereof) to outstanding Obligations in accordance with the
provisions of subsection 2.4(E)(5).
5.6. Inspection; Lender Meetings; Periodic Audits.
--------------------------------------------
Borrower shall permit any authorized representatives designated by
Agent or by such Lender to visit and inspect any of the properties of Borrower
or any of its Subsidiaries, including its and their financial and accounting
records, and to make copies and take extracts therefrom, and to discuss its and
their affairs, finances and business with its and their executive officers and
independent public accountants, at such reasonable times during normal business
hours and as often as may be reasonably requested; provided that Lenders shall
--------
coordinate such visits through Agent (but Agent need not be present at any such
meeting); and provided further that, unless a Default or Event of Default has
----------------
occurred and is continuing, the Agent and each Lender undertaking such
inspection shall pay its own expenses of such inspection and Borrower shall pay
such Lender's reasonable expenses for such inspection after a Default or Event
of Default has occurred and is continuing. Without in any way limiting the
foregoing, Borrower will participate and will cause its key management
personnel to participate in a meeting of Agent and Lenders at least once during
each fiscal year to be held at such time and at such place as may be agreed to
by Borrower and Agent. In addition, Agent shall have the right to conduct
periodic audits (which, unless the Requisite Lenders otherwise approve, shall be
done at least twice per each Loan Year) of
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<PAGE>
Borrower's financial and accounting records and the Collateral, at which any
Lender may be present and attend; and the reasonable out-of-pocket expenses of
Agent in regard thereto, including, without limitation, travel, meals and
lodging, shall be reimbursed to Agent by Borrower.
5.7. Environmental Compliance
------------------------
(A) Environmental Laws. Borrower shall at all times comply with, and
------------------
cause its Subsidiaries to comply with, all applicable Environmental Laws except
where any such noncompliance could not reasonably be expected to have a Material
Adverse Effect.
(B) Remedial Action. Borrower shall promptly take, and cause its
---------------
Subsidiaries to promptly take, any and all necessary remedial actions in
response to the presence, storage, use, disposal, transportation, release or
discharge of any Hazardous Materials on, under or about any real property
owned, leased or operated by Borrower or its Subsidiaries except where the
failure to do so could not reasonably be expected to have a Material Adverse
Effect. In the event that Borrower or any of its Subsidiaries undertakes any
remedial action with respect to any Hazardous Material on, under or about any
real property owned, leased or operated by Borrower or such Subsidiaries, such
Person shall conduct and complete such remedial action in material compliance
with all applicable Environmental Laws, and in accordance with the policies,
orders and directives of all Governmental Authorities except when such Person's
liability for such presence, storage, use, disposal, transportation, release or
discharge of any Hazardous Material (or the scope of the order or directive at
issue) is being contested in good faith by such Person and appropriate reserves
therefor have been established in accordance with GAAP.
(C) Further Assurance. If Agent or any Lender at any time has a
-----------------
reasonable basis to believe that there may be a material violation of any
Environmental Law by, or any material liability arising thereunder of, Borrower
or any of its Subsidiaries or related to any real property owned, leased or
operated by Borrower or any of its Subsidiaries or real property adjacent to
such real property, which, for each such case, could reasonably be expected to
have a Material Adverse Effect, then Borrower agrees, upon request from Agent or
such Lender, to provide, and cause its Subsidiaries to provide Agent and such
Lender with such reports, certificates, engineering studies or other written
material or data as Agent or such Lender may reasonably require so as to satisfy
Agent and such Lender that Borrower or such Subsidiary is in material compliance
with all applicable Environmental Laws.
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<PAGE>
5.8. Environmental Disclosure
------------------------
(A) Releases. Borrower shall promptly advise Agent in writing and in
--------
reasonable detail of: (1) any unlawful release, disposal or discharge by
Borrower or any of its Subsidiaries of any Hazardous Material required to be
reported to any federal, state or local governmental or regulatory agency under
all applicable Environmental Laws except such releases, disposals or discharges
pursuant to and in compliance with valid permits, authorizations or
registrations under said Environmental Laws; (2) any and all written com-
munications sent or received by Borrower or any of its Subsidiaries with respect
to any Environmental Claims or any unlawful release, disposal or discharge of
Hazardous Material required to be reported to any federal, state or local
governmental or regulatory agency; (3) any remedial action taken by Borrower or
any of its Subsidiaries or any other Person in response to any Hazardous
Material on, under or about any real property owned, leased or operated by
Borrower or any such Subsidiaries, the existence of which could result in an
Environmental Claim that could have a Material Adverse Effect; (4) the discovery
by Borrower or any of its Subsidiaries of any occurrence or condition on any
real property adjoining or in the vicinity of any real property owned, leased or
operated by Borrower or any such Subsidiaries that could cause such real
property or any part thereof to be classified as "border-zone property" or to be
otherwise subject to any restrictions on the ownership, occupancy,
transferability or use thereof under any Environmental Laws; and (5) any request
for information from any governmental agency that indicates such agency is
investigating whether Borrower or any such Subsidiaries may be potentially
responsible for an unlawful release, disposal or discharge of Hazardous
Materials.
(B) Proposed Activities. Borrower shall promptly notify Agent of any
-------------------
proposed acquisition of stock, assets, or property by Borrower or any of its
Subsidiaries that could reasonably be expected to expose Borrower or any of its
Subsidiaries to, or result in, Environmental Claims that could have a Material
Adverse Effect.
5.9. Compliance with Laws
--------------------
Borrower will (a) comply with and will cause each of its Subsidiaries
to comply with the requirements of all applicable laws, rules, regulations and
orders of any Governmental Authority as now in effect and which may be imposed
in the future in all jurisdictions in which Borrower or its Subsidiaries are now
doing business or may hereafter be doing business, other than those laws, rules,
regulations and orders the noncompliance with which would not reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect, and (b) maintain and will cause each of its Subsidiaries to maintain, as
the case may be, all licenses and permits now held or hereafter acquired by
Borrower, the loss, suspension, or revocation of which, or failure to renew,
could reasonably be expected to have a Material Adverse Effect.
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<PAGE>
5.10. Mortgages; Title Insurance; Surveys
-----------------------------------
Agent may, in its discretion or shall at the direction of the Requisite Lenders,
from time to time designate real property or recorded leasehold interests of any
Loan Party or any Subsidiary of any Loan Party acquired after the date hereof as
"Additional Mortgaged Property", in which case Borrower shall as promptly as
possible (and in any event within sixty (60) days after such designation)
deliver to Agent a fully executed Mortgage, in form and substance reasonably
satisfactory to Agent, together with (a) an ALTA lender's title insurance policy
issued by a title insurer reasonably satisfactory to Agent (the "Mortgage
--------
Policy") in form and substance amounts reasonably satisfactory to Agent
- ------
assuring Agent that such Mortgage is a valid and enforceable first priority
mortgage Lien on the Additional Mortgaged Property, free and clear of all Liens,
defects and encumbrances except Permitted Encumbrances; (b) evidence that
counterparts of the Mortgage have been recorded in all places to the extent
necessary or desirable, in the judgment of Agent, to create a valid and
enforceable first priority lien (subject to Permitted Encumbrances) on such
Additional Mortgaged Property in favor of Agent for the benefit of Lenders (or
in favor of such other trustee as may be required or desired under local law);
(c) environmental audit reports, in scope and substance satisfactory to Lenders,
concerning the Additional Mortgaged Property prepared by independent firms of
environmental engineers acceptable to Lenders within a time period likewise
acceptable to Lenders; and (d) an opinion of counsel in each state in which
the Additional Mortgaged Property is located in form and substance and from
counsel satisfactory to Agent. The Mortgage Policies shall be in form and
substance reasonably satisfactory to Agent and shall include (to the extent then
available) an endorsement insuring against the effect of future advances under
this Agreement, for mechanics' liens and for any other matter that Agent may
reasonably request, and shall provide for affirmative insurance and such
reinsurance as Agent may reasonably request. In the case of each leasehold
constituting Additional Mortgaged Property, Agent (for the benefit of Lenders)
shall have received such estoppel letters, consents and waivers from the
landlords and non-disturbance agreements from any holders of mortgages or deeds
of trust on such real estate as may have been requested by Agent, which letters
shall be in form and substance reasonably satisfactory to Agent.
Borrower agrees that, following the taking of the actions with respect to any
Additional Mortgaged Property required pursuant hereto preceding sentence, Agent
shall have a valid and enforceable (subject to the
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<PAGE>
limitations set forth in subsection 4.2(D)) first priority mortgage on the
respective Additional Mortgaged Property, free and clear of all defects and
encumbrances except for Permitted Encumbrances.
(A) Surveys. Within thirty (30) days following delivery of any
-------
Mortgage with respect to Additional Mortgaged Property, Borrower shall deliver
or cause to be delivered to Agent current surveys, certified by a licensed
surveyor, for all real property that is the subject of the Mortgage Policies
including Additional Mortgaged Property for which a Mortgage Policy is issued.
All such surveys shall be sufficient to allow the issuer of the mortgage policy
to issue an ALTA lender's policy.
5.11. Further Assurances
------------------
(A) Loan Parties. Borrower shall and shall cause each Loan Party to,
------------
from time to time, promptly, but in any event within ten (10) Business Days
after Agent's request therefor, execute such guaranties, financing statements,
documents, security agreements and reports as Agent at any time may reasonably
request to evidence, perfect or otherwise implement the guaranties and security
for repayment of the Obligations provided for in the Loan Documents.
(B) Subsidiary Guaranties. At Agent's request, made at the direction
---------------------
of the Requisite Lenders at any time, in respect of any Material Subsidiaries,
or after the occurrence of, and during the continuation of, any Event of
Default, in respect of any other Subsidiaries, Borrower shall promptly, but in
any event within ten (10) Business Days after Agent's request therefor, cause
the affected Subsidiaries of Borrower promptly to guarantee the Obligations and
to grant to Agent, for the benefit of Lenders, a security interest in the real,
personal and mixed property of such Subsidiary to secure the Obligations. The
documentation for such guaranty or security shall be substantially similar to
the Loan Documents with such modifications as are reasonably requested by Agent.
(C) Lien Waivers. Borrower shall use its reasonable best efforts to
------------
obtain Lien Waivers for each leased Collateral Location existing on or after the
Closing Date as soon as practicable after the Closing Date or upon its entering
into a lease therefor, but without liability for its failure to do so (except
for the imposition of Rent Reserves, where permitted pursuant hereto).
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<PAGE>
SECTION 6.
----------
FINANCIAL COVENANTS
-------------------
Borrower covenants and agrees that so long as any of the Commitments
remain in effect and until payment in full of all Obligations (other than
Inchoate Indemnity Obligations) and termination of all Lender Letters of Credit,
unless the Requisite Lenders shall otherwise give their prior written consent,
Borrower shall comply with and shall cause each other Loan Party to comply with
all covenants applicable to such Person set forth below.
6.1. Capital Expenditure and Other Capitalized Costs Limits
------------------------------------------------------
The aggregate amount of all Unfinanced Capital Expenditures and Other
Capitalized Costs of Borrower and its Subsidiaries on a consolidated basis will
not exceed Four Million Two Hundred Fifty Thousand Dollars ($4,250,000) for
Borrower's fiscal quarter ending on or about January 31, 1996 and Three Million
Seven Hundred Fifty Thousand Dollars ($3,750,000) for each fiscal quarter
thereafter; provided, however, that, commencing with Borrower's fiscal quarter
-------- ------- ----
ending on or about April 30, 1996, up to One Million Dollars ($1,000,000) of
Unfinanced Capital Expenditures and Other Capitalized Costs permitted in any
fiscal quarter but not incurred in such fiscal quarter may be carried forward to
increase the limit for the immediately following fiscal quarter.
6.2. Capital Lease Limits.
--------------------
The aggregate amount of all Capital Expenditures of Borrower and its
Subsidiaries on a consolidated basis financed under Capital Leases will not
exceed in each Applicable Period described below the amount prescribed opposite
such Applicable Period:
<TABLE>
<CAPTION>
Applicable Period Amount
----------------- -----------
<S> <C>
February 1, 1995 - January 31, 1996 $10,000,000
February 1, 1996 - April 30, 1996 3,000,000
February 1, 1996 - July 31, 1996 6,000,000
February 1, 1996 - October 31, 1996 8,000,000
February 1, 1996 - January 31, 1997 10,000,000
Each three (3) month period
(February 1 - April 30) thereafter 3,000,000
Each six (6) month period
(February 1 - July 31) thereafter 6,000,000
Each nine (9) month period
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
(February 1 - October 31) thereafter 8,000,000
Each twelve (12) month period
(February 1 - January 31) thereafter 10,000,000
</TABLE>
provided, however, up to Five Million Dollars ($5,000,000) of Capital
-----------------
Expenditures permitted to be financed under Capital Leases during any Fiscal
Year but not incurred in such Fiscal Year may be carried over to the immediately
following Fiscal Year.
6.3. Interest Coverage
-----------------
Borrower shall not permit Interest Coverage for each Applicable Period
set forth below to be less than the amount set forth below for such period.
<TABLE>
<CAPTION>
Applicable Period Amount
----------------- ------
<S> <C>
Fiscal quarter ending on 2.00:1.00
or about January 31, 1996
Fiscal quarter ending on 2.20:1.00
or about April 30, 1996
Fiscal quarter ending on 2.30:1.00
or about July 31, 1996
Fiscal quarters ending on 2.50:1.00
or about October 31, 1996
Fiscal quarter ending on 3.00:1.00
or about January 31, 1997
Fiscal quarter ending on 3.50:1.00
or about April 30, 1997
Fiscal quarter ending on 3.75:1.00
or about July 31, 1997
Fiscal quarter ending on 4.00:1.00
or about October 31, 1997
and each fiscal quarter
ending thereafter
</TABLE>
6.4 Fixed Charge Coverage
---------------------
Borrower shall not permit Fixed Charge Coverage for each Applicable
Period set forth below to be less than the amount set forth below for such
period.
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<PAGE>
<TABLE>
<CAPTION>
Applicable Period Amount
----------------- ------
<S> <C>
Fiscal quarter ending on .50:1.00
or about January 31, 1996
Fiscal quarter ending on .75:1.00
or about April 30, 1996
Fiscal quarter ending on 1.00:1.00
or about July 31, 1996
Fiscal quarter ending on 1.05:1.00
or about October 31, 1996
Fiscal quarter ending on 1.10:1.00
or about January 31, 1997
Fiscal quarter ending on 1.25:1.00
or about April 30, 1997 and
each fiscal quarter ending
thereafter
</TABLE>
6.5 EBITDA
------
Borrower shall not permit EBITDA for each Applicable Period set forth
below to be less than the amount set forth below for such period.
<TABLE>
<CAPTION>
Applicable Period Amount
----------------- ------
<S> <C>
Fiscal quarter ending on $ 7,000,000
or about January 31, 1996
Fiscal quarter ending on 8,000,000
or about April 30, 1996
Fiscal quarter ending on 9,000,000
or about July 31, 1996
Fiscal quarter ending on 10,000,000
or about October 31, 1996
Fiscal quarter ending on 11,000,000
or about January 31, 1997
Fiscal quarter ending on 12,000,000
or about April 30, 1997
Fiscal quarter ending on 13,000,000
or about July 31, 1997
and each fiscal quarter
ending thereafter
</TABLE>
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<PAGE>
6.6. Tangible Net Worth
------------------
Borrower shall not permit Tangible Net Worth on the last day of each
Applicable Period set forth below to be less than the amount set forth below for
such period.
<TABLE>
<CAPTION>
Applicable Period Amount
----------------- ------
<S> <C>
Fiscal quarter ending on or about $10,400,000
January 31, 1996
Fiscal quarter ending on or about 8,200,000
April 30, 1996
Fiscal quarter ending on or about 6,700,000
July 31, 1996
Fiscal quarter ending on or about 6,300,000
October 31, 1996
Fiscal quarter ending on or about 7,100,000
January 31, 1997
Each fiscal quarter ending The amount
thereafter required for the
previous fiscal
quarter plus $2,000,000
</TABLE>
6.7. Inventory Turnover.
------------------
Borrower shall not permit its "Inventory Days on Hand" (as defined
below), to exceed for any "Applicable Period" the number of days for such
Applicable Period set forth below.
<TABLE>
<CAPTION>
Applicable Period Days
----------------- ----
<S> <C>
Fiscal quarter ending on or about 195
January 31, 1996
Fiscal quarter ending on or about 180
April 30, 1996
Fiscal quarter ending on or about 165
July 31, 1996
Fiscal quarter ending on or about 155
October 31, 1996
Fiscal quarter ending on 155
or about January 31, 1997
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Fiscal quarter ending on 150
or about April 30, 1997
Fiscal quarter ending on 145
or about July 31, 1997
and each fiscal quarter
ending thereafter
</TABLE>
For purposes hereof, "Inventory Days on Hand" shall mean for each fiscal quarter
(x) "Average Inventory" divided by (y) "Average Daily Product Cost of Sales."
For purposes hereof, "Average Inventory" shall be calculated as (a) the sum of
the FIFO basis inventory balance at the end of the preceding fiscal quarter end
plus the ending FIFO basis inventory balance as of each fiscal month end during
any fiscal quarter, divided by (b) four (4); and "Average Daily Product Cost of
Sales" shall be calculated as (a) the difference between net sales and that
amount designated on Borrower's monthly internal income statement as "gross
margin net of freight" for any fiscal quarter, divided by (b) ninety-one (91).
6.8 Accounts Payable Days Outstanding. Borrower shall not permit its "Accounts
---------------------------------
Payable Days Outstanding" (as defined below), to exceed for any "Applicable
Period" the number of days for such Applicable Period set forth below.
<TABLE>
<CAPTION>
Applicable Period Days
----------------- ----
<S> <C>
Fiscal quarter ending on 130
or about January 31, 1996
Fiscal quarter ending on 120
or about April 30, 1996
Fiscal quarter ending on 115
or about July 31, 1996
and each fiscal quarter
ending thereafter
</TABLE>
For purposes hereof, "Accounts Payable Days Outstanding" shall mean for each
fiscal quarter (x) "Average Accounts Payable" divided by (y) "Average Daily
Product Cost of Sales." For purposes hereof, "Average Accounts Payable" shall
be calculated as (a) the sum of the accounts payable balance at the end of the
preceding fiscal quarter plus the ending accounts payable balance as of each
fiscal month end during any fiscal quarter, divided by (b) four (4); and
"Average Daily Product Cost of Sales" shall be calculated as (a) the difference
between net sales and that amount designated on Borrower's monthly internal
income statement as "gross margin net of freight" for any fiscal quarter,
divided by (b) ninety-one (91).
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<PAGE>
6.9 Maximum Sale Assets. The aggregate book value of Borrower's Sale Assets
-------------------
shall not exceed Three Million Dollars ($3,000,000) on January 31, 1996 and on
the last day of each month thereafter.
SECTION 7.
----------
BORROWER'S NEGATIVE COVENANTS
-----------------------------
Borrower covenants and agrees that so long as any of the Commitments
remain in effect and until payment in full of all Obligations (other than
Inchoate Indemnity Obligations) and termination of all Lender Letters of Credit,
unless the Requisite Lenders shall otherwise give their prior written consent,
Borrower shall comply with and shall cause each other Loan Party to comply with
all covenants in this Section 7 applicable to such Person.
7.1. Indebtedness
------------
Borrower will not and will not permit any of its Subsidiaries directly
or indirectly to create, incur, suffer to exist, assume, guarantee, or otherwise
become or remain directly or indirectly liable with respect to any Indebtedness,
except:
- ------
(A) Obligations. The Obligations;
-----------
(B) Contingent Obligations. Indebtedness arising as a result of
----------------------
Contingent Obligations permitted under subsection 7.4;
(C) Purchase Money Debt. Purchase Money Indebtedness (exclusive of
-------------------
the New Distribution Center Property Debt) not to exceed Five Million Dollars
($5,000,000) in the aggregate in unpaid principal amount at any one time
outstanding; and
(D) Capital Leases. Indebtedness incurred with respect to Capital
--------------
Leases permitted hereunder; and
(E) Existing Indebtedness. Indebtedness described on Schedule 4.4
--------------------- ------------
existing on the Closing Date and not otherwise described in this subsection 7.1;
together with Indebtedness, not exceeding in the aggregate in unpaid principal
amount One Million Dollars ($1,000,000) at any one time outstanding, assumed by
Borrower in connection with, and as a condition to, the purchase of real estate
from time to time hereafter.
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<PAGE>
(F) Trade Debt. Indebtedness of Borrower to its trade creditors
----------
arising in the ordinary course of business.
(G) A/P Note Debt. Indebtedness consisting of A/P Note Debt, not to
-------------
exceed, however, in aggregate unpaid principal amount at any one time
outstanding, the sum of Ten Million Dollars ($10,000,000).
(H) New Distribution Center Property Debt. New Distribution Center
-------------------------------------
Property Debt not to exceed, however, in aggregate unpaid principal amount at
any one time outstanding, the sum of Five Million Five Hundred Thousand Dollars
($5,500,000).
(I) Subordinated Debt. Subordinated Debt not to exceed, in aggregate
-----------------
principal amount at any one time outstanding, Twenty Million Dollars
($20,000,000), and provided that the Net Proceeds thereof are paid over to Agent
by Borrower as and when received for application to the Obligations in the
manner prescribed in subsection 2.4(C).
7.2. Liens and Related Matters
-------------------------
(A) No Liens. Borrower will not and will not permit any of its
--------
Subsidiaries directly or indirectly to create, incur, assume or permit to exist
any Lien on or with respect to any property or asset (including any document or
instrument with respect to goods or accounts receivable) of Borrower or any of
its Subsidiaries, whether now owned or hereafter acquired, or any income or
profits therefrom, except Permitted Encumbrances.
(B) No Negative Pledges. Neither Borrower nor any Subsidiary of
-------------------
Borrower shall enter into or assume any agreement (other than the Loan
Documents) prohibiting the creation or assumption of any Lien upon its
properties or assets, whether now owned or hereafter acquired, except for
customary nonassignability clauses in leases, licenses and similar contracts.
(C) No Restrictions on Subsidiary Distributions to Borrower; No
-----------------------------------------------------------
Distributions to Subsidiaries. Except as provided herein, Borrower will not and
- -----------------------------
will not permit any of its Subsidiaries directly or indirectly to create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any such Subsidiary to:
(1) pay dividends or make any other distribution on any of such Subsidiary's
Capital Stock owned by Borrower or any Subsidiary of Borrower; (2) subject to
subordination provisions, pay any Indebtedness owed to Borrower or any other
Subsidiary; (3) make loans or advances to Borrower or any other Subsidiary; or
(4) transfer any of its property or assets to Borrower or any other Subsidiary.
In addition, Borrower will make no loans or advances to, or Investments in, or
incur any Contingent Obligations on
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behalf of, any of its Subsidiaries, which exceed, in aggregate amount at any one
time outstanding, as to all of the foregoing collectively, the sum of Two
Hundred Thousand Dollars ($200,000).
7.3. Investments; Joint Ventures
---------------------------
Borrower will not and will not permit any of its Subsidiaries directly
or indirectly to make or own any Investment in any Person, including, without
limitation, any Joint Venture, except as set forth on Schedule 4.23 annexed
-------------
hereto, except as set forth in subsection 7.2(C), and except as follows:
(A) Cash Equivalents. Borrower and its Subsidiaries may make and own
----------------
Investments in Cash Equivalents; provided that such Cash Equivalents are not
--------
subject to setoff rights in favor of the issuing bank arising from any banking
relationship of Borrower or its Subsidiaries;
(B) Travel Advances. Borrower and its Subsidiaries may make loans and
---------------
advances to employees for moving, entertainment, travel and other similar
expenses in the ordinary course of business not to exceed One Hundred Thousand
Dollars ($100,000), in the aggregate, at any time outstanding.
7.4. Contingent Obligations
----------------------
Borrower will not and will not permit any of its Subsidiaries directly
or indirectly to create, incur, suffer to exist, assume, guarantee or otherwise
become or remain liable with respect to any Contingent Obligation, except:
------
(A) Ordinary Course. Contingent Obligations resulting from
---------------
endorsement of negotiable instruments for collection in the ordinary course of
business;
(B) Scheduled Liabilities. Contingent Obligations existing on the
---------------------
Closing Date and described in Schedule 7.4 annexed hereto;
------------
(C) Lenders Letters of Credit. Contingent Obligations with respect
-------------------------
to Lender Letters of Credit;
(D) Other Letters of Credit. Contingent Obligations with respect to
-----------------------
Other Letters of Credit not to exceed, however, at any one time, the aggregate
sum of Six Million Dollars ($6,000,000);
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(E) Indemnity. The Inchoate Indemnity Obligations and Contingent
---------
Obligations under other indemnity agreements to: (i) title insurers to cause
such title insurers to issue to Agent mortgagee title insurance policies, as
provided in subsection 5.10; (ii) to officers, directors, underwriters and other
Persons given in the ordinary course of, and pursuant to the reasonable
requirements of, Borrower's business in order to induce such Person to perform
services for Borrower (but expressly excluding therefrom, in any event, any tax
sharing, tax indemnity or similar arrangement not related to the performance of
such service); and (iii) in connection with the sale of assets or Capital Stock.
(F) Asset Dispositions. Contingent Obligations with respect to
------------------
customary indemnification and purchase price adjustment obligations incurred in
connection with Asset Dispositions;
(G) Bonds. Contingent Obligations incurred by Borrower in respect of
-----
the appeal bond in an amount not in excess of Two Million Three Hundred Thousand
Dollars ($2,300,000) required to be obtained by Borrower with regard to the
Rossi Lawsuit and Contingent Obligations incurred in the ordinary course of
business with respect to surety and appeal bonds, performance and return-of-
money bonds and other similar obligations not exceeding at any time outstanding
One Hundred Thousand Dollars ($100,000) in aggregate liability; and
(H) Debt. Contingent Obligations with respect to Indebtedness
----
permitted by subsection 7.1.
7.5. Restricted Junior Payments
--------------------------
Borrower will not and will not permit any of its Subsidiaries to
directly or indirectly declare, order, pay, make or set apart any sum for any
Restricted Junior Payment, except that: (i) Subsidiaries of Borrower may make
------ ----
Restricted Junior Payments to Borrower; and (ii) Borrower may from time to time
make Restricted Junior Payments consisting of scheduled payments of accrued
interest on any Subordinated Debt so long as no Default or Event of Default
shall have occurred which is then continuing or would result from the making of
such payment; and (iii) Borrower may from time to time make Restricted Junior
Payments consisting of scheduled principal payments on any Subordinated Debt so
long as: (A) such payments shall be made, if at all, during any Fiscal Year, no
sooner than upon delivery to Lenders of Borrower's audited financial statements
for the preceding Fiscal Year; (B) no such principal payments made in any one
Fiscal Year shall exceed, in aggregate amount, that amount equal to fifty
percent (50%) of Borrower's Excess Cash Flow, computed as of the end of the
preceding Fiscal Year; (C) no such payment shall be made unless, after giving
effect to such payment, on the payment date thereof, Borrowing Availability on
such
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date, net of Extended Payables on such date, is at least Ten Million Dollars
($10,000,000); and (D) no such payment shall be made, in any event, if a Default
or Event of Default has occurred which is then continuing or would be caused by,
or result from, such payment being made.
7.6. Restriction on Fundamental Changes
----------------------------------
Neither Borrower nor any of its Subsidiaries will: (a) amend, modify
or waive any term or provision of its articles of incorporation or by-laws
unless required by law; (b) enter into any transaction of merger or
consolidation; (c) liquidate, wind-up or dissolve itself (or suffer any
liquidation or dissolution); (d) except to the extent permitted in subsection
7.7, convey, sell, lease, sublease, transfer or otherwise dispose of, in one
transaction or a series of transactions, all or any substantial part of its
business or assets, or the capital stock of or other equity interests in any of
its Subsidiaries, whether now owned or hereafter acquired; or (e) acquire by
purchase or otherwise all or any substantial part of the business or assets of,
or Capital Stock or other evidence of beneficial ownership of, any Person,
except: (i) Borrower and its Subsidiaries may make Unfinanced Capital
- ------
Expenditures permitted under subsection 6.1, Capital Leases permitted under
subsection 6.2 and Investments per mitted under subsection 7.3; (ii) any
Subsidiary of Borrower may be merged with or into Borrower (provided that
Borrower is the surviving entity) or any other Subsidiary of Borrower; and (iii)
Borrower may reincorporate itself as a Delaware corporation and change its name
to "CSK AUTO PARTS, INC." (or some variation thereof) upon first giving Agent at
least thirty (30) days advance written notice of its intent to do so and,
immediately upon such actions becoming effective, executing in Agent's or
Lenders' favor such modifications or amendments to this Agreement or any other
Loan Documents or new Loan Documents, as the case may be, as Agent or Lenders
determine to be necessary to reflect such actions becoming effective, all at
Borrower's expense. The foregoing shall include, but not be limited to, the
execution of new financing statements and Mortgages (or amendments thereto), the
recordation thereof, and verification by receipt of appropriate Lien searches,
title examinations and title insurance endorsements of the continuation of the
Liens, and priority thereof, of Agent in the Collateral.
7.7. Disposal of Assets or Subsidiary Stock
--------------------------------------
(A) Assets. Neither Borrower nor any of its Subsidiaries will sell,
------
lease, transfer or otherwise dispose of any of its property, business or assets,
or grant any Person an option to acquire any such property, business or assets,
except for (a) bona fide sales of Inventory to customers for fair value in the
- ------
ordinary course of business and dispositions of obsolete equipment not used or
useful in the business, (b) sale leaseback transactions conducted in the
ordinary course of, and pursuant to the reasonable requirements of, Borrower's
business which otherwise comply with subsection 6.2, and (c) Asset Dispositions
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(including, but not limited to, Sale Assets) if all of the following conditions
are met notwithstanding the prohibition set forth in subsection 7.6(d): (i) the
market value of assets sold or otherwise disposed of in any single transaction
or series of related transactions does not exceed Two Hundred Fifty Thousand
Dollars ($250,000) and the aggregate market value of assets sold or otherwise
disposed of in any Fiscal Year does not exceed Five Hundred Thousand Dollars
($500,000); (ii) the consideration received is at least equal to the fair mar-
ket value of such assets; (iii) the sole consideration received is cash; (iv)
the Net Proceeds of such Asset Disposition are applied as required by subsection
2.4(E)(5); (v) after giving effect to the sale or other disposition of the
assets included within the Asset Disposition and the repayment of Indebtedness
with the proceeds thereof, Borrower is in compliance on a pro forma basis with
the covenants set forth in Section 6 recomputed for the most recently ended
month for which information is available and is in compliance with all other
terms and conditions contained in this Agreement; and (vi) no Event of Default
shall have occurred and be continuing or shall result from such sale or other
disposition.
(B) Capital Stock. Except as permitted elsewhere in this Agreement,
-------------
Borrower will not and will not permit any of its Subsidiaries directly or
indirectly to sell, assign, pledge or otherwise encumber or dispose of any
shares of Capital Stock in Borrower or any such Subsidiary, except to Borrower
or another Subsidiary of Borrower.
7.8. Transactions with Affiliates
----------------------------
Borrower will not and will not permit any of its Subsidiaries directly
or indirectly to enter into or permit to exist any transaction (including,
without limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with any Affiliate of Borrower or with any director,
officer or employee of any Loan Party, including, without limitation, the
payment of any management, consulting or similar fees, except (a) as set forth
------
on Schedule 7.8; or (b) for transactions in the ordinary course of and pursuant
------------
to the reasonable requirements of the business of Borrower or any of its
Subsidiaries and upon fair and reasonable terms which are no less favorable to
Borrower or such Subsidiary than would be obtained in a comparable arm's length
transaction with a Person that is not an Affiliate (and which, at the request of
Agent, are fully disclosed to Agent and Lenders). Notwithstanding the foregoing,
(i) no payments may be made with respect to any items set forth on Schedule 7.8
------------
upon the occurrence and during the continuation of a Default or Event of
Default; and (ii) except to the extent set forth in Schedule 7.8, no consulting
------------
fees, management fees, directors' fees or other, similar fees shall be paid in
any event to any Affiliate of Borrower or any officer, director or shareholder
of Borrower or any such Affiliate in excess of One Hundred Fifty Thousand
Dollars ($150,000), in the aggregate, as to all of such fees, collectively, per
each Fiscal Year.
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<PAGE>
7.9. Environmental Liabilities
-------------------------
Borrower will not and will not permit any Subsidiary to: (a) violate
any applicable Environmental Law if such violation could reasonably be expected
to have a Material Adverse Effect; or (b) dispose of any Hazardous Materials
into or onto or (except in accordance with applicable law) from, any real
property owned, leased or operated by any Loan Party in violation of any
Environmental Law; or (c) permit any Lien imposed pursuant to any Environmental
Law to be imposed or to remain on any real property owned, leased or operated by
any Loan Party.
7.10. Conduct of Business
-------------------
From and after the Closing Date, Borrower will not and will not permit
any of its Subsidiaries to engage in any business other than businesses of the
type described on Schedule 4.1(D).
---------------
7.11. Fiscal Year
-----------
Neither Borrower nor any Subsidiary of Borrower shall change its
Fiscal Year.
7.12. Compliance with ERISA
---------------------
Neither Borrower nor any Subsidiary of Borrower shall:
(a) permit the occurrence of any ERISA Termination Event which would
result in a liability to any Loan Party or ERISA Affiliate in excess of Five
Hundred Thousand Dollars ($500,000);
(b) permit the present value of all benefit liabilities under all
Pension Plans to exceed the current value of the assets of such Pension Plans
allocable to such benefit liabilities by more than Five Hundred Thousand Dollars
($500,000);
(c) permit any accumulated funding deficiency (as defined in Section
302 of ERISA and Section 412 of the IRC) in excess of Five Hundred Thousand
Dollars ($500,000) with respect to any Pension Plan, whether or not waived;
(d) fail to make any contribution or payment to any Multiemployer Plan
which any Loan Party or ERISA Affiliate may be required to make under any
agreement relating to such Multiemployer Plan, or any law pertaining thereto
which results in or is likely to result in a liability in excess of Five Hundred
Thousand Dollars ($500,000);
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(e) engage, or permit any Loan Party or ERISA Affiliate to engage, in
any prohibited transaction under Section 406 of ERISA or Section 4975 of the IRC
for which a civil penalty pursuant to Section 502(i) of ERISA or a tax pursuant
to Section 4975 of the IRC in excess of Five Hundred Thousand Dollars ($500,000)
is imposed;
(f) permit the establishment of any Employee Benefit Plan providing
post-retirement welfare benefits or establish or amend any Employee Benefit Plan
which establishment or amendment could result in liability to any Loan Party or
ERISA Affiliate or increase the obligation of any Loan Party or ERISA Affiliate
to a Multiemployer Plan which liability or increase, individually or together
with all similar liabilities and increases, will exceed Five Hundred Thousand
Dollars ($500,000); or
(g) fail, or permit any Loan Party or ERISA Affiliate to fail, to
establish, maintain and operate each Employee Benefit Plan in compliance in all
material respects with the provisions of ERISA, the IRC and all other applicable
laws and the regulations and interpretations thereof, except where the foregoing
could not be reasonably expected to have a Material Adverse Effect.
7.13. Subsidiaries
------------
Borrower will not, and will not permit any of its Subsidiaries to,
establish, create or acquire any Subsidiary not in existence on the Closing
Date.
7.14. Bank Accounts
-------------
Borrower will not, and will not permit any of its Subsidiaries to,
establish any new bank accounts without prior written notice to Agent and unless
the bank enters into a Bank Agency Agreement.
7.15. Forgiveness of Debts
--------------------
Borrower will not forgive, or permit any Subsidiary to forgive, any
Indebtedness, or grant any waivers, extensions, deferrals or releases in
connection therewith, or enter into any accord and satisfaction with respect
thereto, other than in the ordinary course of its business as conducted for
value received.
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<PAGE>
SECTION 7A.
-----------
ARRANGED FUNDING
----------------
Notwithstanding anything to the contrary set forth in this Agreement,
Agent, Lenders, Borrower, Island Boulevard Holdings, Inc. and Transatlantic
Group, Ltd. agree as follows:
7A.1. Additional Defined Terms.
------------------------
For purposes of this Section 7A, the following terms shall have the
following meanings:
(a) "Affiliate Loans" shall mean unsecured loans made by a Borrower
---------------
Affiliate to Borrower from time to time.
(b) "Arranged Funding" shall mean, at any time, the sum of (i) funds
----------------
expended by the Borrower Affiliate to purchase from trade creditors
of Borrower accounts payable of Borrower formerly owed by Borrower to
such trade creditors or funds expended by third parties to purchase
such accounts pursuant to arrangements made by the Borrower Affiliate
with such third parties on terms and conditions (including, without
limitation, as to repayment) reasonably satisfactory to the Agent and
the Requisite Lenders in all respects ("Third Party Purchases") plus
--------------------- ----
(ii) funds expended by the Borrower Affiliate to purchase equipment
acquired subsequent to the Closing Date or real property from
Borrower pursuant to sale-leaseback transactions which are on
commercially reasonable terms and are otherwise then permitted under
subsection 7.7, plus (iii) the outstanding amount of Affiliate
----
Loans, which are on commercially reasonable terms and do not exceed
Five Million Dollars ($5,000,000), in the aggregate, at any time,
plus (iv) without duplication of the amounts described in the
----
preceding clauses (i), (ii) and (iii), the $4,700,000 equity increase
resulting from the application (during Borrower's fiscal quarter
ended January 28, 1996) of a portion of the Arranged Funding
described in such preceding clauses against the balance of a certain
preexisting Account which had been fully reserved by Borrower on its
balance sheet, resulting in a credit (in that amount) to Borrower's
income for the 1996 Fiscal Year and a like increase in Borrower's
shareholders' equity; subject, in each case to reduction as provided
in Section 7A.4 below.
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<PAGE>
(c) "Borrower Affiliate" means, collectively, Island Boulevard
------------------
Holdings, Inc. and Transatlantic Group, Ltd., individually and on
behalf of any other Affiliates of Borrower who may make Arranged
Funding available to Borrower.
(d) "Reduction Event" shall mean (i) the making by any Person of any
---------------
demand for payment on Borrower under any account payable purchased
pursuant to the Arranged Funding, whether or not Borrower honors
such demand, or the voluntary payment by Borrower of such account
payable, (ii) the refinancing by the Borrower Affiliate from any
source of any amount of the Arranged Funding pursuant to a Secured
Financing, (iii) the sale by the Borrower Affiliate of assets
subject to a sale/leaseback which is part of the Arranged Funding
or (iv) the payment of any principal amount in respect of any
Affiliate Loan.
(e) "Secured Financing" shall mean any refinancing by the Borrower
-----------------
Affiliate of Arranged Funding using either accounts payable
purchased pursuant to Arranged Funding or assets subject to a
sale/leaseback which is part of the Arranged Funding as
collateral.
7A.2. Representations and Warranties as to Arranged Funding.
-----------------------------------------------------
Borrower and the Borrower Affiliate represent and warrant in favor of
the Agent and Lenders that (a) the Borrower Affiliate and Borrower are
Affiliates, having the Carmel Trust as their common controlling shareholder, (b)
as of December 20, 1995, the amount of the Arranged Funding was Twenty-Three
Million Nine Hundred Fifty-Four Thousand Dollars ($23,954,000), (c) funds used
to consummate the Arranged Funding were not heretofore, and will not hereafter
be, subject to any lien, claim, encumbrance, or restriction of any kind, (d)
in effecting any purchase of accounts payable or sale-leaseback transaction or
making any Affiliate Loans resulting in any Arranged Funding, the Borrower
Affiliate has not violated, and will not violate, any term of any loan
agreement, indenture or other contract to which it is party or by which it or
its property is bound, and (e) as of December 20, 1995, the Borrower Affiliate
did not refinance any portion of the Arranged Funding using Secured Financing.
7A.3. Reporting as to Arranged Funding.
--------------------------------
(a) Without limitation of the additional reporting requirements set
forth in subsection 7A.4 below, within ten (10) days after the end
of each month, the Borrower Affiliate and Borrower shall provide to
the Agent and Lenders a statement of the amount of the Arranged
Funding, specifying the amounts of any increases or decreases
therein and the events causing such increases or
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decreases and otherwise in form and detail satisfactory to the Agent
and Lenders, certified by the chief financial officers of the
Borrower Affiliate and Borrower to be true, correct and complete.
(b) [Intentionally Omitted]
(c) Concurrently with the occurrence of any event resulting in
additional Arranged Funding other than a Third Party Purchase and at
least one (1) Business Day prior to the occurrence of any Third
Party Purchase, Borrower and the Borrower Affiliate shall deliver to
the Agent copies of all documentation pertaining thereto which shall
be in form and substance reasonably satisfactory to the Agent in all
respects.
7A.4. Reduction in Arranged Funding.
-----------------------------
Upon the occurrence of any Reduction Event, except as provided in the
last sentence hereof, the amount of the Arranged Funding shall be deemed to be
immediately reduced by (a) the amount of any accounts payable as to which
payment is demanded or made, (b) the amount of any Arranged Funding which is
refinanced by the Borrower Affiliate from any source using Secured Financing,
(c) the purchase price paid for any assets subject to a sale/leaseback included
in the Arranged Funding which are sold by the Borrower Affiliate or (d) any
principal payment made on an Affiliate Loan. Promptly and, in any event, within
two (2) Business Days after the occurrence thereof, the Borrower Affiliate and
Borrower shall report to the Agent and Lenders in writing as to the occurrence
of any Reduction Event, specifying the amount of the reduction effected thereby
and the amount (if any) of any increase in the amount of the Arranged Funding to
be effected with the funds made available as a result of such reduction and the
means for such increase. If pursuant to such notice the Borrower and the
Borrower Affiliate advise the Agent and Lenders that an increase in the Arranged
Funding is expected to be effected with the funds made available as a result of
the occurrence of such Reduction Event, then the amount of the Arranged Funding
shall not be reduced as provided in the first sentence of this subsection 7A.4
if, and to the extent that, within twenty (20) days after the date of such
Reduction Event Borrower and the Borrower Affiliate provide to the Agent and
Lenders documentation, in form and substance reasonably satisfactory to the
Agent and the Requisite Lenders, as to the occurrence of such increase in the
Arranged Funding; provided, however, that, at the end of such twenty (20) day
-------- ------- ----
period, the Arranged Funding shall be reduced by an amount determined pursuant
to the first sentence of this Section 7A.4 after giving effect to any such
increase.
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<PAGE>
7A.5. Effect of Reduction in Arranged Funding.
---------------------------------------
(a) In the event that the amount of the Arranged Funding is ever
reduced to less than Twenty-Three Million Nine Hundred Fifty-Four
Thousand Dollars ($23,954,000) as a result of the occurrence of any
Reduction Event, the Amendment Reserve shall be immediately applied
against both the Revolving Loan Commitments and the Borrowing Base
in determining the Maximum Revolving Loan Amount, rather than
against the Borrowing Base only as is presently provided.
(b) In the event that the amount of the Arranged Funding is ever
reduced to less than Fifteen Million Nine Hundred Thousand Dollars
($15,900,000) as a result of the occurrence of any Reduction Event,
(i) the amount of the Amendment Reserve immediately shall be
increased to Ten Million Dollars ($10,000,000) and shall be applied
against both the Revolving Loan Commitments and the Borrowing Base
in determining the Maximum Revolving Loan Amount, and (ii) an Event
of Default shall be deemed to exist unless, as of the last day of
Borrower's then most recently ended fiscal quarter, Accounts Payable
Days Outstanding, determined as set forth in the following sentence,
is less than one hundred (100). If such Reduction Event consists of
either (i) a demand for payment of, or a payment of accounts payable
which have been purchased pursuant to Arranged Funding or (ii) a
refinancing of such accounts payable pursuant to Secured Financing,
the amount of the accounts payable as to which demand for payment or
payment has been made or as to which the Borrower Affiliate has
refinanced Arranged Funding pursuant to Secured Financing shall be
included in Borrower's applicable month-end and quarter-end accounts
payable balances in calculating Accounts Payable Days Outstanding
pursuant to the preceding sentence notwithstanding that such
Reduction Event occurred after any such month-end or quarter-end.
(c) If as a result of the imposition of the Amendment Reserve against
the Revolving Loan Commitments or increase in the amount of the
Amendment Reserve hereunder, the principal balance of the Revolving
Loan exceeds the Maximum Revolving Loan Amount, then, in accordance
with the requirements of subsection 2.4(E), Borrower shall, on such
date, repay the Revolving Loan to the extent necessary to reduce the
principal balance to an amount that is equal to or less than the
Maximum Revolving Loan Amount.
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<PAGE>
7A.6. Affiliate Loans.
---------------
Notwithstanding the provisions of subsection 7.1 to the contrary,
Borrower may obtain Affiliate Loans from time to time; provided that the
-------- ----
aggregate amount of Indebtedness outstanding with respect thereto does not
exceed Five Million Dollars ($5,000,000) at any time and such loans are on
commercially reasonable terms.
7A.7. Calculation of Accounts Payable Days Outstanding.
------------------------------------------------
So long as any Arranged Funding resulting from the purchase of
accounts payable remains in existence, without giving effect to the last
sentence of subsection 7A.4, in calculating Accounts Payable Days Outstanding
for purposes of determining compliance with the provisions of subsection 6.8 and
satisfaction of the condition regarding Accounts Payable Days outstanding set
forth in subsection 2.5(B), Borrower may exclude from its quarter-end and month-
end accounts payable balances the amount of any accounts payable that are then
outstanding and have been acquired from trade creditors of Borrower pursuant to
Arranged Funding so long as (a) no demand for payment has been made with respect
to such accounts payable and (b) the Borrower Affiliate has not refinanced such
Arranged Funding pursuant to Secured Financing.
7A.8. Lien Waivers
------------
The Borrower Affiliate shall deliver to the Agent a Lien Waiver
concurrently with its consummation of any sale-leaseback transactions with
Borrower.
7A.9. Consultant
----------
Borrower, at its expense, has engaged Kurt Salmon or another
consultant with expertise in the retail industry satisfactory to Lenders to
assist Borrower in implementing a detailed plan to improve inventory management
and inventory turnover. The consultants will address, among other areas,
development of a strategy and monthly budget by inventory category addressing
inventory pullback and ultimate sell-through; review and implementation of
modifications as necessary to Borrower's merchandising strategy and buying plan;
implementation of operational improvements through process review and time
studies; training and review of employees in areas of distribution and
replenishment; and review and modification of model stocks. Borrower shall
continue the engagement of such consultant until the earlier of (a) such time
-------
as, for Borrower's then most recently ended fiscal quarter (i) Borrower's
Inventory Days on Hand is less than one hundred fifty five (155), as
demonstrated by Borrower's financial statements for such fiscal quarter
delivered pursuant to subsection 5.1(A), (ii) Borrower's in stock position at
its stores has averaged over ninety-
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<PAGE>
seven percent (97%), as demonstrated by Borrower's weekly in-stock fill reports
and (iii) labor hours at Borrower's Phoenix and Dixon distribution centers have
averaged less than ten thousand (10,000) per week at each center, as
demonstrated by Borrower's weekly labor hours reports, each of which benchmarks
described in clauses (i), (ii) and (iii) above having been determined by
Borrower, and represented by it to Lenders to be achievable after review thereof
with Borrower's existing consultant, or (b) such time as such consultant advises
the Agent that it has completed its work for Borrower in regard to Borrower's
inventory management and turnover and that its continued engagement by Borrower
would not be beneficial to Borrower and the Agent and the Requisite Lenders
concur in such determination. In furtherance of the foregoing, Borrower hereby
agrees that it shall deliver to the Agent on a weekly basis its weekly in-stock
percentage fill reports and labor hours reports for such distribution centers
for the preceding week.
7A.10. Miscellaneous
-------------
(a) Borrower's or the Borrower Affiliate's failure to perform in
accordance with the terms of this Section 7A shall constitute an
Event of Default.
(b) [Intentionally Omitted]
(c) Each Lender hereby confirms that the Agent may release or
subordinate its Lien (for its benefit and the benefit of Lenders)
on equipment which is the subject of a sale/leaseback transaction
which is part of the Arranged Funding.
SECTION 8.
----------
DEFAULT, RIGHTS AND REMEDIES
----------------------------
8.1. Events of Default
-----------------
"Event of Default" shall mean the occurrence or existence of any
----------------
one or more of the following:
(A) Default in Payment. Failure of Borrower to pay any Obligations
------------------
when due, or to reimburse Agent or any Lender for any payment made by Agent or
such Lender under or in respect of any Lender Letter of Credit when due; and, in
either case, the failure of Borrower to make such payment is not cured within
five (5) Business Days after the due date of such payment; or
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(B) Cross-Acceleration. Any Indebtedness of Borrower (other than the
------------------
Loans, which are treated separately in clause (A) above) or any Contingent
Obligation of Borrower (other than the Lender Reimbursement Liabilities, which
are treated separately in clause (A) above), having an individual principal
amount in excess of Two Million Five Hundred Thousand Dollars ($2,500,000) or
having an aggregate principal amount in excess of Two Million Five Hundred
Thousand Dollars ($2,500,000), shall be in default and become or be declared to
be due prior to its stated maturity as a result thereof; or
(C) Breach of Certain Provisions. Failure of Borrower to perform or
----------------------------
comply with any term or condition contained in subsections 5.1, 5.5, 5.6, 5.10
or 5.11 of this Agreement; or contained in Section 6 or Section 7 of this
Agreement; or contained in the Security Agreement; or
(D) Breach of Warranty. Any representation, warranty, certification
------------------
or other statement made by any Loan Party in any Loan Document or in any
statement or certificate at any time given by such Person in writing pursuant or
in connection with any Loan Document is false in any material respect on the
date made; or
(E) Other Defaults Under Loan Documents. Borrower or any other Loan
-----------------------------------
Party defaults in the performance of or compliance with any term contained in
this Agreement or the other Loan Documents and such default is not remedied or
waived within thirty (30) days after the earlier of: (i) Borrower's delivery of
-------
a certificate in respect thereof pursuant to Section 5.1(L) or (ii) receipt by
Borrower of notice from Agent or any Lender of such default (other than
occurrences described in other provisions of this subsection 8.1 for which a
different grace or cure period is specified or which constitute immediate Events
of Default); or
(F) Involuntary Bankruptcy; Appointment of Receiver, etc. (1) A court
-----------------------------------------------------
enters a decree or order for relief with respect to Borrower or any of its
Subsidiaries in an involuntary case under the Bankruptcy Code or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, which
decree or order is not stayed or other similar relief is not granted under any
applicable federal or state law; or (2) the continuance of any of the following
events for sixty (60) days unless dismissed, discharged, or bonded against in a
manner satisfactory to the Requisite Lenders: (a) an involuntary case is
commenced against Borrower or any of its Subsidiaries, under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect; or (b) a
decree or order of a court for the appointment of a receiver, liquidator,
sequestrator, trustee, custodian or other officer having similar powers over
Borrower or any of its Subsidiaries, or over all or a substantial part of its
property, is entered; or (c) an interim receiver, trustee or other custodian is
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appointed without the consent of Borrower or any of its Subsidiaries, for all or
a substantial part of the property of Borrower or any such Subsidiary; or
(G) Voluntary Bankruptcy; Appointment of Receiver, etc.
---------------------------------------------------
(1) An order for relief is entered with respect to Borrower or any of its
Subsidiaries or Borrower or any of its Subsidiaries commences a voluntary case
under the Bankruptcy Code or any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consents to the entry of an order for
relief in an involuntary case or to the conversion of an involuntary case to a
voluntary case under any such law or consents to the appointment of or taking
possession by a receiver, trustee or other custodian for all or a substantial
part of its property; or (2) Borrower or any of its Subsidiaries makes any
assignment for the benefit of creditors; or (3) the Board of Directors of
Borrower or any of its Subsidiaries adopts any resolution or otherwise
authorizes action to approve any of the actions referred to in this subsection
8.1(G) or in subsection 8.1(J); or
(H) Governmental Liens. Any Lien is filed or recorded with respect to
------------------
or otherwise imposed upon all or any material part of the Collateral or the
assets of Borrower or any of its Material Subsidiaries by any Governmental
Authority with respect to any sum in excess of Five Hundred Thousand Dollars
($500,000), individually, or which, when added to all other such Liens then
outstanding, causes total sums subject to such Liens to exceed Five Hundred
Thousand Dollars ($500,000), which is past due for payment and either: (i) such
Lien, if imposed upon the Collateral, has priority over the Lien of Agent
thereon; or (ii) such Lien, if it does not have such priority or is not imposed
upon the Collateral, is not stayed, vacated, paid or discharged within thirty
(30) days; or
(I) Judgment and Attachments. Any money judgment, writ or warrant of
------------------------
attachment, or similar process (other than those described in subsection 8.1(H))
involving (1) an amount in any individual case in excess of Five Hundred
Thousand Dollars ($500,000) or (2) an amount in the aggregate at any time in
excess of Five Hundred Thousand Dollars ($500,000) (in either case not
adequately covered by insurance as to which the insurance company has
acknowledged coverage) is entered or filed against Borrower or any of its
Material Subsidiaries or any of their respective assets and remains
undischarged, unvacated, unbonded or unstayed for a period of sixty (60) days or
in any event later than five (5) days prior to the date of any proposed levy
thereunder; or
(J) Dissolution. Any order, judgment or decree is entered against
-----------
Borrower or any of its Material Subsidiaries decreeing the dissolution or split
up of Borrower or that Subsidiary and such order remains undischarged or
unstayed for a period in excess of thirty (30) days; or
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(K) Solvency. Borrower or any of its Material Subsidiaries ceases to
--------
be Solvent or admits in writing its present or prospective inability to pay its
debts as they become due; or
(L) Injunction. Borrower or any of its Material Subsidiaries is
----------
enjoined, restrained or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting all or any material part of
its business and such order remains undischarged or unstayed for a period in
excess of thirty (30) days; or
(M) ERISA - Pension Plans. (1) Any Loan Party or any ERISA Affiliate
---------------------
fails to make full payment when due of all amounts which, under the provisions
of any Pension Plan or Section 412 of the IRC, any Loan Party or any ERISA
Affiliate is required to pay as contributions thereto and such failure results
in or is likely to result in a Material Adverse Effect; or (2) an accumulated
funding deficiency in excess of Five Hundred Thousand Dollars ($500,000) occurs
or exists, whether or not waived, with respect to any Pension Plan; or (3) an
ERISA Termination Event occurs which results in or which reasonably could be
expected to result in a Material Adverse Effect; or
(N) ERISA - Multiemployer Plans. Any Loan Party or any ERISA
---------------------------
Affiliate as employers under one or more Multiemployer Plans makes a complete or
partial withdrawal from such Multiemployer Plans and the plan sponsor of such
Multiemployer Plans notifies such withdrawing employer that such employer has
incurred a withdrawal liability requiring payments in an amount exceeding Five
Hundred Thousand Dollars ($500,000); or
(O) Invalidity of Loan Documents. Any of the Loan Documents for any
----------------------------
reason, other than a partial or full release in accordance with the terms
thereof, ceases to be in full force and effect or is declared to be null and
void, or any Loan Party denies that it has any further liability under any Loan
Documents to which it is party, or gives notice to Agent or any Lender to such
effect; or
(P) Damage, Strike, Casualty. Any material damage to, or loss, theft
------------------------
or destruction of, any Collateral, whether or not insured, or any strike,
lockout, labor dispute, embargo, condemnation, act of God or public enemy, or
other casualty which causes, for more than thirty (30) consecutive days beyond
the coverage period of any applicable business interruption insurance, the
cessation or substantial curtailment of revenue producing activities at any
facility of Borrower or any of its Material Subsidiaries if any such event or
circumstance has, or could reasonably be expected to have, a Material Adverse
Effect; or
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(Q) Licenses and Permits. The loss, suspension or revocation of, or
--------------------
failure to renew, any license or permit now held or hereafter acquired by
Borrower or any of its Material Subsidiaries, if such loss, suspension,
revocation or failure to renew could reasonably be expected to have a Material
Adverse Effect; or
(R) Failure of Security. Agent does not have or ceases to have a
-------------------
valid and perfected first priority security interest in any material portion of
the Collateral (subject to Permitted Encumbrances); or
(S) Change in Control. (i) Borrower shall cease to be a wholly-owned
-----------------
Subsidiary of Holdings; or (ii) Holdings shall cease to be a direct or indirect
Subsidiary of the Carmel Trust, a trust governed under the laws of Canada, other
than by virtue of a public offering of Holdings' Capital Stock or the Capital
Stock of any direct or indirect parent of Holdings;
(T) Tax Sharing Arrangement Letter. If CSK Group, Ltd. f/k/a NR
------------------------------
Holdings, Inc. defaults in respect of any representation, warranty, covenant or
agreement set forth in that certain Letter Agreement Concerning Tax Sharing
Arrangement, dated the Closing Date, and issued to Agent.
8.2. Suspension or Termination of Commitments
----------------------------------------
Upon the occurrence of any Event of Default and during its
continuance, Agent may, at its election, and will, at the direction of the
Requisite Lenders cease making additional Loans on behalf of all Lenders, cause
the Issuer to cease issuing Lender Letters of Credit, and suspend or terminate
all Commitments. In addition thereto, and without limitation of the foregoing,
upon any Default under subsection 8.1(A) and during its continuance, Agent may,
at its election, and will, at the direction of the Requisite Lenders, cease
making additional Loans on behalf of all Lenders, cause the Issuer to cease
issuing Lender Letters of Credit, and suspend all Commitments. Upon the
occurrence of any Event of Default described in either of the foregoing
subsections 8.1(F) or 8.1(G), all Commitments of the Lenders shall terminate
automatically.
8.3. Acceleration
------------
Upon the occurrence of any Event of Default described in the foregoing
subsections 8.1(F) or 8.1(G), the unpaid principal amount of and accrued
interest and fees on the Term Loan and the Revolving Loan, payments under the
Lender Letters of Credit and all other Obligations shall automatically become
immediately due and payable, without presentment, demand, protest, notice of
intent to accelerate, notice of acceleration or other
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requirements of any kind, all of which are hereby expressly waived by Borrower.
Upon the occurrence and during the continuance of any other Event of Default,
Agent may, and at the direction of the Requisite Lenders, Agent shall, by
written notice to Borrower (a) declare all or any portion of the Loans and all
or some of the other Obligations to be, and the same shall forthwith become,
immediately due and payable together with accrued interest thereon, and (b)
demand that Borrower immediately deposit with Issuer an amount equal to the
Lender Reimbursement Liability to enable Agent to make payments under the Lender
Letters of Credit when required and such amount shall become immediately due and
payable.
8.4. Performance by Agent.
--------------------
If Borrower shall fail to perform any covenant, duty or agreement
contained in any of the Loan Documents, Agent may perform or attempt to perform
such covenant, duty or agreement on behalf of Borrower after the expiration of
any cure or grace periods set forth herein. In such event, Borrower shall, at
the request of Agent, promptly pay any amount reasonably expended by Agent in
such performance or attempted performance to Agent, together with interest
thereon at the rate of interest in effect on Advances upon the occurrence of an
Event of Default as specified in subsection 2.2(A) from the date of such
expenditure until paid. Notwithstanding the foregoing, it is expressly agreed
that Agent shall not have any liability or responsibility for the performance of
any obligation of Borrower under this Agreement or any other Loan Document.
SECTION 9.
----------
ASSIGNMENT AND PARTICIPATION
----------------------------
9.1. Assignments and Participations in Loans and Notes
-------------------------------------------------
(A) Assignments. Each Lender may assign its rights and delegate its
-----------
obligations under this Agreement and the other Loan Documents to an Eligible
Purchaser (as that term is defined in subsection (D) below); provided, however,
-----------------
that no Lender may make any assignment of less than all of its Total Loan
Commitments unless, upon giving effect to such assignment, both the assigning
Lender and the Eligible Purchaser receiving such assignment have Total Loan
Commitments each aggregating at least Ten Million Dollars ($10,000,000) or ten
percent (10%) of Total Loan Commitments (whichever is the lesser amount), it
------
being understood and agreed among Lenders that, at all times hereafter, each
Lender, to remain a Lender, shall be obliged to hold Total Loan Commitments in
the afore said minimum amounts; nor, may any Lender assign any of its Revolving
Loan Commitment without at the same time assigning the same proportion of its
Term Loan Commitment (and vice versa). In the case of an assignment authorized
under this subsection 9.1, upon such
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assignment becoming effective, the Eligible Purchaser receiving such assignment,
shall have, to the extent of such assignment, the same rights, benefits and
obligations as it would if it were an original Lender hereunder, and the
assigning Lender shall be relieved of its obligations hereunder with respect to
its Commitment or assigned portion thereof. Borrower hereby acknowledges and
agrees that any such assignment will give rise to a direct obligation of
Borrower to the Eligible Purchaser receiving such assignment and that such
Eligible Purchaser, upon such assignment becoming effective, shall be considered
to be a "Lender" for all purposes of this Agreement and the Loan Documents.
Each Lender intending to make an assignment to an Eligible Purchaser pursuant
hereto shall notify the Agent and Borrower in writing thereof at least three (3)
Business Days prior to the intended effective date of such assignment, including
therein the name, notice address and lending office of such intended Eligible
Purchaser and the amount of the Commitments of such Lender intended to be
assigned. Borrower will, on the effective date of each such assignment, comply
with its obligations under Section 2.1(E) of this Agreement in respect of the
issuance of Notes to such Eligible Person and, as applicable, the assigning
Lender, upon the surrender of the assigning Lender's Notes.
(B) Participations. Each Lender may also sell participations in all
--------------
or any part of any Loans made by it to any Eligible Purchaser; provided,
---------
however, that (i) all amounts payable by Borrower hereunder shall be determined
- -------
as if that Lender had not sold such participation; and (ii) the holder of any
such participation shall not be entitled to require such Lender to take or omit
to take any action hereunder, except solely in respect of the forgiveness of
any principal amount of any Loan.
(C) No Relief from Obligations. Except as otherwise provided in this
--------------------------
subsection 9.1, no Lender shall, as between Borrower and that Lender, be
relieved of any of its obligations hereunder as a result of any sale,
assignment, transfer or negotiation of, or granting of participation in, all or
any part of the Loans, the Notes or other Obligations owed to such Lender. Each
Lender may furnish any information concerning Borrower and its Subsidiaries in
the possession of that Lender from time to time to assignees and participants
which are Eligible Purchasers (including prospective assignees and participants
which are Eligible Purchasers), subject to the provisions of subsection 10.22.
(D) Eligible Purchasers. For purposes of this subsection 9.1, an
-------------------
"Eligible Purchaser" shall be limited to the following: (i) a Lender or any
Affiliate thereof; (ii) a commercial bank having total assets in excess of
$1,000,000,000; (iii) a finance company, insurance company or other financial
institution, reasonably acceptable to the Agent, which is regularly engaged in
making, purchasing or investing in loans of the type made pursuant to this
Agreement and having total assets in excess of $1,000,000,000; (iv) a savings
and loan association or savings bank organized under the laws of the United
States or any state thereof which has a net worth, determined in accordance with
GAAP, in excess of $500,000,000;
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or (v) a finance company, insurance company, bank or other financial institution
not otherwise described in clauses (i) through (iv) above reasonably acceptable
to the Agent and Borrower; provided, however, that neither Borrower nor an
-----------------
Affiliate of a Borrower shall qualify as an Eligible Purchaser under this
definition; provided, further, that Borrower shall have the independent right to
-----------------
approve or disapprove as an "Eligible Purchaser" any fund or any Person listed
on Exhibit 9.1 attached hereto or any of its Affiliates.
-----------
9.2. Agent
-----
(A) Appointment. Each Lender hereby designates and appoints TBCC as
-----------
its Agent under this Agreement and the Loan Documents, and each Lender hereby
irrevocably authorizes Agent to take such action or to refrain from taking such
action on its behalf under the provisions of this Agreement and the Loan
Documents and to exercise such powers as are set forth herein or therein,
together with such other powers as are reasonably incidental thereto. Agent is
authorized and empowered to amend, modify, or waive any provisions of this
Agreement or the other Loan Documents on behalf of Lenders subject to the
requirement that certain of Lenders' consents be obtained in certain instances
as provided in subsection 9.3. Agent agrees to act as such on the express
conditions contained in this subsection 9.2. Except as otherwise expressly set
forth herein, the provisions of this subsection 9.2 are solely for the benefit
of Agent and Lenders and neither Borrower nor any Loan Party shall have any
rights as a third party beneficiary of any of the provisions hereof. In
performing its functions and duties under this Agreement, Agent shall act solely
as agent of Lenders and does not assume and shall not be deemed to have assumed
any obligation toward or relationship of agency or trust with or for Borrower or
any Loan Party. Agent may perform any of its duties hereunder, or under the
Loan Documents, by or through its agents or employees.
(B) Nature of Duties. Agent shall have no duties or responsibilities
----------------
except those expressly set forth in this Agreement or in the Loan Documents.
The duties of Agent shall be mechanical and administrative in nature. Agent
shall not have by reason of this Agreement a fiduciary relationship in respect
of any Lender. Nothing in this Agreement or any of the Loan Documents, express
or implied, is intended to or shall be construed to impose upon Agent any
obligations in respect of this Agreement or any of the Loan Documents except as
expressly set forth herein or therein. Each Lender shall make its own
independent investigation of the financial condition and affairs of Borrower in
connection with the extension of credit hereunder and shall make its own
appraisal of the credit worthiness of Borrower, and Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any Lender
with any credit or other information with respect thereto, whether coming into
its possession before the Closing Date hereunder or at any time or times
thereafter. If Agent seeks the consent or approval of any Lenders to the taking
or refraining from taking any action hereunder, then Agent shall send notice
thereof to each
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Lender. Agent shall promptly notify each Lender any time that the Requisite
Lenders have instructed Agent to act or refrain from acting pursuant hereto.
(C) Rights, Exculpation, Etc. Neither Agent nor any of its officers,
-------------------------
directors, employees or agents shall be liable to any Lender for any action
taken or omitted by them hereunder or under any of the Loan Documents, or in
connection herewith or therewith, except that Agent shall be obligated on the
terms set forth herein for performance of its express obligations hereunder, and
except that Agent shall be liable to each Lender with respect to its own gross
negligence or willful misconduct and the gross negligence or willful misconduct
of its officers, directors, employees and agents. In performing its functions
and duties hereunder, Agent shall exercise the same care which it would in
dealing with loans for its own account, but Agent shall not be responsible to
any Lender for any recitals, statements, representations or warranties herein or
for the execution, effectiveness, genuine ness, validity, enforceability,
collectibility, or sufficiency of this Agreement or any of the Loan Documents or
the transactions contemplated thereby, or for the financial condition of any
Loan Party. Agent shall not be required to make any inquiry concerning either
the performance or observance of any of the terms, provisions or conditions of
this Agreement or any of the Loan Documents or the financial condition of any
Loan Party, or the existence or possible existence of any Default or Event of
Default. Agent may at any time request instructions from Lenders with respect
to any actions or approvals which by the terms of this Agreement or of any of
the Loan Documents Agent is permitted or required to take or to grant, and if
such instructions are promptly requested, Agent shall be absolutely entitled to
refrain from taking any action or to withhold any approval and shall not be
under any liability whatsoever to any Person for refraining from any action or
withholding any approval under any of the Loan Documents until it shall have
received such instructions from the Requisite Lenders or all the Lenders, as
applicable. Without limiting the foregoing, no Lender shall have any right of
action whatsoever against Agent as a result of Agent acting or refraining from
acting under this Agreement, the Notes, or any of the other Loan Documents in
accordance with the instructions of Requisite Lenders.
(D) Reliance. Agent shall be entitled to rely upon any written
--------
notices, statements, certificates, orders or other documents or any telephone
message or other communication (including any writing, telex, telecopy or
telegram) believed by it in good faith to be genuine and correct and to have
been signed, sent or made by the proper Person, and with respect to all matters
pertaining to this Agreement or any of the Loan Documents and its duties
hereunder or thereunder, upon advice of counsel selected by it. Agent shall be
entitled to rely upon the advice of legal counsel, independent accountants, and
other experts selected by Agent in its sole discretion.
(E) Indemnification. If and to the extent not reimbursed to Agent and
---------------
Issuer by any Loan Party, Lenders will reimburse and indemnify Agent for and
against any
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and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses, advances or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against
Agent or any Issuer in any way relating to or arising out of this Agreement or
any of the Loan Documents or any action taken or omitted by Agent or any Issuer
under this Agreement for any of the Loan Documents, in proportion to each
Lender's Pro Rata Share; provided, however, that no Lender shall be liable for
-----------------
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses, advances or disbursements resulting
from Agent's or, as the case may be, any Issuer's gross negligence or willful
misconduct. The obligations of Lenders under this subsection 9.2(E) shall
survive the payment in full of the Obligations and the termination of this
Agreement.
(F) Agent Individually. With respect to its Total Loan Commitment,
------------------
any Loans made by it, and any Notes issued to it, Agent shall have and may
exercise the same rights and powers hereunder and is subject to the same
obligations and liabilities as and to the extent set forth herein for any other
Lender. The terms "Lenders" or "Requisite Lenders" or any similar terms shall,
unless the context clearly otherwise indicates, include Agent in its individual
capacity as a Lender or one of the Requisite Lenders. Agent may lend money to,
and generally engage in any kind of banking, trust or other business with any
Loan Party as if it were not acting as Agent pursuant hereto.
(G) Successor Agent.
---------------
(1) Resignation. If, at any time hereafter, Agent so elects,
-----------
the Agent may resign as Agent, and if a receiver, trustee or custodian is
appointed for Agent or for all or substantially all of the Agent's property,
then, the Requisite Lenders or Borrower may require that the Agent resign as
Agent, in each case by giving at least thirty (30) Business Days' prior written
notice to the Lenders and, as applicable, Borrower. In either event, such
resignation shall take effect upon the acceptance by a successor Agent of
appointment pursuant to clause (2) below or as otherwise provided below.
(2) Appointment of Successor. Upon any such notice of
------------------------
resignation being given pursuant to clause (G)(1) above, the Requisite Lenders
shall, upon receipt of Borrower's prior consent which shall not unreasonably be
withheld, delayed or conditioned, appoint a successor Agent from among the
Lenders. If a successor Agent shall not have been so appointed within said
thirty (30) Business Day period, the retiring Agent, upon notice to Borrower,
shall then appoint a successor Agent from among the Lenders who shall serve as
Agent until such time, if any, as Requisite Lenders, upon receipt of Borrower's
prior written consent which shall not be unreasonably withheld, appoint a
successor Agent from among the Lenders as provided above.
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(3) Successor Agent. Upon the acceptance of any appointment as Agent
---------------
under the Loan Documents by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations under the Loan Documents. After any retiring
Agent's resignation as Agent under the Loan Documents, the provisions of this
subsection 9.2 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Agent under the Loan Documents.
(H) Collateral Matters.
------------------
(1) Release of Collateral. Lenders hereby irrevocably authorize
---------------------
Agent, at its option and in its discretion, to release any Lien granted to or
held by Agent upon any property covered by the Security Documents: (i) upon
termination of the Commitments and, in connection therewith, the termination of
all Lender Letters of Credit (or the provision of cash collateral in regard
thereto, if required pursuant to subsection 2.4(F)) and the full payment and
satisfaction of all Obligations (other than Inchoate Indemnity Obligations); or
(ii) constituting property being sold or disposed of if Borrower certifies to
Agent that the sale or disposition is made in compliance with the provisions of
this Agreement (and Agent may rely in good faith conclusively on any such
certificate, without further inquiry); or (iii) constituting property leased to
Borrower under a lease which has expired or been terminated in a transaction
permitted under this Agreement or is about to expire and which has not been, and
is not intended by Borrower to be, renewed or extended. Lenders hereby further
irrevocably authorize Agent, at its option and in its discretion, to acknowledge
and agree in writing that (i) the Lien (if any) granted to or held by the Agent
pursuant to the Security Documents upon any equipment leased by Borrower, as
lessee, under a Capital Lease or an operating lease permitted pursuant to this
Agreement, or the purchase of which is financed by Borrower using Purchase Money
Indebtedness permitted pursuant to this Agreement, is subordinate to the Lien on
such equipment of the lessor under such lease or the issuer of Purchase Money
Indebtedness and/or (ii) the Lien granted to or held by the Agent pursuant to
the Security Documents upon those assets or property of Borrower related to the
New Distribution Center Property described on Schedule 1.1(E) hereof is
---------------
subordinate to the Lien on such property of an issuer of New Distribution Center
Property Debt permitted to be incurred by Borrower pursuant to the terms of this
Agreement. Upon request by Agent at any time, any Lender will confirm in
writing Agent's authority to release or subordinate its Lien upon particular
types or items of property covered by the Security Documents pursuant to this
subsection 9.2(H)(1).
(2) Confirmation of Authority; Execution of Releases and
----------------------------------------------------
Subordination. Without in any manner limiting Agent's authority to act without
- -------------
any specific or further authorization or consent by Requisite Lenders (as set
forth in subsection
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9.2(H)(1)), each Lender agrees to confirm in writing, upon request by Borrower,
the authority to release any property covered by the Security Documents
conferred upon Agent under clauses (i) through (iii) of the first sentence of
subsection 9.2(H)(1), and the authority to subordinate its Lien in property
covered by the Security Documents conferred upon Agent under the second sentence
of subsection 9.2(H)(1). Prior to any termination of this Agreement, so long as
no Event of Default has occurred and is then continuing, upon receipt by Agent
of confirmation from the Requisite Lenders of its authority to release, or
subordinate its Lien in, any particular item or types of property covered by the
Security Documents, and upon at least five (5) Business Days prior written
request by Borrower, Agent shall (and is hereby irrevocably authorized by
Lenders to) execute such documents as may be necessary to evidence the release
or subordination, as applicable, of the Liens granted to Agent for the benefit
of Lenders herein or pursuant hereto upon such Collateral; provided, however,
-------- -------
that (i) Agent shall not be required to execute any such document on terms
which, in Agent's opinion, would expose Agent to liability or create any
obligation or entail any consequence other than the release or subordination of
such Liens without recourse or warranty, and (ii) such release or subordination
shall not in any manner discharge, affect or impair the Obligations or any Liens
upon (or obligations of any Loan Party, in respect of), all interests retained
by any Loan Party, including (without limitation) the proceeds of any sale, all
of which shall continue to constitute part of the property covered by the
Security Documents. The foregoing shall not apply, however, in respect of the
release of any security interest or Lien by Agent, on behalf of Lenders, in
connection with a termination of this Agreement, which shall be governed
exclusively by subsections 2.5 and 9.2(H)(1).
(3) Absence of Duty. Agent shall have no obligation whatsoever to any
---------------
Lender or any other Person to assure that the property covered by the Security
Documents exists or is owned by Borrower or is cared for, protected or insured
or has been encumbered or that the Liens granted to Agent herein or pursuant
hereto have been properly or sufficiently or lawfully created, perfected,
protected or enforced or are entitled to any particular priority, or to exercise
at all or in any particular manner or under any duty of care, disclosure or
fidelity, or to continue exercising, any of the rights, authorities and powers
granted or available to Agent in this subsection 9.2(H) or in any of the Loan
Documents, it being understood and agreed that in respect of the property
covered by the Security Documents or any act, omission or event related thereto,
Agent may act in any manner it may deem appropriate, in its discretion, given
Agent's own interest in property covered by the Security Documents as one of the
Lenders and that Agent shall have no duty or liability whatsoever to any of the
other Lenders; provided that Agent shall exercise the same care which it would
in dealing with loans for its own account.
(I) Agency for Perfection. Each Lender hereby appoints each other
---------------------
Lender as agent for the purpose of perfecting Lenders' security interest in
assets which, in accordance with Article 9 of the Uniform Commercial Code in any
---------
applicable jurisdiction,
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can be perfected only by possession. Should any Lender (other than Agent)
obtain possession of any such Collateral, such Lender shall notify Agent
thereof, and, promptly upon Agent's request therefor, shall deliver such
Collateral to Agent or in accordance with Agent's instructions. Each Lender
agrees that it will not have any right individually to enforce or seek to
enforce any Security Document or to realize upon any collateral security for the
Loans, it being understood and agreed that such rights and remedies may be
exercised only by Agent.
9.3. Amendments, Consents and Waivers for Certain Actions
----------------------------------------------------
Except as otherwise provided in subsection 9.2(H)(1), in subsection
10.3 and except as to matters set forth in other subsections hereof as requiring
only Agent's consent, the consent of Requisite Lenders will be required to
amend, modify, terminate, or waive any provision of this Agreement, including,
but not limited to, any amendment, modification, termination, or waiver with
regard to Sections 6 and 7.
9.4. Set Off and Sharing of Payments
-------------------------------
In addition to any rights now or hereafter granted under applicable
law and not by way of limitation of any such rights, upon the occurrence and
during the continuance of any Event of Default, each Lender and each holder of
any Note is hereby authorized by Borrower at any time or from time to time, with
reasonably prompt subsequent notice to Borrower or to any other Person (any
prior or contemporaneous notice being hereby expressly waived) to set off and
to appropriate and to apply any and all (A) balances held by such Lender or such
holder at any of its offices for the account of Borrower or any of its
Subsidiaries (regardless of whether such balances are then due to Borrower or
its Subsidiaries), and (B) other property at any time held or owing by such
Lender or such holder to or for the credit or for the account of Borrower or
any of its Subsidiaries, against and on account of any of the Obligations which
are not paid when due; except that no Lender or any such holder shall exercise
any such right without the prior written consent of the Agent. Any Lender or
holder of any Note having a right to set off shall, to the extent the amount of
any such set off exceeds its Pro Rata Share of the Obligations, purchase for
cash (and the other Lenders or holders shall sell) participations in each such
other Lender's or holder's Pro Rata Share of the Obligations as would be
necessary to cause such Lender to share such excess with each other Lender or
holder in accordance with their respective Pro Rata Shares. Borrower agrees, to
the fullest extent permitted by law, that (a) any Lender or holder may exercise
its right to set off with respect to amounts in excess of its Pro Rata Share of
the Obligations and may sell participations in such excess to other Lenders and
holders, and (b) any Lender or holder so purchasing a participation in the Loans
made or other Obligations held by other Lenders or holders may exercise all
rights of set-off, bankers' lien, counterclaim or similar rights with respect to
such participation as fully as if such Lender or
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holder were a direct holder of Loans and other Obligations in the amount of such
participation.
9.5. Disbursement of Funds
---------------------
Agent may, on behalf of Lenders, disburse funds to Borrower for Loans
requested. Each Lender shall reimburse Agent on demand by 2:00 p.m. (Chicago
time) on the Business Day of demand for all funds disbursed on its behalf by
Agent (provided that if such demand is made on a day when such Lender is
authorized to close for business under the laws of the State in which it is
located and such Lender is, in fact, closed for business, such payment may be
made on the immediately succeeding Business Day), or if Agent so requests, each
Lender will remit to Agent its Pro Rata Share of any Loan before Agent disburses
same to Borrower. If any Lender fails to pay the amount of its Pro Rata Share
within one (1) Business Day after its receipt of Agent's demand in accordance
with the preceding sentence, Agent shall promptly notify Borrower, and Borrower
shall immediately repay such amount to Agent. Pending Agent's receipt of such
amount from Borrower, such Lender shall remain obligated to Agent for
reimbursement of such amount together with accrued interest thereon at the
Federal Funds Rate from the date of Agent's disbursement of such amount until
paid. Any repayment required pursuant to this subsection 9.5 shall be without
premium or penalty. Nothing in this subsection 9.5 or elsewhere in this
Agreement or the other Loan Documents, including without limitation the
provisions of subsection 9.6, shall be deemed to require Agent to advance funds
on behalf of any Lender or to relieve any Lender from its obligation to fulfill
its Commitments hereunder or to prejudice any rights that Agent or Borrower may
have against any Lender as a result of any default by such Lender hereunder.
9.6. Disbursements of Advances, Payments and Information
---------------------------------------------------
(A) Revolving Loan Advances and Payments; Fee Payments
--------------------------------------------------
(1) The Revolving Loan balance may fluctuate from day to day
through Agent's disbursement of funds to, and receipt of funds from, Borrower.
In order to minimize the frequency of transfers of funds between Agent and each
Lender, notwithstanding any terms to the contrary set forth in Section 2,
Advances constituting Alternate Base Rate Loans and payments of principal and
interest thereon will be settled according to the procedures described in
subsections 9.6(A)(2) and 9.6(A)(3) of this Agreement. All other payments of
principal, interest and fees hereunder, including, without limitation, in
respect of any Advances constituting Eurodollar Rate Loans and the Term Loan,
will be settled on the first Business Day after the Business Day received in
accordance with the provisions of Section 2. Notwithstanding these special
procedures as to Advances constituting Alternate Base Rate Loans, each Lender's
obligation to fund its portion of any
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Advances made by Agent to Borrower will commence on the date such Advances are
made by Agent. Such payments will be made by such Lender without set-off,
counterclaim or reduction of any kind.
(2) By not later than 11:00 a.m. (Atlanta time) on the second Business
Day of each week, or more frequently (including daily), if Agent so elects (each
such day being a "Settlement Date"), Agent will advise each Lender by telephone,
---------------
telex, or telecopy of the amount of each such Lender's Pro Rata Share of
Advances constituting Alternate Base Rate Loans as of the close of business of
the Business Day immediately preceding the Settlement Date. In the event that
payments are necessary to adjust the amount of such Lender's Pro Rata Share of
Advances constituting Alternate Base Rate Loans to such Lender's Pro Rata Share
of Advances constituting Alternate Base Rate Loans as of any Settlement Date,
the party from which such payment is due will pay the other, in same day funds,
by wire transfer to the other's account not later than 2:00 p.m. (Chicago time)
on the Settlement Date. Notwithstanding the foregoing, if Agent so elects, Agent
may require that each Lender make its Pro Rata Share of any requested Advance
constituting an Alternate Base Rate Loan available to Agent for disbursement on
the Funding Date applicable to such Loan. If Agent elects to require that such
funds be made available, Agent shall advise each Lender by telephone, telex or
telecopy of the amount of such Lender's Pro Rata Share of such requested Loan no
later than 11:00 a.m. (Atlanta time) on the Funding Date applicable thereto, and
each such Lender shall pay Agent such Lender's Pro Rata Share of such requested
Loan, in same day funds, by wire transfer to Agent's account not later than 2:00
p.m. (Chicago time) on such Funding Date.
(3) For purposes of this subsection 9.6(A)(3), the following terms
and conditions will have the meanings indicated:
(a) "Daily Loan Balance" means an amount calculated as of the end of
------------------
each calendar day by subtracting (i) the cumulative principal amount paid by
Agent to a Lender on an Advance constituting an Alternate Base Rate Loan from
the Closing Date through and including such calendar day, from (ii) the
cumulative principal amount advanced by such Lender to Agent on that Loan from
the Closing Date through and including such calendar day.
(b) "Daily Interest Rate" means an amount calculated by dividing the
--------------------
interest rate payable to a Lender on an Advance constituting an Alternate Base
Rate Loan (as set forth in subsection 2.2) as of each calendar day by three
hundred sixty (360).
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(c) "Daily Interest Amount" means an amount calculated by multiplying
---------------------
the Daily Loan Balance of an Advance constituting an Alternate Base Rate Loan by
the associated Daily Interest Rate on that Loan.
(d) "Interest Ratio" means a number calculated by dividing the total
--------------
amount of the interest on an Advance constituting an Alternate Base Rate Loan
received by Agent during the immediately preceding month by the total amount of
interest on that Loan due from Borrower during the immediately preceding month.
On the first Business Day of each calendar month ("Interest Settlement Date"),
------------------------
Agent will advise each Lender by telephone, telex, or telecopy of the amount of
such Lender's Pro Rata Share of interest on Advances constituting Alternate Base
Rate Loans as of the end of the last day of the immediately preceding calendar
month. Agent will pay to such Lender by wire transfer to such Lender's account
(as specified by such Lender from time to time after the date hereof pursuant to
the notice provisions contained herein or in the applicable Lender Addition
Agreement) not later than 2:00 p.m. (Chicago time) on the Interest Settlement
Date, such Lender's Pro Rata Share of interest on such Advances constituting
Alternate Base Rate Loans. Such Lender's Pro Rata Share of interest on each
such Loan will be calculated for that Loan by adding together the Daily Interest
Amounts for each calendar day of the prior month for that Loan and multiplying
the total thereof by the Interest Ratio for such Loan.
(B) Availability of Lender's Pro Rata Share.
---------------------------------------
(1) Unless Agent has been notified by a Lender prior to a Funding Date
of such Lender's intention not to fund its Pro Rata Share of the Loan amount
requested by Borrower, Agent may assume that such Lender will make such amount
available to Agent on the Settlement Date. If such amount is not, in fact, made
available to Agent by such Lender when due, Agent will be entitled to recover
such amount on demand from such Lender without set-off, counterclaim or
deduction of any kind.
(2) Nothing contained in this subsection 9.6(B) will be deemed to
relieve a Lender of its obligation to fulfill its Commitments or to prejudice
any rights Agent or Borrower may have against such Lender as a result of any
default by such Lender under this Agreement.
(3) Without limiting the generality of the foregoing, each Lender
shall be obligated to fund its Pro Rata Share of any Revolving Loan made after
any acceleration of the Obligations with respect to any draw on a Lender Letter
of Credit.
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<PAGE>
(C) Return of Payments
------------------
(1) If Agent pays an amount to a Lender under this Agreement in the
belief or expectation that a related payment has been or will be received by
Agent from Borrower and such related payment is not received by Agent, then
Agent will be entitled to recover such amount from such Lender without set-off,
counterclaim or deduction of any kind.
(2) If Agent determines at any time that any amount received by Agent
under this Agreement must be returned to Borrower or paid to any other person
pursuant to any solvency law or otherwise, then, notwithstanding any other term
or condition of this Agreement, Agent will not be required to distribute any
portion thereof to any Lender. In addition, each Lender will repay to Agent on
demand any portion of such amount that Agent has distributed to such Lender,
together with interest at such rate, if any, as Agent is required to pay to
Borrower or such other Person, without set-off, counterclaim or deduction of any
kind.
(D) Dissemination of Information
----------------------------
Agent will use its best efforts to provide Lenders with any information
received by Agent from Borrower which is required to be provided to a Lender
hereunder; provided, however, that Agent shall not be liable to Lenders for any
failure to do so, except to the extent that such failure is attributable to
Agent's gross negligence or willful misconduct.
9.7. Defaulting Lender's Status
--------------------------
Notwithstanding anything contained herein to the contrary, but in
addition to provisions regarding the failure of a Lender to perform its
obligations hereunder set forth elsewhere in this Agreement, so long as any
Lender shall be in default in its obligation to fund its Pro Rata share of any
Loan or shall have repudiated its Commitment, then, such Lender shall not be
entitled to receive any payments of interest on its Loans or its share of any
Commitment or other fees payable hereunder, and solely for purposes of voting or
consenting to matters with respect to this Agreement, such Lender shall be
deemed not to be a "Lender" hereunder and such Lender's Commitment shall be
deemed to be zero ($0), unless and until (a) all other Obligations have been
fully paid and satisfied, (b) such failure to fulfill its obligation to fund is
cured and such Lender shall have paid, as and to the extent provided in this
Agreement, to the applicable party, such amount then owing together with
interest on the amount of funds that such Lender failed to timely fund at the
interest rate prescribed therefor herein, or (c) the Obligations shall have been
declared (or otherwise shall have become) immediately due and payable and/or the
Commitments shall have been terminated.
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No Commitment of any Lender shall be increased or otherwise affected by any such
failure or rejection by any Lender in any event, however.
SECTION 10.
-----------
MISCELLANEOUS
-------------
10.1. Expenses and Attorneys' Fees
----------------------------
Whether or not the transactions contemplated hereby shall be
consummated, Borrower agrees to promptly pay all reasonable fees, costs and
expenses incurred by Agent and, where expressly so indicated below, the Lenders
in connection with any matters contemplated by or arising out of this Agreement
or the other Loan Documents including the following, and all such reasonable
fees, costs and expenses shall be part of the Obligations, payable on demand and
secured by the Collateral: (a) reasonable fees, costs and expenses (including
attorneys' fees, allocated costs of internal counsel and fees of environmental
consultants, industry consultants, accountants and other professionals retained
by Agent) incurred by the Agent in connection with the examination, review, due
diligence investigation, documentation and closing of the financing arrangements
evidenced by the Loan Documents; (b) reasonable fees, costs and expenses
(including reasonable attorneys' fees, allocated costs of internal counsel and
fees of environmental consultants, industry consultants, accountants and other
professionals retained by Agent) incurred by the Agent in connection with the
negotiation, preparation, execution, syndication and administration of the Loan
Documents, the Loans, and any amendments, modifications and waivers relating
thereto; (c) reasonable fees, costs and expenses incurred by the Agent in
creating, perfecting and maintaining perfection of Liens in favor of Agent, on
behalf of Lenders, pursuant to any Loan Document, including lien search fees,
filing and recording fees, taxes and expenses, title insurance policy fees,
reasonable fees and expenses of attorneys for providing such opinions as Agent
may reasonably request and fees and expenses of attorneys to Agent; (d)
reasonable fees, costs and expenses (including reasonable attorneys' fees and
allocated costs of internal counsel) incurred by the Agent in connection with
the review, documentation, negotiation, closing and administration of any
subordination or intercreditor agreements; (e) customary fees, costs and
expenses incurred by the Agent in connection with forwarding to Borrower the
proceeds of Loans including Agent's standard wire transfer fee; (f) actual fees,
costs, expenses and bank charges, including bank charges for returned checks,
incurred by Agent in establishing, maintaining and handling lock box accounts,
blocked accounts or other accounts for collection of the Collateral; (g) actual
fees, costs, expenses and bank charges incurred by any Issuer in establishing,
maintaining and administering Lender Letters of Credit; (h) reasonable fees,
costs, expenses (including reasonable attorneys' fees and allocated costs of
internal counsel) and costs of settlement incurred by the Agent in collecting
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upon or enforcing rights against the Collateral; and (i) reasonable fees, costs
and expenses (including reasonable attorneys' fees, allocated costs of internal
counsel and fees of other professionals retained by Agent or any Lender)
incurred by the Agent or any Lender in any action to enforce or defend this
Agreement or the other Loan Documents or to collect any payments due from
Borrower or any other Loan Party under this Agreement, the Notes or any other
Loan Document or incurred in connection with any refinancing or restructuring of
the credit arrangements provided under this Agreement, whether in the nature of
a "workout" or in connection with any insolvency or bankruptcy proceedings or
otherwise. Borrower hereby authorizes and directs Agent, at Agent's option, to
debit the Loan Account (by increasing the principal balance of the Revolving
Loan) in the amount of any such fees and expenses when due.
10.2. Indemnity
---------
In addition to the payment of expenses pursuant to subsection 10.1,
whether or not the transactions contemplated hereby shall be consummated,
Borrower agrees to indemnify, pay and hold Agent, Issuer, each Lender and any
holder of any of the Notes, and the officers, directors, employees, agents,
affiliates and attorneys of Agent, each Lender and such holders (collectively
called the "Indemnitees") harmless from and against any and all liabilities,
-----------
obligations, losses, damages, penalties, actions, judgments, suits, claims, Tax
Liabilities, and reasonable broker's or finders fees, costs, expenses and
disbursements of any kind or nature whatsoever (including the reasonable fees
and disbursements of counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not such Indemnitee shall be designated a party thereto) that may be
imposed on, incurred by, or asserted against that Indemnitee, in respect of any
third party claim in any manner relating to or arising out of (a) the
negotiation, execution, delivery, performance, administration, or enforcement
of any of the Loan Documents, (b) any of the transactions contemplated by the
Loan Documents, (c) any breach by Borrower or any other Loan Party of any
representation, warranty, covenant, or other agreement contained in any of the
Loan Documents, (d) the presence, release, threatened release, disposal,
removal, or cleanup of any Hazardous Material located on, about, within or
affecting any of the properties or assets of any Loan Party or any of their
Subsidiaries or any violation of any applicable Environmental Law for which any
Loan Party is liable, (e) the use or proposed use of any Lender Letter of
Credit, (f) any and all taxes, levies, deductions, and charges imposed on Agent
or a Lender or any of Agent's or a Lender's correspondents in respect of any
Lender Letter of Credit, (g) the statements contained in the commitment letters,
if any, delivered by any Lender, (h) any Lender's agreement to make the Loans
hereunder (excepting any disputes among Lenders inter sese), or (i) the use or
intended use of the proceeds of any of the Loans (the foregoing liabilities
herein collectively referred to as the "Indemnified Liabilities"); provided,
----------------------- --------
however, that Borrower shall have no obligation to an Indemnitee hereunder with
- -------
respect to Indemnified Liabilities arising from
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the gross negligence or willful misconduct of that Indemnitee as determined by a
court of competent jurisdiction and no obligation to any Indemnitee in respect
of disputes among Indemnitees inter sese. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, Borrower
shall contribute the maximum portion that it is permitted to pay and satisfy
under applicable law to the payment and satisfaction of all Indemnified
Liabilities incurred by the Indemnitees or any of them.
10.3. Amendments and Waivers
----------------------
Except as otherwise provided herein, no amendment, modification,
termination or waiver of any provision of this Agreement, the Notes or any other
Loan Document, or consent to any departure by any Loan Party therefrom, shall in
any event be effective unless the same shall be in writing and signed by the
Requisite Lenders or Agent, as applicable, and the applicable Loan Party;
provided, however, that, no amendment, modification, termination or waiver
- -------- -------
shall, unless in writing and signed by all Lenders, Agent and the applicable
Loan Party do any of the following: (a) except to the extent effected by any
assignment permitted under subsection 9.1, change the Commitment of any Lender
or increase the Total Loan Commitments of the Lenders; (b) forgive all or any of
the principal amount of, reduce the rate of interest on, or reduce the fees
payable with respect to, any Loan; (c) extend or postpone any scheduled maturity
date for the payment of the principal amount of any Loan; (d) change the
percentage of the Commitments or of the aggregate unpaid principal amount of the
Loans, or the percentage of Lenders which shall be required for Lenders or any
of them to take any action hereunder; (e) release Collateral (except if the sale
or disposition of such Collateral is permitted under subsection 9.2 or any other
Loan Document) or any Loan Party from any liabilities; (f) increase the
effective amount of the Borrowing Base, by either (1) increasing the advance
rate against Eligible Inventory above sixty percent (60%) or (2) adding any
assets or property of Borrower other than Eligible Inventory to the Borrowing
Base; (g) modify any provisions of subsection 2.1(B) in respect of Permitted
Overadvances in order to increase the effective amount thereof or extend the due
date for their full payment; (h) amend or waive this subsection 10.3 or the
definitions of any terms used in this subsection 10.3 insofar as the definitions
affect the substance of this subsection 10.3; or (i) consent to the assignment
or other transfer by any Loan Party of any of its rights and obligations under
any Loan Document; and provided, further, that no amendment, modification,
-------- -------
termination or waiver affecting the rights or duties of Agent under any Loan
Document shall in any event be effective, unless in writing and signed by Agent,
in addition to Lenders required hereinabove to take such action. Each
amendment, modification, termination or waiver shall be effective only in the
specific instance and for the specific purpose for which it was given. No
amendment, modification, termination or waiver shall be required for Agent to
take additional Collateral pursuant to any Loan Document. No amendment,
modification, termination or waiver of any provision of any Note shall be
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<PAGE>
effective without the written concurrence of the holder of that Note. No notice
to or demand on Borrower or any other Loan Party in any case shall entitle
Borrower or any other Loan Party to any other or further notice or demand in
similar or other circumstances. Any amendment, modification, termination,
waiver or consent effected in accordance with this subsection 10.3 shall be
binding upon each holder of the Notes at the time outstanding, each future
holder of the Notes, and, if signed by a Loan Party, on such Loan Party.
10.4. Retention of Borrower's Documents
---------------------------------
Agent and any Lender may, in accordance with Agent's or such Lender's
customary practices, destroy or otherwise dispose of all documents, schedules,
invoices or other papers, delivered by any Loan Party to Agent or such Lender
unless Borrower requests in writing that same be returned. Upon Borrower's
request and at Borrower's expense, Agent or such Lender shall return such papers
when Agent's or such Lender's actual or anticipated need for same has
terminated.
10.5. Notices
-------
Unless otherwise specifically provided herein, any notice or other
communication required or permitted to be given shall be in writing addressed to
the respective party as set forth below and may be personally served,
telecopied, telexed or sent by overnight courier service or United States mail
and shall be deemed to have been given: (a) if delivered in person, when
delivered; (b) if delivered by telecopy or telex, on the date of transmission if
transmitted before 4:00 p.m. (Chicago time) on a Business Day or, if not, on the
next succeeding Business Day; (c) if delivered by overnight courier, two (2)
Business Days after delivery to such courier properly addressed; or (d) if by
U.S. Mail, five (5) Business Days after depositing in the United States mail,
with postage prepaid and properly addressed.
Notices shall be addressed as follows:
If to Borrower: Northern Automotive Corporation
645 East Missouri Avenue Suite 400
Phoenix, Arizona 85012
Attn: James G. Bazlen
Telecopy No.: (602) 234-1713
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<PAGE>
with a copy, in the Parker Chapin Flattau & Klimpl, LLP
case of any notice of 1211 Avenue of the Americas
a Default or Event of New York, New York 10036
Default, to: Attn: Mark S. Hirsch, Esq.
Telecopy No.: (212) 704-6288
and with a copy, in the The Trump Group
case of any notice of Four Stage Coach Run
a Default or Event of East Brunswick, New Jersey 08816
Default, to: Attn: James M. Lieb, Esq.
Telecopy No.: (908) 390-3319
If to Agent or to TBCC: Transamerica Business Credit
Corporation
Two Ravinia Drive, Suite 700
Atlanta, Georgia 30346
Attn: Jeffrey S. Carbery,
Senior Account Executive
Telecopy No.: (404) 390-7017
with a copy, in the
case of any notice of
a Default or Event of
Default, to: King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: Gerald T. Woods, Esq.
Telecopy No.: (404) 572-5149
or to such other address as the party addressed shall have previously designated
by written notice to the serving party, given in accordance with this subsection
10.5. A notice not given as provided above shall, if it is in writing, be
deemed given if and when actually received by the party to whom given.
10.6. Survival of Warranties and Certain Agreements
---------------------------------------------
All agreements, representations and warranties made herein shall
survive the execution and delivery of this Agreement, the making of the Loans
hereunder and the execution and delivery of the Notes. Notwithstanding anything
in this Agreement or implied by law to the contrary, all Inchoate Indemnity
Obligations and the agreements of Borrower with respect thereto and otherwise
set forth in subsections 2.2(H), 2.8, 2.9, 10.1, 10.2 and 10.16 and the
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agreements of Lenders set forth in subsection 9.3 shall survive the payment of
the Loans and the termination of this Agreement. Subject to subsection 10.8, all
other representations, warranties and agreements of Borrower, Agent and Lenders
set forth in this Agreement shall terminate upon payment of the Loans and the
termination of this Agreement.
10.7. Failure or Indulgence Not Waiver; Remedies Cumulative
-----------------------------------------------------
No failure or delay on the part of any Lender or any holder of any
Note in the exercise of any power, right or privilege hereunder or under the
Notes or any other Loan Document shall impair such power, right or privilege or
be construed to be a waiver of any default or acquiescence therein, nor shall
any single or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing under this Agreement, the Notes and the other Loan
Documents are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
10.8. Marshaling; Payments Set Aside
------------------------------
Neither Agent nor any Lender shall be under any obligation to marshal
any assets in favor of any Loan Party or any other party or against or in
payment of any or all of the Obligations. To the extent that any Loan Party
makes a payment or payments to Agent and/or any Lender, or Agent and/or any
Lender enforce their security interests or exercise their rights of setoff, and
such payment or payments or the proceeds of such enforcement or setoff or any
part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver or
any other party under any bankruptcy law, state or federal law, common law or
equitable cause, then to the extent of such recovery, the Obligations or part
thereof originally intended to be satisfied, and all Liens, rights and remedies
therefor, shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
10.9. Independence of Covenants
-------------------------
All covenants hereunder shall be given in any jurisdiction independent
effect so that if a particular action or condition is not permitted by any of
such covenants, the fact that it would be permitted by an exception to, or be
otherwise within the limitations of, another covenant shall not avoid the
occurrence of a Default or an Event of Default if such action is taken or
condition exists.
10.10. Severability
------------
The invalidity, illegality or unenforceability in any jurisdiction of
any provision in or obligation under this Agreement, the Notes or other Loan
Documents shall not affect or
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impair the validity, legality or enforceability of the remaining provisions or
obligations under this Agreement, the Notes or other Loan Documents or of such
provision or obligation in any other jurisdiction.
10.11. Lenders' Obligations Several; Independent Nature of Lenders' Rights
-------------------------------------------------------------------
The obligation of each Lender hereunder is several and not joint and
no Lender shall be responsible for the obligation or commitment of any other
Lender hereunder. In the event that any Lender at any time should fail to make
a Loan as herein provided, the Lenders, or any of them, at their sole option,
may make the Loan that was to have been made by the Lender so failing to make
such Loan. Nothing contained in any Loan Document and no action taken by Agent
or any Lender pursuant hereto or thereto shall be deemed to constitute Lenders
to be a partnership, an association, a joint venture or any other kind of
entity. The amounts payable at any time hereunder to each Lender shall be a
separate and independent debt, and, subject to the terms of any Lender Addition
Agreement, each Lender shall be entitled to protect and enforce its rights
arising out of this Agreement and it shall not be necessary for any other Lender
to be joined as an additional party in any proceeding for such purpose.
10.12. Headings
--------
Section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
10.13. APPLICABLE LAW
--------------
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE NEW
YORK GENERAL OBLIGATIONS LAW).
10.14. Successors and Assigns; Subsequent Holders of Notes
---------------------------------------------------
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns except that Borrower
may not assign its rights or obligations hereunder without the written consent
of all Lenders. Lenders' rights of assignment are subject to subsection 9.1.
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<PAGE>
10.15. No Fiduciary Relationship
-------------------------
No provision in this Agreement or in any of the other Loan Documents
and no course of dealing between the parties shall be deemed to create any
fiduciary duty by Agent or any Lender to Borrower or any other Loan Party.
10.16. Limitation of Liability
-----------------------
Neither Agent nor any Lender, nor any affiliate, officer, director,
employee, attorney, or agent of Agent or any Lender shall have any liability
with respect to, and Borrower hereby waives, releases, and agrees not to sue any
of them upon, any claim for any special, indirect, incidental, or consequential
damages suffered or incurred by Borrower in connection with, arising out of, or
in any way related to, this Agreement or any of the other Loan Documents, or any
of the transactions contemplated by this Agreement or any of the other Loan
Documents.
10.17. No Duty
-------
All attorneys, accountants, appraisers, and other professional Persons
and consultants retained by Agent or any Lender shall have the right to act
exclusively in the interest of Agent or such Lender and shall have no duty of
disclosure, duty of loyalty, duty of care, or other duty or obligation of any
type or nature whatsoever to Borrower or any of Borrower's shareholders or any
other Person.
10.18. Entire Agreement
----------------
This Agreement, the Notes, and the other Loan Documents referred to
herein embody the final, entire agreement among the parties hereto and supersede
any and all prior commitments, agreements, representations, and understandings,
whether written or oral, relating to the subject matter hereof and may not be
contradicted or varied by evidence of prior, contemporaneous, or subsequent oral
agreements or discussions of the parties hereto. There are no oral agreements
among the parties hereto.
10.19. Construction
------------
Agent, Borrower and each Lender acknowledge that each of them has had
the benefit of legal counsel of its own choice and has been afforded an
opportunity to review this Agreement and the other Loan Documents with its legal
counsel and that this Agreement and the other Loan Documents shall be construed
as if jointly drafted by Agent, Borrower and each Lender.
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<PAGE>
10.20. CONSENT TO JURISDICTION AND SERVICE OF PROCESS
----------------------------------------------
BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL
COURT LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK AND IRREVOCABLY
AGREES THAT, SUBJECT TO AGENT'S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE
LITIGATED IN SUCH COURTS. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH
ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF
THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND
IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH THIS AGREEMENT, SUCH NOTE, SUCH OTHER LOAN DOCUMENT OR SUCH OBLIGATION.
BORROWER DESIGNATES AND APPOINTS THE PRENTICE-HALL CORPORATION SYSTEM, INC. AND
SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY BORROWER WHICH IRREVOCABLY
AGREE IN WRITING TO SO SERVE AS ITS AGENT TO RECEIVE ON ITS BEHALF SERVICE OF
ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY
ACKNOWLEDGED BY BORROWER TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A
COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO
BORROWER AT ITS ADDRESS PROVIDED IN SUBSECTION 10.5 EXCEPT THAT UNLESS OTHERWISE
PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE
VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY BOR ROWER REFUSES TO
ACCEPT SERVICE, BORROWER HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL
CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF ANY
LENDER TO BRING PROCEEDINGS AGAINST BORROWER IN THE COURTS OF ANY OTHER
JURISDICTION.
10.21. WAIVER OF JURY TRIAL
--------------------
BORROWER, AGENT AND EACH LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF
THIS AGREEMENT, ANY OF THE LOAN DOCUMENTS, OR ANY DEALINGS BETWEEN THEM RELATING
TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION AND THE LENDER/BORROWER
RELATIONSHIP THAT IS BEING ESTABLISHED.
-116-
<PAGE>
BORROWER, AGENT AND EACH LENDER ALSO WAIVE ANY BOND OR SURETY OR SECURITY UPON
SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF LENDERS. THE SCOPE
OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT
MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS
TRANSACTION, INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH
OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. BORROWER, AGENT
AND EACH LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER
INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN
ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER
IN THEIR RELATED FUTURE DEALINGS. BORROWER, AGENT AND EACH LENDER FURTHER
WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL,
AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT,
THE LOAN DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE
LOANS, THE LENDER LETTERS OF CREDIT. IN THE EVENT OF LITIGATION, THIS AGREEMENT
MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
10.22. Confidentiality
---------------
Each Lender agrees to use all commercially reasonable efforts to keep
any non-public information delivered or made available to such Lender pursuant
to the Loan Documents confidential from any Person other than Persons employed
or retained by such Lender who are or are expected to become engaged in
evaluating, approving, structuring or administering the Loans; provided that,
--------
nothing herein shall prevent any Lender from disclosing such information to any
bona fide assignee, transferee or participant that has agreed to comply with
this subsection 10.22 in connection with the contemplated assignment or transfer
of any Loans or participation therein or as required or requested by any
governmental agency or representative thereof or pursuant to legal process or as
required in connection with the exercise of any remedy under the Loan Documents.
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<PAGE>
10.23. Publicity
---------
Borrower authorizes Agent to publicize and place "tombstone"
advertisements with respect to the financing arrangements set forth in this
Agreement and the transactions contemplated hereby.
10.24. Counterparts; Effectiveness
---------------------------
This Agreement and any amendments, waivers, consents, or supplements
may be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all of which counterparts together shall constitute but
one and the same instrument. This Agreement shall become effective upon the
execution of a counterpart hereof by each of the parties hereto.
10.25. No Novation.
-----------
This Agreement constitutes an amendment and restatement, in its
entirety, and a continuation of, the Original Agreement, and is not intended to
be, and shall not be construed to be, a novation of, or accord and satisfaction
with respect to, the Original Agreement.
-118-
<PAGE>
WITNESS THE DUE EXECUTION HEREOF BY THE RESPECTIVE DULY AUTHORIZED
OFFICERS OF THE UNDERSIGNED UNDER SEAL AS OF THE DATE FIRST WRITTEN ABOVE.
"BORROWER"
NORTHERN AUTOMOTIVE
CORPORATION
By:______________________________
James G. Bazlen,
President
Attest:___________________________
Name:______________________
Assistant Secretary
Acknowledged, Consented to and
Agreed as to Section 7A:
ISLAND BOULEVARD HOLDINGS, INC.
By:__________________________
Name:_____________________
Title:____________________
TRANSATLANTIC GROUP, LTD.
By:__________________________
Name:_____________________
Title:____________________
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<PAGE>
ACKNOWLEDGMENT
--------------
STATE OF GEORGIA )
COUNTY OF FULTON ) ss.:
On the ______ day of June, 1996, before me personally came James G. Bazlen to me
known, who, being by me duly sworn, did depose and say that he resides at 4421
E. Horseshoe Road, Phoenix, Arizona 85028; that he is the President of Northern
Automotive Corporation, the corporation described in and which executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
authority of the board of directors of said corporation and that he signed his
name thereto by like authority.
______________________________
_______________, Notary Public
[NOTARIAL SEAL]
My commission expires:
____________________________
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<PAGE>
"AGENT"
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By:___________________________
Jeffrey S. Carbery,
Senior Account Executive
"LENDERS"
TOTAL LOAN COMMITMENT: TRANSAMERICA BUSINESS CREDIT
$25,000,000 CORPORATION
By:____________________________
LENDING OFFICE: Jeffrey S. Carbery,
225 North Michigan Avenue Senior Account
Executive
Chicago, Illinois 60601
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<PAGE>
TOTAL LOAN COMMITMENT: SANWA BUSINESS CREDIT
$15,000,000 CORPORATION
By:____________________________
LENDING OFFICE: Name:_______________________
500 Glenpointe Centre West Title:______________________
Teaneck, New Jersey 07666
-122-
<PAGE>
TOTAL LOAN COMMITMENT: IBJ SCHRODER BANK & TRUST
$10,000,000 COMPANY
By:____________________________
LENDING OFFICE: Name:_______________________
1 State Street Title:______________________
New York, New York 10004
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<PAGE>
TOTAL LOAN COMMITMENT: HELLER FINANCIAL, INC.
$20,000,000
By:____________________________
LENDING OFFICE: Name:_______________________
101 Park Avenue Title:______________________
New York, New York 10178
-124-
<PAGE>
TOTAL LOAN COMMITMENT: THE FIRST NATIONAL BANK OF
$10,000,000 BOSTON, N.A.
By:____________________________
LENDING OFFICE: Name:_______________________
100 Federal Street Title:______________________
Boston, Massachusetts 02106-2016
-125-
<PAGE>
TOTAL LOAN COMMITMENT: NATIONAL BANK OF CANADA,
$10,000,000 NEW YORK AGENCY BRANCH
By:____________________________
LENDING OFFICE: Name:_______________________
125 West 55th Street Title:______________________
New York, New York 10019
By:____________________________
Name:_______________________
Title:______________________
-126-
<PAGE>
TOTAL LOAN COMMITMENT: THE BANK OF NEW YORK
$10,000,000 COMMERCIAL CORPORATION
By:____________________________
LENDING OFFICE: Name:_______________________
The Bank of New York Title:______________________
Commercial Corporation
3rd Floor
1290 Avenue of the Americas
New York, New York 10104
-127-
<PAGE>
EXHIBITS
Exhibit 1.1(A) - Borrowing Base Certificate
Exhibit 1.1(B) - Compliance Certificate
Exhibit 1.1(C) - Notice of Borrowing
Exhibit 1.1(D) - Revolving Note
Exhibit 1.1(E) - Security Agreement
Exhibit 1.1(F) - Term Note
Exhibit 1.1(G) - Lien Waiver
Exhibit 3.1(B) - Financial Condition Certificate
Exhibit 9.1 - Certain Excluded Persons
SCHEDULES
1.1 (A) Lien States
1.1 (B) Permitted Encumbrances
1.1 (C) Prior Indebtedness
1.1 (D) Sale Assets
1.1 (E) New Distribution Center Property Lien
1.1 (F) Tax Sharing Arrangement
1.1 (G) Mortgaged Property
4.1 (A) Organization of Loan Parties
4.1 (B) Capitalization of Loan Parties
4.1 (C) Qualification of Loan Parties
4.1 (D) Business of Loan Parties
4.1 (E) Subsidiaries
4.2 (B) Certain Defaults
4.4 Indebtedness and Contingent Liabilities
4.7 Litigation
4.8 Tax Matters
4.9 (B) Existing Contracts With Affiliates
4.9 (C) Co-op Advertising Contracts
4.12 Employee Benefit Plans
4.13 Intellectual Property
4.15(A) Environmental Claims
4.15(B) Hazardous Materials
4.15(C) Compliance with Environmental Laws
4.16 Employee Matters
4.20 Insurance Policies
4.21 Bank Accounts
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<PAGE>
4.23 Investments
7.4 Contingent Obligations
7.8 Permitted Transactions with Shareholders and
Affiliates; Management Fees and Compensation
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<PAGE>
EXHIBIT 10.12
EX-10
Ex. 10.12 - L.C. Facilitation Agreement
LETTER OF CREDIT FACILITATION AGREEMENT
This Letter of Credit Facilitation Agreement ("Agreement") is entered into this
16th day of January, 1995, by and between Northern Automotive Corporation, an
Arizona corporation ("Northern") and First Interstate Bank of Arizona, N.A.
("Bank"), wherein the parties agree as follows:
SECTION 1 - RECITALS
1.1 Northern has applied or will apply to Bank for financial accommodations in
the nature of commercial letters of credit (collectively "Credits" or
individually "Credit") for the account of Northern.
1.2 Bank has agreed to issue such Credits as it may, from time to time, approve
in its sole and absolute discretion, subject to the terms and conditions set
forth in this Agreement; provided, however, this Agreement shall not constitute
any express or implied commitment on the part of Bank to issue any letter of
credit.
SECTION 2 - ISSUANCE OF LETTERS OF CREDIT
2.1 In the event that Northern desires Bank to issue any individual Credit,
Northern shall complete and execute an Application for Commercial Letter of
Credit and Commercial Letter of Credit Agreement (collectively, the
"Application") using Bank's standard forms which may be amended from time to
time by Bank. Northern shall comply with all requirements of Bank with respect
to the Application and approval of each letter of credit for which an
Application is submitted,
2.2 Upon Bank's acceptance of each Application Bank shall, at its option, issue
each specific Credit for the account of Northern consistent with the Application
and its standard practices. Each Credit shall be subject to the fees and charges
specified in Exhibit A.
2.3 Northern has established a non-interest bearing account with Bank,
specifically Account No. __________ (the "Account"). Immediately upon notice
from Bank (which may be by telephone or telefax) that Bank has received a draft
or request for payment under a Credit, Northern shall deposit in the Account, in
immediately available funds, amounts sufficient to satisfy the aggregate amounts
of such Credit, plus all fees, charges, costs and expenses. Bank is hereby
authorized and instructed to withdraw from the Account, as hereinafter defined,
all amounts necessary to satisfy each draft or other request for payment drawn
under each Credit (whether drawn before, on or after the expiry date specified
in the Credit), together with any and all earned charges or other costs for such
Credit. Should any specific Credit remain undrawn after fifteen (15) days after
its expiry date, Bank agrees to reimburse Northern the amount of such Credit,
exclusive of all earned fees and other costs, unless Bank has reason to believe
such Credit has been drawn.
<PAGE>
2.4 Each Credit shall have a maximum availability of 90 days. Each Credit shall
be payable at sight accompanied by negotiable documents of title properly
endorsed in blank and such other documents as Bank may require, all in form and
substance satisfactory to Bank.
2.5 Bank may for any reason, decline to accept any Application or issue any
requested letter of credit. Notwithstanding the foregoing, the outstanding
undrawn Credits shall never exceed the amount of three million dollars
($3,000,000) and no Credit shall be issued under this Agreement on or after July
1, 1995.
SECTION 3 - REPRESENTATIONS AND WARRANTS OF NORTHERN Northern represents and
warrants to Bank as follows:
3.1 Northern is a corporation duly organized, validly existing and in good
standing under the laws of the state of its organization and is qualified to do
business and is in good standing in the State of Arizona and in each state it is
doing business. Northern covenants to provide to Bank prior to execution of this
Agreement and as a condition precedent to any obligation of Bank, a copy of
Northern's Articles of Incorporation and organizational documents, evidence of
good standing in the state of incorporation and of qualification to do business
and good standing in the State of Arizona, together with proper corporate
resolutions, certificates and such other documents as Bank may require.
3.2 Northern has full power and authority to own its properties and assets and
carry on its business and is fully authorized and permitted to enter into this
Agreement to execute any and all documentation required herein, and to perform
under this Agreement upon the terms set forth herein, none of which conflicts
with any provision with law or regulation applicable to Northern. This
Agreement, and each Application will be a valid and binding legal obligation of
Northern and enforceable in accordance with its terms. The financial statements
of Northern heretofore or hereafter delivered to Bank are or will be correct and
complete and presented in conformance with generally accepted accounting
principals.
3.3 Upon payment (in conformance with the terms of each Credit) of drafts drawn
under each Credit, Bank shall hold all of the related documents of title. So
long as no event or condition shall exist that either itself or after notice or
lapse of time, or both would constitute an Event of Default (as defined below),
Bank shall release such documents of title to Northern, or designee, upon
payment in full of all amounts, fees, charges and expenses with respect to such
Credit.
3.4 The execution, delivery and performance by Northern of this Agreement, and
each of the Applications will not result in any breach of the terms or
conditions of, or constitute a default under any Agreement or instrument under
which Northern is a party or is obligated. Northern is not in default in the
performance or observance of any obligations, covenants or conditions of any
such agreement or instrument.
-2-
<PAGE>
3.5 No actions, suits or proceedings are pending or threatened against Northern
that might materially and adversely affect Northern's performance under this
Agreement or its financial condition, business or operations.
SECTION 4 - COVENANTS
4.1 (i) So long as any Credit is available or outstanding hereunder, Northern
shall provide to Bank within 60 days after the end of each calendar month
financial statements of Northern certified by its chief financial officer or
director of finance, and (ii) within 90 days after the end of each calendar
year, annual audited financial statements of Northern audited by independent
certified public accountants reasonably acceptable to Bank.
SECTION 5 - CONDITIONS PRECEDENT
5.1 Prior to Bank's consideration of any Applications, Bank must have received
(a) a certified copy of resolutions of Northern's Board of Directors authorizing
the execution, delivery and performance of this Agreement and any documents
required to be delivered pursuant hereto, (b) certified signatures and evidence
of incumbency of each officer of Northern authorized to sign this Agreement or
any such document and (c) an executed original of this Agreement.
SECTION 6 - DEFAULT
6.1 The occurrence of any of the following events or conditions shall constitute
an "Event of Default" under this Agreement:
(a) Any failure to pay any amount due under this Agreement
or any Application, including without limitation all drawing amounts,
fees, charges and expenses as and when the same shall become due and
payable;
(b) Any failure or neglect to perform or observe any of
the terms, provisions, or covenants of this Agreement or any
Application;
(c) Any warranty or representation or statement contained
in this Agreement or any Application, or made or furnished to Bank on
behalf of Northern, shall prove to have been false when made or
furnished;
(d) The filing by or against Northern of any proceeding
under the Federal Bankruptcy laws now or hereafter existing or any
similar statute now or hereafter in effect, or the appointment of a
receiver, trustee, or custodian of all or any material portion of
Northern's assets, or the insolvency of Northern;
(e) Any indebtedness for borrowed money, for which
Northern is liable is not paid at its stated maturity or is declared
or otherwise becomes due and payable prior to its stated
-3-
<PAGE>
maturity, or any event of default under any Application, loan or
similar agreement to which Northern is now or hereafter a party, or
other event of which any holder of indebtedness may declare the same
due and payable, shall occur for more than the period of grace, if
any, provided therein.
6.2 Without limitation to any rights or remedies available to Lender under each
Application, upon the occurrence of any Event of Default and at any time
thereafter while such Event of Default is continuing, Lender may do one of more
of the following:
(a) Require Northern to deposit with Bank cash collateral
equal to the outstanding undrawn amounts of all outstanding Credits;
or
(b) Exercise rights of setoff with respect to the Account
to satisfy the aggregate amount of any undrawn Credits, and all fees,
charges, costs and expenses; or
(c) Avail itself of any other relief to which Lender may
be legally or equitably entitled under this Agreement, the
Application or otherwise at law or equity.
SECTION 7 - MISCELLANEOUS
7.1 This Agreement together with each Application embodies the entire agreement
among the parties with regard to the subject matter hereof. There are no
representations, promises, warranties, understandings or agreements expressed or
implied, oral or otherwise in relation thereto, accept as expressly referred to
or set forth herein or in the Application.
7.2 No promise, representation, warranty or agreement made subsequent to the
execution and delivery of this Agreement by either party hereto, and no
revocation, change, amendment or addition to or alteration or modification of
this Agreement shall be valid unless the same shall be in writing signed by all
parties hereto.
7.3 Time is expressly made of the essence of this Agreement.
7.4 All notices required or permitted to be given hereunder shall be given in
writing and shall become effective upon actual delivery to the respective party
or, if mailed, seventy-two (72) hours after deposited in the United States Mail,
Certified or Registered, Postage Prepaid, addressed as shown below or to such
other address as such party may from time to time designate together in writing.
7.5 Northern shall pay to or reimburse Bank promptly all reasonable costs and
expenses, including but not limited to any fees and costs, Bank may pay or may
incur in connection with the collection or enforcement with this Agreement or in
any way arising under this Agreement.
7.6 This Agreement shall be governed by and construed according to laws of the
State of Arizona.
-4-
<PAGE>
7.7 This Agreement shall, except as herein as otherwise provided, be binding
upon and inure to the benefit of the successors and assignments to the parties
hereto; provided, however, no assignment by Northern of this Agreement or any
right of Northern hereunder shall be binding upon Bank without Bank's prior,
express, written consent.
7.8 Any dispute that may arise between any of the parties under and in any way
related to the subject matter of this Agreement will be resolved by binding
arbitration as provided in the Arbitration Program attached hereto as Exhibit
"A" and incorporated herein by reference.
IN WITNESS WHEREOF, this Agreement is executed as of the date first written
above.
"BANK"
FIRST INTERSTATE BANK OF ARIZONA, N.A.
100 West Washington Street, #773
Phoenix, Arizona 85003
By:
-----------------------
Its: VICE PRESIDENT
-----------------------
"NORTHERN"
NORTHERN AUTOMOTIVE, INC., an Arizona corporation
P.O. Box 6030
Phoenix, Arizona 85005
By:
-----------------------
Its: PRESIDENT
-----------------------
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<PAGE>
EXHIBIT "A"
ARBITRATION PROGRAM
(a) BINDING ARBITRATION. Upon the demand of Northern or Bank
(collectively the "parties"), whether made before the institution of any
judicial proceeding or not more than 60 days after service of a complaint, third
party complaint, cross-claim or counterclaim or any answer thereto or any
amendment to any of the above, any Dispute (as defined below) shall be resolved
by binding arbitration in accordance with the terms of this arbitration clause.
A "Dispute" shall include any action, dispute, claim, or controversy of any
kind, whether founded in contract, tort, statutory or common law, equity, or
otherwise, now existing or hereafter occurring between the parties arising out
of, pertaining to or in connection with this Agreement or any related
agreements, documents, or instruments (the "Documents"). The parties understand
that by this Agreement they have decided that the Disputes may be submitted to
arbitration rather than being decided through litigation in court before a judge
or jury and that once decided by an arbitrator the claims involved cannot be
brought, filed or pursued in court.
(b) GOVERNING RULES. Arbitrations conducted pursuant to this
Agreement, including selection of arbitrators, shall be administered by the
American Arbitration Association ("Administrator") pursuant to the Commercial
Arbitration rules of the Administrator. Arbitrations conducted pursuant to the
terms hereof shall be governed by the provisions of the Federal Arbitration Act
(Title 9 of the United States Code), and to the extent the foregoing are
inapplicable, unenforceable or invalid, the laws of the State of Arizona.
Judgment upon any award rendered hereunder may be entered in any court having
jurisdiction; provided, however, that nothing contained herein shall be deemed
to be a waiver by any party that is a bank of the protections afforded to it
under 12 U.S.C. sec.91 or similar governing state law. Any party who fails to
submit to binding arbitration following a lawful demand by the opposing party
shall bear all costs and expenses, including reasonable attorney's fees,
incurred by the opposing party in compelling arbitration of any Dispute.
(c) NO WAIVER, PRESERVATION OF REMEDIES MULTIPLE PARTIES. No
provision of, nor the exercise of any rights under, this arbitration clause
shall limit the right of any party to (1) foreclose against any real or personal
property collateral or other security, (2) exercise self-help remedies
(including repossession and setoff rights) or (3) obtain provisional or
ancillary remedies such as injunctive relief, sequestration, attachment,
replevin, garnishment, or the appointment of a receiver from a court having
jurisdiction. Such rights can be exercised at any time except to the extent such
action is contrary to a final award or decision in any arbitration proceeding.
The institution and maintenance of an action as described above shall not
constitute a waiver of the right of any party, including the plaintiff, to
submit the Dispute to arbitration, nor render inapplicable the compulsory
arbitration provisions hereof. Any claim or dispute related to exercise of any
self-help, auxiliary or other exercise of rights under this section (c) shall be
a Dispute hereunder.
<PAGE>
(d) ARBITRATOR POWERS AND QUALIFICATIONS; AWARDS. Arbitrator(s) shall
resolve all Disputes in accordance with the applicable substantive law.
Arbitrator(s) may make an award of attorneys' fees and expenses if permitted by
law or the agreement of the parties. All statutes of limitation applicable to
any Dispute shall apply to any proceeding in accordance with this arbitration
clause. Any arbitrator selected to act as the only arbitrator in a Dispute shall
be required to be a practicing attorney with not less than 10 years practice in
commercial law in the State of Arizona. With respect to a Dispute in which the
claims or amounts in controversy do not exceed five hundred thousand dollars
($500,000), a single arbitrator shall be chosen and shall resolve the Dispute.
In such case the arbitrator shall have authority to render an award up to but
not to exceed five hundred thousand dollars ($500,000) including all damages of
any kind whatsoever, costs, fees and expenses. Submission to a single arbitrator
shall be a waiver of all parties' claims to recover more than five hundred
thousand dollars ($500,000). A Dispute involving claims or amounts in
controversy exceeding five hundred thousand dollars ($500,000) shall be decided
by a majority vote of a panel of three arbitrators ("Arbitration Panel"). An
Arbitration Panel shall be composed of one arbitrator who would be qualified to
sit as a single arbitrator in a Dispute decided by one arbitrator, one who has
at least ten years experience in commercial lending and one who has at least ten
years experience in the Northern's industry. Arbitrator(s) may, in the exercise
of their discretion, at the written request of a party in any Dispute, (1)
consolidate in a single proceeding any multiple party claims that are
substantially identical and all claims arising out of a single loan or series of
loans including claims by or against Northern(s), guarantors, sureties and or
owners of collateral if different from the Northern, and (2) administer multiple
arbitration claims as class actions in accordance with Rule 23 of the Federal
Rules of Civil Procedure. The arbitrator(s) shall be empowered to resolve any
Dispute regarding the terms of this Agreement or the arbitrability of any
Dispute or any claim that all or any part (including this provision) is void or
voidable but shall have no power to change or alter the terms of this Agreement.
The award of the arbitrator(s) shall be in writing and shall specify the factual
and legal basis for the award.
(e) MISCELLANEOUS. To the maximum extent practicable, the
Administrator, the arbitrator(s) and the parties shall take any action necessary
to require that an arbitration proceeding hereunder be concluded within 180 days
of the filing of the Dispute with the Administrator. The arbitrator(s) shall be
empowered to impose sanctions for any party's failure to proceed within the
times established herein. Arbitration proceedings hereunder shall be conducted
in Arizona at a location determined by the Administrator. In any such proceeding
a party shall state as a counterclaim any claim which arises out of the
transaction or occurrence or is in any way related to the Documents which does
not require the presence of a third party which could not be joined as a party
in the proceeding. The provisions of this arbitration clause shall survive any
termination, amendment, or expiration of the Documents and repayment in full of
sums owed to Bank by Northern unless the parties otherwise expressly agree in
writing. Each party agrees to keep all Disputes and arbitration proceedings
strictly confidential, except for disclosures of information required in the
ordinary course of business of the parties or as required by applicable law or
regulation.
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<PAGE>
NORTHERN AUTOMOTIVE CORPORATION
CERTIFICATION AS TO BORROWING RESOLUTION
The undersigned, David Vieweg, the duly elected, qualified and acting
Secretary of Northern Automotive Corporation, an Arizona corporation (the
"Corporation"), hereby certifies that the following is a true and correct copy
of a Resolution of the Board of Directors of said corporation adopted and duly
recorded in the Minutes of said Board of Directors:
RESOLVED, that in order to obtain financing for this
Corporation, the Chairman of the Board, the Vice Chairman, the
President, the Chief Executive Officer and the Chief Financial
Officer of this Corporation, be, and they each hereby are, authorized
and empowered from time to time, to sign and borrow upon the credit
of this Corporation from any banking or lending institution such sum
or sums as they deem necessary; to sign and deliver any notes,
applications for letters of credit or other evidences of indebtedness
as may be requested by such bank or lending institution; to grant
security interests in, pledge, mortgage and/or otherwise encumber
personal or real property which this Corporation may own or in which
it may have any interest for the purpose of securing the payment of
any indebtedness or liability, contingent or otherwise, of this
Corporation to such bank or lending institution; to sign, endorse,
accept, make, execute, and deliver, discount or rediscount, any and
all notes, drafts, checks, bills of exchange or acceptances, or other
commercial paper or documents on behalf of and in the name of this
Corporation; to guaranty debts or obligations incurred for the
benefit of this Corporation or third parties; and to sign and deliver
to such bank or lending institution on behalf of the Corporation such
other documents, receipts (trust or otherwise), bills of sale,
security agreements, deeds of trust, mortgages, hypothecations,
deeds, pledges, guaranties, other instruments and any modifications,
extensions, amendments or revisions to the foregoing which such bank
or lending institution may require in the course of its dealings with
this Corporation.
RESOLVED, that all actions taken pursuant to these
Resolutions shall be subject to, and in accordance with, the terms
and conditions of any covenants or agreements to which the
Corporation is bound.
RESOLVED, that each one of the above-named officers of
this Corporation is conferred with a general authority to deal on
behalf and in the name of this Corporation with such bank or lending
institution, including all transactions of this Corporation with such
banking or lending institution without specifically enumerating them
herein.
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<PAGE>
RESOLVED, that each of the above-named officers may
authorize other officers or employees of the Corporation to take any
actions such named officer may take pursuant to the aforementioned
resolution.
The undersigned does hereby further certify that the foregoing
Resolution has not been amended, annulled, rescinded or revoked and that the
same is still in full force and effect.
IN WITNESS WHEREOF, I hereunto set my hand and the seal of the
Corporation on January 16, 1995.
/S/ DAVID VIEWEG
------------------------
David Vieweg
Secretary
<PAGE>
EXHIBIT 10.13
AMENDED & RESTATED
LEASE
-----
This Lease ("Lease") is made between NORTHERN AUTOMOTIVE CORPORATION,
an Arizona Corporation, whose address is 645 East Missouri Avenue, Phoenix, AZ
85012 ("Tenant"), and Missouri Falls Associates Limited Partnership, an Arizona
Limited Partnership, whose address is 645 East Missouri Avenue, Phoenix, AZ
85012, ("Landlord"), on this 23rd day of October, 1989.
WHEREAS, on March 14, 1987, the parties entered into a lease
agreement for certain office space located at 645 East Missouri Avenue in
Phoenix, Arizona, which lease was amended by that certain lease Amendment I
executed October 29, 1987 and that certain Amendment II executed October 28,
1987 ("Original Lease").
WHEREAS, the parties desire to make certain modifications to the
Original Lease as amended, and as so modified, to restate the Original Lease in
its entirety;
NOW, THEREFORE, the Original Lease is hereby amended and restated in
its entirety, effective August 01, 1989, as follows:
1. TERMS AND CONDITIONS:
A. "LEASED PREMISES" shall mean on EXHIBIT A attached
hereto and made a part thereof. The Leased Premises shall
contain no less than 89,718 square feet, and shall include
the third and fourth floors.
B. "BUILDING" shall mean the office building located at 645
E. Missouri Ave., Phoenix, Arizona and the real property
on which it is located, as described in EXHIBIT B hereto
and made a part hereof.
C. "LEASE COMMENCEMENT DATE" shall mean: 08/01/89.
D. "LEASE TERM" shall mean the period beginning on the Lease
Commencement Date and ending eight years thereafter. Any
reference in this Lease to Lease term or the words "DURING
THE TERM" or "THE TERM" shall all be deemed to include any
extension thereof authorized under this lease.
<PAGE>
E. "BASE RENT" shall mean the following for the period
indicated:
<TABLE>
<CAPTION>
ANNUAL BASE RENT
MONTHLY PER SQ. FT. OF TENANT'S
PERIOD BASE RENT TOTAL SQUARE FOOTAGE
<S> <C> <C>
08/01/89 to 12/31/89 $ 76,931.20 $13.08
- ----------------------- ---------------- ----------------------------
01/01/90 to 12/31/90 90,424.00 15.36
- ----------------------- ---------------- ----------------------------
01/01/91 to 07/31/92 114,085.85 15.24
- ----------------------- ---------------- ----------------------------
08/01/92 to 07/31/95 131,411.08 17.52
- ----------------------- -------------- ----------------------------
08/01/95 to 07/31/99 141,679.68 18.96
- ----------------------- ---------------- ----------------------------
- ----------------------- ---------------- ----------------------------
- ----------------------- ---------------- ----------------------------
- ----------------------- ---------------- ----------------------------
- ----------------------- ---------------- ----------------------------
</TABLE>
Tenant currently occupies 70,669 square feet of the leased
premises. Tenant may occupy all or part of the additional
19,049 square feet (The "Additional Expansion Space")
prior to 01/01/91. If Tenant occupies any or all of the
Additional Expansion Space prior to 01/01/91, Tenant shall
be obligated to begin paying both Base Rent and its Pro
Rata Share of Building Operating Costs upon occupancy at
the rates provided herein for the space currently
occupied.
F. "TENANT'S TOTAL SQUARE FOOTAGE" shall mean approximately
89,718 rentable square feet which is calculated by adding
together the hatched area shown on EXHIBIT A and Tenant's
share of the "COMMON AREAS OF THE BUILDING"; "TOTAL
BUILDING SQUARE FOOTAGE" shall mean 187,941 rentable
square feet, which is calculated by adding together
rentable square footage of the premises leasable in the
Building and the Common Areas of the Building; and the
"TENANT'S PRO RATA SHARE" shall mean 47.74% (Tenant's
Total Square Footage divided by Total Building Square
Footage). All measurements of rentable areas in the
Building shall be computed by measuring from the inside of
"PERMANENT OUTER BUILDING WALLS," hereinafter deemed to
exclude from such measurement the thickness of any special
surfacing materials such as paneling, furring strips, and
carpet, or from the inside surface of the glass line where
present to the inside of Permanent Outer Building Walls or
the inside surface of the glass line where present. If
such measurements are later discovered to be in conflict
with the square footages stated above, this Lease shall be
amended to provide for the actual
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<PAGE>
square footages, and any covenants herein based upon
ratios relating to such square footages shall likewise be
modified; provided such amendment shall be retroactive.
G. "PERMITTED PURPOSE" shall mean use of the Leased Premises
for general office purposes and purposes incidental
thereto.
H. "THE BROKER OF RECORD" N/A
2. USES:
A. Tenant shall not, do or permit anything to be done in or
about the Leased Premises, or bring or keep anything in
the Leased Premises that may (i) increase the fire and
extended coverage insurance premium upon the Building;
(ii) injure the Building; or (iii) constitute waste or be
a nuisance, public or private, or menace to tenants of
adjoining premises or anyone else.
B. Landlord represents that a Certificate of Occupancy for
the Leased Premises has been issued as of the Lease
Commencement Date.
C. Landlord warrants that as of the date of this Lease, the
Leased Premises can be used for the Permitted Purpose. In
the event the Leased Premises cannot be used for the
Permitted Purpose at any time during the Lease Term,
either Landlord or Tenant shall have the option to
terminate this Lease, provided that the Lease shall not be
so terminated if Landlord, within a period of ninety (90)
days following the event which caused the Leased Premises
not to be usable for the Permitted Purpose, restores the
premises to that condition under which the Permitted
Purpose can be used for the permitted purpose. If Landlord
fails to restore the premises, Tenant shall have the right
to use the Leased Premises for any other remaining lawful
purpose, for so long as the Leased Premises are then
capable of accommodating such uses.
Where this paragraph 2C conflicts with paragraph 11,
paragraph 11 will control. Where this paragraph 2C
conflicts with paragraph 14, paragraph 14 will control.
D. Within 15 days following the request of Landlord, Tenant
shall acknowledge in writing that it has examined the
Leased Premises and accepts the same as being in the
condition called for by this Lease, excepting latent
defects, other items identified as not completed in
accordance with this Lease, and minor construction finish
items ("punchlist items") which shall be corrected or
completed by Landlord as expeditiously as possible. In the
event that a major defect or omission appears in the
installation of the major building systems or structure,
Landlord agrees to correct any such defect or omission.
-3-
<PAGE>
E. Tenant shall have a nonexclusive right with other tenants
in the Building to use exterior common areas, exclusive of
parking areas, outside of the Building, and located on the
real estate legally described on EXHIBIT B, in accordance
with Landlord's rules and regulations, as described in
Paragraph 17 below.
3. RENT:
A. Tenant covenants and agrees to pay to Landlord during the
term of this Lease, at the place specified by Landlord,
the Base Rent, without deduction or setoff (unless
authorized by this Lease), due and payable in advance on
the first day of each month. Tenant also covenants and
agrees to pay to Landlord Tenant's Pro Rata Share of
Building Operating Costs as described in Paragraph 3B
below. Base Rent and Tenant's Pro Rata Share of Building
Operating Costs, together with other amounts which may be
payable by Tenant to Landlord under this Lease, shall
sometimes be referred to collectively as " RENT." Rent for
any fractional calendar month shall be that proportion of
the monthly installment which the number of days during
such month bears to the total of days in the month. Rent
not paid by the fifth day following written notice that
such amount is past due shall be subject to a late charge
of three (3%) of the amount due.
B. In addition to Base Rent, Tenant shall pay Tenant's Pro
Rata Share of "BUILDING OPERATING COSTS." Building
Operating Costs shall mean all expenses, costs and
disbursements which Landlord shall pay or become obligated
to pay because of or in connection with the maintenance,
repair and operation of the Building, including, but not
limited to, real estate taxes and assessments, use, sales,
or any other taxes (except income taxes) based on rents,
personal property taxes on personal property used in the
operation of this Building; Landlord's insurance, as
described in Paragraph 6 below; utilities not separately
metered to individual tenants; costs of leasing or
amortization of energy reduction devices and systems,
except those included in the building specifications and
except those required during the first two years of the
Lease Term; maintenance; repairs; redecorating of common
areas; cost of roof renovation (which shall be amortized
over its expected life and which shall not include roof
replacement which occurs after the term or the first
extension thereof); janitorial service; operating
supplies; property management; Building Services; snow
removal; landscaping; costs of leasing or amortizing
plants, shrubs, trees, or flowers, and normal maintenance
thereof; costs of leasing or amortizing wall hangings,
fixtures, paintings, and statues; rubbish removal; tools
and equipment used for the daily operation of the
Building; air conditioning, heating and elevator repair
and maintenance; resurfacing and restriping of parking
areas; repair and replacement of car stops and signage;
security; wages, payroll taxes, welfare and disability
benefits reasonably incurred in the operation of the
Building.
-4-
<PAGE>
Notwithstanding the foregoing, Building Operating Costs
shall expressly exclude: (a) cost of decorating,
redecorating, or special cleaning, or other services not
provided on a regular basis to all tenants of the Building;
(b) wages, salaries, fees and fringe benefits paid to
administrative or executive personnel or officers or
partners of Landlord, unless employed at competitive rates
as independent contractors; (c) any charges for
depreciation of the Building or equipment; (d) any interest
or finance charges; (e) any charges for Landlord's income
taxes, excess profit taxes, franchise taxes or similar
taxes on Landlord's business; (f) all costs relating to
activities conducted for the solicitation of and execution
of leases of space in the Building; (g) any costs for which
Tenant or other tenants in the Building are being charged
other than pursuant to this Paragraph; (h) the costs of
correcting defects in the construction of the Building or
in the Building Equipment, except that conditions (not
occasioned by construction defects) resulting from ordinary
wear and tear shall not be deemed defects for the purpose
of this category; (i) the costs of any repair made by
Landlord because of the total or partial destruction of the
Building or the condemnation of a portion thereof; (j) any
insurance premium to the extent that Landlord is entitled
to reimbursement therefore from Tenant or from any other
tenant of the Building; (k) any costs for which Landlord is
reimbursed by insurance, warranty, or other source of
reimbursement; (1) the cost of any additions or capital
improvements to the Building subsequent to original
construction; (m) the cost of any repairs, alterations,
additions, changes, replacements and other items which,
under Generally Accepted Accounting Principles, are
properly classified as capital expenditures to the extent
that they upgrade or improve the Building, as opposed to
replacement of existing items which have worn out; (n) any
cost included in Building Operating Costs representing an.
amount paid to a related corporation, entity or person
which is in excess of the amount which would be paid in the
absence of such relationship; (o) the cost of any work or
service performed for or facilities furnished to any tenant
of the Building to a greater extent or in a manner more
favorable to such tenant than that performed for or
furnished to Tenant; and (p) the cost of overtime or other
expense to Landlord in curing its defaults or performing
work expressly provided herein to be borne at Landlord's
expense.
C. During the period 08/01/89 thru 07/31/90, Tenant shall be
liable for Tenant's Pro Rata Share of Building Operating
Costs, not to exceed $4.50 per square foot of the Tenant's
total square footage. During the period 08/01/90 thru
07/31/91, Tenant shall be liable for Tenant's Pro Rata
Share of Building Operating Costs, not to exceed $5.35 per
square foot of Tenant's total square footage. During the
period 08/01/91 thru 07/31/92, Tenant shall be liable for
its entire Pro Rata Share of Building Operating Costs to
the extent of all taxes, insurance and utilities, however,
Tenant's liability for its Pro Rata Share of all other
Building Operating Costs shall be limited to $2.00 per
square foot of Tenants total Square Footage, increased
annually thereafter by the percentage of increase in the
Consumer Price Index of the U.S. Department of Labor
Statistics (all urban consumer average) for each twelve
(12)
-5-
<PAGE>
month period ("Lease Year") following Lease Commencement
Date. The Index utilized shall be the Index last published
for the Phoenix Metropolitan Area.
D. Landlord shall make its best estimate as to the amount of
Tenant's Pro Rata Share of Building Operating Costs,
one-twelfth (1/12) of which shall be payable monthly,
together with the monthly installment of Base Rent due and
payable by Tenant. Within one-hundred-twenty (120) days
after the beginning of each calendar year, Landlord shall
give Tenant a statement of Landlord's Estimate of Building
Operating Costs. As of the end of each calendar year,
Landlord shall compute the actual costs of operating the
Building for the previous twelve (12) month period (if the
Building has been operating for less then 12 months, the
costs of operating the Building for a year shall be
determined by dividing the actual operating costs by the
number of days of actual operation and multiplying by
365). Landlord shall deliver to Tenant notice of such cost
and the amount due, if any, from Tenant as soon as
possible of the year immediately subsequent to the year to
which such costs relate. Tenant shall reimburse Landlord
within thirty (30) days after notice of any deficiency
between estimated operating costs and actual costs. In the
event of overpayment by Tenant, Landlord shall apply the
excess to the next successive installments of Rent due
hereunder, unless there are no further Rent payments due
from Tenant, in which case Landlord shall pay such excess
to Tenant within thirty (30) days of such notice from
Landlord.
Landlord shall, deliver to Tenant a written accounting
showing how Building Operating Costs were calculated for
the Building for each year. In the event Tenant objects to
the statement of Building Operating Costs for any year,
Tenant and Landlord agree to cooperate in good faith to
resolve any such objection. The foregoing notwithstanding,
Tenant shall in no way be relieved of its obligation to
pay Tenant's Pro Rata Share of Building Operating Costs as
calculated by Landlord during the period in which it is
cooperating with Landlord to resolve any objections as
provided herein, except that Tenant may withhold a
reasonable amount in dispute until the dispute is
resolved. Tenant or its representatives shall have the
right, with reasonable notice, to examine the accounting
records of Landlord during normal business hours. Should
such examination reveal a variance of more than five
percent (5%) from Landlord's accounting, Landlord agrees
to reimburse Tenant for the verified cost of such
examination.
4. UTILITIES:
Landlord shall provide to the Leased Premises the following utility
services: water, sewer, electricity and gas. Utility charges for
which separate billings are not available shall be treated as
Building Operating Costs. If heat, light, water and any other utility
services are supplied to and metered directly to the Leased Premises,
Tenant shall pay the cost thereof, and make
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<PAGE>
any required deposits related thereto. Separate additional charges
may be made to Tenant, if Tenant, in Landlord's reasonable judgement,
causes excessive utility system demands where such services are not
separately metered. Landlord shall notify Tenant in writing of any
such excessive utility demands prior to any charges being made, and
if Tenant ceases to cause such excessive demands then no charges will
be assessed. Landlord does not warrant that any of the utility
services will be free from interruption caused by Unavoidable Delay,
as. defined in Paragraph 23 below. Landlord warrants that other
Tenants in the building will be charged for their excessive utility
demands, if any, so that Tenant is not charged for more than its Pro
Rata Share of normal utility costs for the building.
Tenant shall pay for electricity that is separately metered from
computer room and UPS Room.
5. BUILDING SERVICES:
Landlord agrees to maintain in good condition and repair and in first
class manner all parking and exterior common areas, which maintenance
shall include lighting, gardening, cleaning, sweeping, painting and
window cleaning; and to provide for the Leased Premises and the
Building such other services, including, but not limited to, elevator
service, public restrooms, air-cooling, heating, and interior
janitorial services, which interior janitorial services are listed on
EXHIBIT D attached hereto and made a part hereof. Landlord shall
maintain and repair the exterior of the Building, its structural
portions and the roof. The services to be provided by Landlord
according to this Paragraph 5 shall be deemed to be "BUILDING
SERVICES". The cost of Building Services shall be considered a
Building Operating Cost.
Building Services shall be furnished by Landlord during normal
working hours (from 7:00 a.m. to 6:00 p.m. weekdays, and from 7:00
a.m. to 1:00 p.m. on Saturdays), or at such other times as requested
by Tenant, in which event, Tenant agrees to pay the additional cost,
if any, reasonably allocated to Tenant, of providing Building
Services, to the extent of Landlord's actual cost without markup,
during such other times. Building Services furnished by Landlord
shall be similar to building services customarily provided by
landlords of first-class office buildings in the Phoenix, Arizona
area.
6. INSURANCE, INDEMNITY:
A. Landlord shall secure and maintain throughout the term of
this Lease the following insurance (the cost of which shall
be a Building Operating Cost) in a form within Landlord's
reasonable discretion:
(1) Fire insurance with extended coverage
endorsements attached in the amount of full
replacement value of the Building;
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<PAGE>
(2) Comprehensive public liability insurance
(including bodily injury and property damage
insurance) for the Building; and in the amount
of at least $5 million.
(3) Rental abatement insurance against abatement or
loss of rent in case of fire or other casualty.
Landlord may, purchase such other insurance as required by
its mortgage lenders and treat the cost thereof as a
Building Operating Cost. Tenant shall be named as an
additional insured on such insurance policy and Landlord
shall supply Tenant with a certificate or certificates
evidencing such insurance, which certificate or
certificates shall provide Tenant thirty (30) days written
notice prior to cancellation or reduction in amount of
coverage.
B. Tenant shall, at its own expense, procure and maintain
throughout the term of this Lease:
(1) Comprehensive public liability insurance
insuring Tenant's activities with respect to
the Leased Premises against loss, damage or
liability for personal injury or death,
Landlord's damage to property or commercial
loss occurring on or about the Leased Premises,
in amounts no less than $1,000,000 combined
single limit; and
(2) Workmen's compensation insurance in at least
the statutory amounts with respect to any work
or other operation in or about the Leased
Premises.
Landlord and Landlord's mortgagee, if any, shall be named
as additional insureds under such insurance and such
insurance shall be primary and noncontributing with any
insurance carried by Landlord. The liability insurance
policy shall contain endorsements requiring thirty (30)
days notice to Landlord prior to any cancellation or any
reduction in amount of coverage. Tenant shall deliver to
Landlord, as a condition precedent to its taking occupancy
of the Leased Premises, a Certificate or Certificates
evidencing such insurance.
C. Except to the extent proceeds are paid from Landlord's
insurance, Tenant shall indemnify and hold Landlord
harmless from and against all demands, suits, fines,
liabilities, losses, damages, costs and expenses
(including legal expenses) which Landlord may incur or
become liable for as a result of any breach by Tenant, its
agents, employees, officers, contractors, invitees or
licensees of the terms or covenants of this Lease.
-8-
<PAGE>
7. WAIVER OF SUBROGATION:
Tenant and Landlord each release and relieve the other and waive its
entire right of recovery against the other for loss or damage arising
out of or incident to the perils of fire, explosion, or any other
perils described in the "extended coverage" insurance endorsement
covering the Building for losses which occur in, on or about the
Leased Premises or the Building, whether due to the negligence of
either party, their agents, employees, invitees or otherwise to the
extent that said loss or damage is covered by collectable insurance.
Tenant and Landlord agree that all policies of insurance obtained
pursuant to Paragraph 6 above shall contain appropriate waiver of
subrogation clauses.
8. REPAIRS:
Except for Building Services provided by Landlord, Tenant agrees to
maintain in a clean, orderly and sanitary condition and keep in good
repair, the interior of the Leased Premises, ordinary wear and tear
excepted. Such maintenance and repair shall be at the sole cost of
Tenant and shall include but not be limited to the maintenance and
repair of floor covering, ceilings and walls, front and rear doors,
and all interior glass on the Leased Premises. If Tenant fails to
maintain or keep the Leased Premises in good repair and such failure
continues for five days after written notice from Landlord, Landlord
may perform any such required maintenance and repairs and the costs
thereof shall be additional Rent payable by Tenant within ten (10)
days of receipt of any invoice from Landlord.
9. TENANT'S PROPERTY:
Furnishings, trade fixtures and moveable equipment, if any, paid for
and installed by Tenant, shall be the property of Tenant. On
expiration of this Lease or at anytime during the term of this Lease,
if there is then no Event of Default, Tenant may remove any such
property and shall remove any such property if directed by Landlord.
Tenant shall repair and reimburse Landlord for the cost of repairing
any damage resulting from removal of Tenant's property. If Tenant
fails to remove such property as required under this Lease, Landlord
may do so and Landlord shall not be liable for any loss or damage to
the property of Tenant which may occur during Landlord's removal
thereof.
10. IMPROVEMENTS AND ALTERATIONS BY TENANT
Tenant acknowledges that the terms of this Lease contemplates the
leasing of finished space and that Landlord is and will remain the
owner of all Tenant improvements constructed by Landlord, regardless
of when those improvements are or were constructed. Accordingly,
Tenant acknowledges Landlord's right to control the design and
construction of all Tenant
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<PAGE>
improvements, including removing, altering and redesigning of
existing Tenant improvements, and agrees that Landlord shall have the
exclusive right to determine the person or firm to design and
construct Tenant improvements under this Lease. Until a different
person or firm is appointed pursuant to notice to the Tenant under
this Lease, Landlord hereby designates FANWEST Development Company as
the exclusive firm to provide design and construction services for
Tenant improvements under this Lease.
11. CASUALTY:
If the Leased Premises or the Building are destroyed or damaged by
fire, earthquake or other casualty to the extent that they are
untenantable in whole or in part, then Landlord shall, except as
provided below, proceed with reasonable diligence to rebuild and
restore the Leased Premises or such part thereof as may be destroyed
or damaged, and during the period of such rebuilding and restoration,
this Lease shall remain in full force and effect, and Rent shall be
abated in the same ratio as the square footage in the portion of the
Leased Premises rendered untenantable, if any, shall bear to the
total square footage in the Leased Premises. If Landlord shall
reasonably determine that such destruction or damage cannot be
rebuilt and restored within one-hundred-eighty (180) days, it shall
so notify Tenant within sixty (60) days after the occurrence of such
damage or destruction. In such event, either Landlord or Tenant may,
within twenty (20) days after such notice, terminate this Lease. If
neither party terminates this Lease during such twenty (20) day
period, this Lease shall remain in effect and Landlord shall
diligently proceed to rebuild and restore the Leased Premises, and
Rent shall abate as set forth above.
Anything to the contrary notwithstanding, in the event the Leased
Premises are rendered untenantable due to the fault or neglect of
Tenant, its agents, employees, visitors or licensees, there shall be
no abatement of Rent as provided above, except to the extent such
loss of Rent shall be payable from the proceeds of the rental
abatement insurance maintained by Landlord in accordance with
Paragraph 6 above.
12. ASSIGNMENT, LETTING AND SUBLETTING:
A. Tenant, its legal representatives and successors in
interest shall have the right to assign, let or sublet or
permit the assigning, letting or subletting of this Lease,
the Leased Premises or any part thereof, respectively,
without first obtaining the written consent of Landlord.
Any such assignment, letting or subletting shall be in
conformance with the terms of the Lease, for a use which
is permitted under the Lease, and shall not relieve Tenant
from its obligations under this Lease. For the purpose of
this section, an assignment, letting or subletting to any
governmental agency will not be deemed to be in
conformance with the terms of the Lease, and the
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<PAGE>
written consent of Landlord, which may be withheld in
Landlord's sole discretion, shall be required prior to any
such assignment, letting or subletting.
B. Tenant may, from time to time during the term of this
Lease, without consent of Landlord, place a mortgage or
deed of trust upon Tenant's leasehold estate and rights
hereunder as security for payment of an indebtedness. Any
such mortgage or deed of trust shall be a lien upon only
Tenant's leasehold estate hereunder and shall not be a
lien upon Landlord's reversionary (including fee) interest
in the Leased Premises.
When giving notice to Tenant with respect to any default
hereunder, Landlord shall also serve a copy of such notice
upon any such lender of Tenant (herein referred to as
"MORTGAGEE"); provided such Mortgagee has given Landlord
written notice of its interest in the Leased Premises and
provided Landlord with its address for any such notice. No
such notice of default shall be deemed to have been given
to Tenant unless and until such notice shall have been
delivered to Mortgagee as provided in the previous
sentence.
In case Tenant shall default in the performance of any of
the terms, covenants, agreements and conditions of this
Lease on Tenant's part to be performed, any such Mortgagee
shall have the right, within the grace period available to
Tenant, plus an additional ten (10) days beyond said grace
period, for curing such default, to cure or make good such
default or to cause the same to be cured or made good,
provided however, if the Mortgagee has cured any default
which can be cured by the payment of money within the 10
day period described above, the Mortgagee shall have a
reasonable time in which to cure any non-monetary default
of Tenant, so long as such time period does hot extend
beyond 6 months from the Mortgagees receipt of notice of
an Event of Default (as defined in Paragraph 21), and so
long as Mortgagee is attempting to cure the default with
due diligence.
13. LIEN:
Tenant shall keep the Leased Premises and the Building free from any
liens arising out of any work performed, materials furnished, or
obligations incurred by Tenant, provided, however, that Tenant shall
have the right to contest any such liens so long as Tenant obtains,
within 30 days following attachment of' the lien, a commitment for
Title Insurance in favor of Landlord insuring over the lien or so
long as Tenant provides a bond securing payment of the lien.
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<PAGE>
14. CONDEMNATION:
If the whole or any part of the Leased Premises shall be taken under
power of eminent domain or like power, or sold under imminent threat
thereof to any public authority or private entity having such power,
this Lease shall terminate as to the part of the Leased Premises so
taken or sold, effective as of the date possession is required to be
delivered to such authority or entity. Rent for the remaining term
shall be reduced in the proportion that the Total Square Footage of
the Leased Premises is reduced by the taking. If a partial taking or
sale of the Building or the Leased Premises (i) substantially reduces
the area of the Leased Premises resulting in a substantial inability
of Tenant to use the Leased Premises for Tenant's business purposes,
or (ii) renders the Building unviable to Landlord, Tenant in the case
of (i), or Landlord in the case of (ii) may terminate this Lease by
notice to the other party within thirty (30) days after the
terminating party receives a written notice of the portion to be
taken or sold, to be effective 'when the portion is taken or sold.
All condemnation awards and similar payments shall be paid and belong
to Landlord, except any amounts awarded or paid specifically for
Tenant's trade fixtures and relocation costs, provided such awards do
not reduce Landlord's award. Nothing contained herein shall diminish
Tenant's right to deal on its own behalf with the condemning
authority.
15. CONSTRUCTION CONDITIONS:
A. Landlord shall construct the improvements (the
"IMPROVEMENTS") to the Additional Expansion Space,
pursuant to the Work Letter attached hereto as Exhibit C
in a good and workmanlike manner substantially in
accordance with agreed plans and specifications. The
expense of constructing the improvements shall be borne as
provided in the Work Letter.
B. Landlord shall bear the risk of loss to the Improvements
for any Space of the Leased Premises until the Lease
Commencement Date for that Space occurs. Tenant may
inspect the Improvements at reasonable times so long as
such inspections do not interfere with Landlord's
construction activities. Tenant shall not exercise any
control over the persons performing construction
activities on the Leased Premises.
C. To the extent-that Paragraph 15 or Paragraph 16 below
conflicts with the Work Letter, the Work Letter shall
take control.
16. OCCUPANCY, LEASE COMMENCEMENT DATE:
The Additional Expansion Space shall be ready for occupancy on such
dates that the improvements are substantially completed in accordance
with Paragraph 15 above, subject only to items which will not
materially affect the use of Additional Expansion Space for the
Permitted Purposes. Prior to occupying the Additional Expansion
Space, Tenant shall
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<PAGE>
execute and deliver to Landlord a letter in the form attached hereto
and made a part hereof as EXHIBIT E , acknowledging the Date of-
Occupancy of the Additional Expansion Space.
17. RULES AND REGULATIONS:
Tenant covenants that Tenant and its agents, employees, invitees, or
those claiming under Tenant will at all times observe, perform and
abide by all reasonable rules and regulations promulgated by
Landlord, from time to time, as long as such rules and regulations
do not conflict with any provision of this Lease. Tenant must first
consent to any such modifications, which consent shall not be
unreasonably withheld. Landlord's rules and regulations in effect on
the date hereof are attached hereto and made a part hereof as
EXHIBIT F.
18. PARKING:
Tenant and its employees and invitees shall have the non-exclusive
privilege to use the surface parking in general areas reasonably
designated by Landlord pursuant to the rules and regulations relating
to parking adopted by Landlord from time to time. Tenant and its
employees and invitees shall have the exclusive privilege to use 404
covered parking spaces, as shown on EXHIBIT A, pursuant to the rules
and regulations relating to parking adopted by Landlord from time to
time, pursuant to Paragraph 17 above.
Tenant agrees not to overburden the surface parking facilities, if
any, and agrees to cooperate with Landlord and other tenants in the
use of such facilities. Landlord shall exert reasonable efforts to
police and tow vehicles which are not authorized to park in spaces
exclusively assigned to Tenant. Landlord may, at its own discretion,
change the location of the parking spaces available to Tenant, its
employees and invitees, provided that after such change, there shall
be available to Tenant and its employees and invitees approximately
the same number of spaces as available before the change, which
spaces shall be located on the real estate legally described on
EXHIBIT B. Landlord may at its own discretion valet park or implement
an alternate parking plan, on said premises, provided that after such
implementation there shall be made available to Tenant and its
employees and invitees approximately the same number of spaces as
available before the change.
19. ACCESS:
Tenant shall permit Landlord to enter the Leased Premises at
reasonable times for the purpose of inspecting, altering and
repairing the Leased Premises and ascertaining compliance by Tenant
with the provisions of this Lease. Landlord may also show the Leased
Premises to prospective Purchasers or renters during regular business
hours and upon reasonable notice, provided that Landlord shall not
unreasonably interfere with Tenant's business operations.
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<PAGE>
20. SIGNS:
All signs and symbols placed in the doors or windows or elsewhere
about the Leased Premises, or upon any other part of the Building,
including building directories, shall be subject to the approval of
Landlord. Tenant shall be entitled to place signs within the interior
of the Leased Premises without having first obtained Landlord's
approval. Upon expiration of this Lease, all signs installed by
Tenant shall be removed and any damage resulting therefrom shall be
promptly repaired, or such removal and repair may be done by Landlord
and the cost thereof charged to Tenant as Rent hereunder.
21. TENANT'S DEFAULT:
It shall be an "Event of Default" if (i) Tenant shall fail to pay any
monthly installment of Rent or any other charge or payment required
of Tenant hereunder within five (5) days of written notice; (ii)
Tenant shall violate or fail to perform any of the other conditions,
covenants or agreements herein made by Tenant, and such violation or
failure shall continue for a period of fifteen (15) days after
written notice thereof to Tenant by Landlord; (iii) Tenant shall make
a general assignment for the benefit of its creditors or shall file a
petition for bankruptcy or other reorganization, liquidation,
dissolution or similar relief;
(iv) a proceeding is filed against Tenant seeking any relief
mentioned in (iii) above which is not dismissed within thirty (30)
days after filing; (v) a trustee, receiver or liquidator shall be
appointed for Tenant or a substantial part of its property; (vi)
Tenant shall default in any obligation which Tenant may have to
Landlord pursuant to the Loan Agreement of even date herewith by and
between the parties hereto.
If an Event of Default occurs, then Landlord may either: (i) give
Tenant written notice of Landlord's intention to terminate this Lease
on the date of such given notice or any later date specified therein,
and on such specified date Tenant's right to possession of the
Leased Premises shall cease and this Lease shall thereupon be
terminated; or (ii) without further notice, reenter and take
possession of the Leased Premises, or any part thereof, without
authorization of any court, and repossess the same as of Landlord's
former estate, and expel Tenant and those claiming through or under
Tenant, and remove the effects of either or both without being deemed
guilty of any manner of trespass and without prejudice to any
remedies for arrears of rent, preceding breaches of covenants, or
loss of profits. Should Landlord elect to reenter as provided herein,
or should Landlord take possession pursuant to legal proceedings or
any notice provided for by law, Landlord may, from time to time,
without terminating this Lease, relet the Leased Premises or any part
thereof, on behalf of Tenant for such term or terms and at such rent
or rents, and upon such other terms and conditions, as Landlord may
deem advisable in its sole discretion (including concessions, free
rent, and payment of commissions) with the right to make alterations
and repairs to the Leased
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<PAGE>
Premises. No such reentry or taking of possession of the Leased
Premises by Landlord shall be construed as an election on Landlord's
part to terminate this Lease, unless a written notice of termination
is given to Tenant by Landlord.
In the event Landlord does not elect to terminate this Lease, but on
the contrary elects to take possession, then such repossession shall
not relieve Tenant of its obligations and liability under this Lease,
all of which shall survive such repossession. In the event of such
repossession, Tenant shall pay to Landlord as Rent all Rent which
would be payable hereunder if such repossession had not occurred,
less the net proceeds, if any, of any reletting or the value of
Landlord's use, if any, of the Leased Premises after deducting a11 of
Landlord's expenses in connection with such reletting, including, but
without limitation, all repossession costs, brokerage commissions,
legal expenses, expenses of employees, costs of alterations, expenses
of preparation for reletting, rental concessions and free rent.
Tenant shall pay such Rent to Landlord on the days on which the Rent
would have been payable hereunder if possession had not been retaken.
If, however, this Lease is terminated by Landlord, Landlord shall be
entitled to recover such damages from Tenant to which it may be
entitled in Law or in Equity, including all of Landlord's costs of
reletting the Leased Premises, including repair, alteration, and
preparation of Leased Premises for reletting, brokerage commissions,
attorneys' fees, rental concessions, and free rent. Said amount shall
be immediately due and payable by Tenant to Landlord. Any amount, due
to Landlord hereunder may be collected after termination, but prior
to the original expiration of the Lease Term.
22. REMOVAL OF PROPERTY:
In an Event of Default, Landlord shall have the right, but not the
obligation, to remove from the Leased Premises all personal property,
fixtures, furnishings and other property located therein, and to
store such property in any place selected by Landlord, including, but
not limited to, a public warehouse, at the expense and risk of the
owners thereof, with the right to sell such stored property seven (7)
days after notice to Tenant, after it has been stored for a period of
thirty (30) days or more. The proceeds of such sale shall be applied
first to the cost of such sale, second to the payment of the charges
for storage, if any, and third to the payment of other sums of money
which may then be due from Tenant to Landlord under any of the terms
hereof, the balance, if any, to be paid to Tenant.
23. QUIET ENJOYMENT, INABILITY TO PERFORM:
A. If, and so long as, Tenant pays Rent and keeps and
performs each and every term, covenant and condition
herein contained on the part and on behalf of Tenant to be
kept and performed, Tenant shall quietly enjoy the Leased
Premises without hindrance
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<PAGE>
or molestation by Landlord, subject to the terms,
covenants and conditions of this Lease and the Superior
Instruments, as defined and provided in Paragraph 35
below.
B. Landlord shall pay all taxes and assessments so as not to
jeopardize Tenant's use of the Leased Premises. The
foregoing notwithstanding, Landlord shall be entitled to
contest any tax or assessment which it deems to be
improperly levied against the
Building so long as Tenant's use of the Leased Premises is
not interfered with.
C. Except as provided in this Lease, this Lease and the
obligations of Tenant to pay Rent and perform all of the
terms, covenants and conditions on the part of
Tenant to be performed shall in no way be affected,
impaired or excused because Landlord, due to Unavoidable
Delay, is (a) unable to fulfill any of its obligations
under this Lease, or (b) unable to supply or delayed in
supplying any service expressly or implied to be supplied,
or (c) unable to make or delayed in making any repairs,
replacements, additions, alterations or decorations, or
(d) unable to supply or delayed in supplying any equipment
or fixtures. Landlord shall in each instance exercise
reasonable diligence to effect performance when and as
soon as possible.
"UNAVOIDABLE DELAY" shall mean any and all delays beyond
Landlord's reasonable control, including without
limitation, delay caused by Tenant, governmental
restrictions, governmental regulations or controls, undue
delays by governmental authorities, order of civil,
military, or naval authority, governmental preemption,
strikes, labor disputes, lockouts, shortage of labor or
materials, inability to obtain materials or reasonable
substitutes therefor, default of any contractor or
subcontractor, acts of God, fire, earthquake, floods,
explosions, actions of the elements, extreme weather
conditions, enemy action, civil commotion, riot or
insurrection, delays in obtaining governmental permits or
approvals or any other cause beyond Landlord's reasonable
control.
24. HOLD OVER TENANCY:
If (without execution of a new lease or written extension) Tenant
shall hold over after the expiration of the term of this Lease,
Tenant may, at Landlord's election, be deemed to be occupying the
Leased Premises as a tenant from month to month, which tenancy may be
terminated as provided by law. During such tenancy, Tenant agrees to
pay to Landlord Tenant's Pro Rata Share of Building Operating Costs
and 200% of the then current Base Rent, as set forth herein, unless a
different rate is agreed upon, and to be bound by all of the terms,
covenants and conditions as herein specified, so far as applicable.
The foregoing notwithstanding, in the event Landlord and Tenant are
negotiating in good faith over the extension of the Lease Term for a
period exceeding the renewal period contemplated in
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<PAGE>
Paragraph 40 of the Lease, Tenant shall pay Rent at the same rate as
was due during the then current renewal period, for a period not to
exceed sixty (6O) days following the termination date of such renewal
period. At the end of such sixty (60) day period, Tenant agrees to
pay to Landlord Tenant's Pro Rata Share of Building Operating Costs
and 200% of the then current Base Rent until Tenant's occupancy is
terminated.
25. ATTORNEYS' FEES:
In the event either party requires the services of an attorney in
connection with bringing suit to enforce the terms of this Lease, or
for the breach of any covenant or condition of this Lease, or for the
restitution of the Leased Premises to Landlord and/or eviction of
Tenant during said term, or after the expiration thereof, the party
prevailing in any such legal action shall be entitled to an award for
all legal costs and expenses, including, but not limited to, a
reasonable sum for attorneys' fees.
26. AMENDMENT, WAIVER:
This Lease constitutes the entire agreement between the parties. This
Lease shall not be amended or modified except in writing by both
parties. No covenant or term of this Lease shall be waived except
with the express written consent of the waiving party whose
forbearance or indulgence in any regard shall not constitute a waiver
of such covenant or term. Failure to exercise any right in one or
more instances shall not be construed as a waiver of the right to
strict performance or as an amendment to this Lease.
27. NOTICES:
All notices required by this Lease shall be in writing, sealed in an
envelope and delivered in person, or mailed by U.S. Registered or
Certified Mail, return receipt requested, postage prepaid to the
addresses specified below:
A. If intended for Landlord:
Missouri Falls Associates Limited Partnership
645 East Missouri Avenue
Phoenix, Arizona 85012
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<PAGE>
B. If intended for Tenant:
Northern Automotive Corporation
645 East Missouri Avenue Phoenix, Arizona 85012
Attn: Vice President and General Counsel
or to such other addresses as either party designates by
notice, as provided in this paragraph, to the other party,
from time to time. Notice shall be effective as of the date
delivered in person or the date on which such delivery is
rejected.
28. BINDING EFFECT, GENDER:
Subject to the provisions in Paragraph 12, this Lease shall be
binding upon and inure to the benefit of the parties and their
successors and assigns. It is understood and agreed that the terms
"Landlord" and "Tenant" and verbs and pronouns in the singular number
are uniformly used throughout this Lease regardless of gender, number
or fact of incorporation of the parties hereto.
29. ADDENDA AND ATTACHMENTS:
The typewritten addenda, exhibits or supplemental provisions, if any,
attached or added hereto, are made a part of this Lease
by reference and the terms thereof shall control over any
inconsistent provisions in the paragraphs of this Lease.
30. LIMITATION OF LANDLORD'S LIABILITY:
The obligations of Landlord under this Lease do not constitute
personal obligations of the individual partners, directors, officers,
or shareholders of Landlord, and Tenant shall look solely to the real
estate that is the subject of this Lease and to no other assets of
the Landlord for satisfaction of any liability in respect of this
Lease and will not seek recourse against the individual partners,
directors, officers or shareholders of Landlord or any of their
personal assets for such satisfaction or for any deficiency judgement
should Tenant be unable to satisfy any liability owed to it.
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<PAGE>
31. LANDLORD'S DEFAULT:
If Landlord defaults in performance of its obligation hereunder,
Tenant shall have all remedies available at law or in equity.
32. LANDLORD'S RESERVED RIGHTS:-
Without notice and without liability to Tenant, Landlord shall have
the right to:
(1) Change (i) the name of the Building and (ii)
the street address of the Building if required
to do so by an appropriate authority;
(2) Install and maintain reasonable signs on the
exterior of the Building;
(3) Grant utility easements or other easements to
such parties, or replat, subdivide or make such
other changes in the legal status of the land
underlying the Building, as Landlord shall deem
necessary, provided such grant or changes do
not substantially or materially interfere with
Tenant's use of the Leased Premises as intended
under this Lease; and
(4) Sell the Building and assign this Lease to the
purchaser (and upon such assignment be released
from all of its obligations under this Lease
which accrue after such assignment). Tenant
agrees to attorn to such purchaser, or any
other successor or assign of Landlord through
foreclosure or deed in lieu of foreclosure or
otherwise and to recognize such person as
Landlord under this Lease.
33. OFFSET STATEMENT:
Within twenty (20) days after request therefor by Landlord, its
agents, successors or assigns, Tenant shall deliver, in recordable
form, a certificate to any proposed mortgagee or purchaser, or to
Landlord, together with a true and correct copy of this Lease,
certifying, if applicable (i) that this Lease is in full force and
effect, without modification, (ii) the amount, if any, of prepaid
rent and security deposit paid by Tenant to Landlord, (iii) that
Landlord to the best of Tenant's knowledge, as of the date of the
certificate, has performed all of its obligations due to be performed
under this Lease and that there are no defenses, counterclaims,
deductions or offsets outstanding, or other excuses for Tenant's
performance under this Lease, or stating those claimed by Tenant, and
(iv) any other fact reasonably requested by Landlord or such proposed
mortgagee or purchaser, which does not modify or conflict with
Tenant's rights under this Lease. Tenant's failure to deliver said
statement in time shall be conclusive upon Tenant: (a) that this
Lease is in full force and effect, without modification except as may
be represented by Landlord, (b) that there are no uncured defaults in
Landlord's performance and Tenant has no right of offset,
counterclaim defenses or deduction
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against Rent or Landlord hereunder; and (c) that no more than one
period's Rent has been paid in advance.
34. ACCORD AND SATISFACTION:
No receipt and retention by Landlord of any payment tendered by
Tenant in connection with this Lease will give rise to, or support,
or constitute an accord and satisfaction, notwithstanding any
accompanying statement, instruction or other assertion to the
contrary (whether by notation on a check or in a transmittal letter
or otherwise), unless Landlord expressly agrees to an accord and
satisfaction in a separate writing duly executed by the appropriate
persons. Landlord may receive and retain, absolutely and for
itself, any and all payments so tendered, notwithstanding any
accompanying instructions by Tenant to the contrary. Landlord will be
entitled to treat any such payments as being received on account of
any item or items or Rent, interest, expense or damage due in
connection herewith in such amounts and in such order as Landlord may
determine at its sole option.
35. SEVERABILITY:
The parties intend this Lease to be legally valid and enforceable in
accordance with all of its terms to the fullest extent permitted by
law. If any term hereof shall be finally hold to be invalid or
unenforceable, the parties agree that such term shall be stricken
from this Lease, the same as if it never had been contained herein.
Such invalidity or unenforceability shall not extend to or otherwise
affect any other term of this Lease, and the unaffected terms hereof
shall remain in full force and effect to the fullest extent permitted
by law, the same as if such stricken term never had been contained
herein.
36. SUBORDINATION:
The rights of Tenant hereunder are, and shall be, at the election of
any mortgagee, subject and subordinate to the lien of any deeds of
trust, mortgages, the encumbrance of any leasehold financing, or the
lien resulting from any other method of financing or refinancing, now
or hereafter in force against the Building of which the Leased
Premises are a part, and to all advances made, or hereafter to be
made upon the security thereof (hereafter referred to as the
"Superior Instruments". The foregoing notwithstanding, for any liens
or Superior Instruments filed of record after the execution of this
Lease, the rights of Tenant under this Lease shall not be subject or
subordinated to such liens or Superior Instruments unless the holders
thereof execute an agreement in form and substance similar to the
agreement attached hereto as EXHIBIT G (the "Attornment and
Nondisturbance Agreement"). If requested, Tenant agrees to execute
whatever reasonable documentation may be required to further
effectuate the provisions of this paragraph.
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Tenant agrees to attorn to any purchaser of the Building, or any
other successor or assign of Landlord through foreclosure or deed in
lieu of foreclosure, in return for and upon delivery to Tenant by
such purchaser or mortgagee, as the case may be, of an agreement
substantially in the form of the Attornment and Nondisturbance
Agreement, attached hereto as Exhibit G.
37. TIME:
Time is of the essence hereof.
38. APPLICABLE LAW:
This Lease shall be construed according to the laws of the State of
Arizona and venue shall be in Maricopa County, Arizona.
39. BROKER'S INDEMNIFICATION:
As part of the consideration for the granting of this Lease, Tenant
represents and warrants to Landlord that no broker or agent
negotiated or was instrumental in the negotiation or consummation of
this Lease except the Broker of Record, and Tenant agrees to
indemnify Landlord against any loss, expenses, cost or liability
incurred by Landlord as a result of a claim by any broker or finder
claiming through Tenant.
40. OPTION TO EXTEND:
Landlord hereby grants Tenant two options to extend the term of the
Lease for three five-year periods. Except as provided herein, each
option is granted on the same terms and conditions provided for in
the Lease, except for Rent and Lease term. The Base Rent for the
extension periods shall be as follows:
<TABLE>
<CAPTION>
MONTHLY ANNUAL BASE RENT
PERIOD BASE RENT PER SQUARE FOOT
<S> <C> <C>
First Option 08/01/99- 07/31/02 See subparagraph B
Second Option 08/01/02 - 07/31/07 See subparagraph C
</TABLE>
Monthly Base Rent is calculated on the space initially leased, and
may be modified as a result of either a remeasurement of rentable
area in the Building as provided in paragraph 1, or of
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additional space being leased by Tenant in accordance with Paragraph
41. The above option terms shall apply to any such additional space
leased by Tenant.
Tenant must give notice of its intent to exercise each option granted
herein within 180 days prior to expiration of the Lease Term then in
effect. The options may not be exercised if Tenant is in default
under this Lease.
B. The Base rent shall be 95% of the then current Fair Market Rental
Value (FMRV) as defined in Subparagraph 40D below, provided however,
Base Rent shall be no less than $18.95 per square foot of Tenant's
Total Square Footage and no more than $24.00 per square foot of
Tenant's Total Square Footage.
C. The Base Rent shall be 95% of the then current Fair Market Rental
Value (FMRV) as defined in Subparagraph 40D below, provided however,
Base Rent shall be no less than $24.00 per square foot of Tenant's
Total Square Footage and no more than $28.00 per square foot of
Tenant's Total Square Footage.
D. Fair Market Rental Value (hereinafter referred to as "FMRV") as
used in this Section shall be the Base Rent calculated at the then
prevailing rate for similar space by a credit tenant in comparable
buildings located within the Phoenix Metropolitan Area. Said FMRV
shall be declared by Landlord in writing to Tenant not less than
eight (8) months prior to the anniversary of the commencement of the
extended term. Upon exercise of Tenant's option to extend the term as
herein provided, Tenant shall notify Landlord in writing of its
acceptance or rejection of such Base Rent. If within ten (10) days of
Tenant's registering it's rejection of Landlord's declaration the
parties have not agreed upon FMRV, it shall be established by
arbitration under the rules of American Arbitration Association then
in effect or by such other method, if any, as the parties may then
agree upon. The parties hereto agree to prevail upon the American
Arbitration Association, or such other party as may then be agreed
upon, to select qualified real estate brokers, appraisers, or
building managers to comprise the arbitration panel, and agree
further that the FMRV established by the arbitration panel shall be
binding. In the event the results of the arbitration are not known by
the tenth anniversary of the Commencement Date, Tenant shall pay a
rental equal to the Base Rent, as adjusted in accordance with
Section 3 of the Lease, payable in the month immediately preceding
the tenth anniversary of the Commencement Date (hereinafter defined
as the "Interim Rent") from the tenth anniversary of the Commencement
Date until such time as the FMRV has been established by the
arbitration panel.
Such FMRV shall be used to calculate the Base Rent which would have
been payable by Tenant commencing from the tenth anniversary of the
Commencement Date and ending on the date FMRV is established by
arbitration, had FMRV been charged commencing on the tenth
anniversary of the Commencement Date. From the Base Rent based on
FMRV is
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greater than Interim Rent, Tenant shall pay the difference, in lump
sum, on the first day of the month following the determination of
FMRV, or in the event FMRV is less than Interim Rent, Landlord shall
issue a credit for the difference against Base Rent otherwise payable
on the first day of the month following determination of FMRV.
41. RIGHT OF FIRST REFUSAL
A. Provided that no event of default shall have occurred and
be continuing, Tenant shall have a right of first refusal
for any space in the Building. If Landlord intends to
offer such space to a prospective tenant, Landlord shall,
prior to execution of a lease, first notify Tenant in
writing of the size and location of the space (hereafter
referred to as the "Additional Premises"). Tenant shall
have 10 days to notify Landlord in writing, of its
election to exercise its right of first refusal. If Tenant
fails to so notify Landlord or elects not to exercise the
right of first refusal, its right to lease the Additional
Premises shall terminate. If Tenant elects to exercise its
right of first refusal, Tenant shall be obligated to lease
the Additional Premises on the same terms and conditions
as this lease except Landlord shall complete the premises
substantially as required for the Additional Expansion
Space.
1. The Term shall commence as of the date Tenant
occupies such space and shall terminate upon
expiration or earlier termination of the Term
of this Lease;
2. Tenant's Pro Rata Share shall be recalculated
to include the number of rentable square feet
in the Additional Premises;
3. Tenant shall be provided parking equal to one
(1) parking space per 250 useable square feet
of the Additional Premises.
4. In the event the prospective lease is for a
term of five or more years and the offer is
received or made during the last two years of
the term of this Lease, Landlord shall notify
Tenant of such offer as herein required, and,
if Tenant desires to accept such offer, it must
likewise agree to extend the term of this Lease
for an additional option period. If no such
periods exist, Tenant shall have no rights
under this paragraph with respect to such
offer.
5. Tenant shall not have the right to sublet Such
Additional Space to the third party to whom
the Landlord offered the space for a period for
one (1) year after such offer.
B. This right of first refusal is not a continuing right.
Once Additional Premises is offered to Tenant and such
right is not exercised by Tenant then landlord shall have
no further obligation to offer such space to Tenant during
the Term.
-23-
<PAGE>
This Lease is executed as of the date first above written.
Subscribed and sworn before LANDLORD:
me this 1st of August
1989. -------------------------------
- ------------------------------ -------------------------------
Notary Public
ATTEST: By:
----------------------- ----------------------------
Its:
----------------------------
Subscribed and sworn before me TENANT:
this 12th of May
1989. -------------------------------
- ------------------------------ -------------------------------
Notary Public
ATTEST: By:
----------------------- ----------------------------
ATTEST: Its:
----------------------- ----------------------------
By:
----------------------------
Its:
----------------------------
-24-
<PAGE>
EXHIBIT 10.14
FIRST AMENDMENT TO AMENDED & RESTATED LEASE
THIS FIRST AMENDMENT TO AMENDED RESTATED LEASE ("Amendment") is made
between NORTHERN AUTOMOTIVE CORPORATION, an Arizona corporation, whose address
is 645 East Missouri Avenue, Phoenix, Arizona, 85012 ("Tenant"), and SPECTRUM
PROPERTIES INCORPORATED, an Oregon corporation ("Landlord") as successor to
MISSOURI FALLS ASSOCIATES LIMITED PARTNERSHIP, an Arizona limited partnership
("Missouri Falls"), whose address in 6212 North 29th Place, Phoenix, Arizona,
85016, on November 22, 1991, effective as of the lst day of January, 1991,
unless otherwise stated herein.
A. On March 14, 1987, Landlord and Tenant entered into a lease
agreement for certain office space (the "Leased Premises") located at 645 East
Missouri Avenue, Phoenix, Arizona, which lease was amended by that certain lease
Amendment I executed October 29, 1987 and that certain Amendment II executed
October 28, 1987 (collectively, "Original Lease").
B. On October 23, 1989, Landlord and Tenant entered into an amended
and restated lease (the "Restated Lease") for the Leased Premises which replaced
and superseded the original Lease.
C. Following the withdrawal of Tenant as a partner of Missouri Falls,
the Restated Lease was effectively amended in the manner set forth in Section 4
of that certain Agreement (the "1990 Agreement") executed by and between Tenant
and Missouri Falls and acknowledged and accepted by Landlord on or about January
1990.
D. Landlord and Tenant now desire to make certain further
modifications to the Restated Lease.
AGREEMENTS:
NOW, THEREFORE, effective as of January 1, 1991, the parties hereto
covenant and agree as follows:
1. Tenant acknowledges and agrees that Tenant owes Landlord the sum
of Twenty-Six Thousand Seven Hundred Twenty-seven and 48/100 Dollars
($26,727,48) for Tenant's PRO RATA share of the cost of new carpeting and
painting recently completed In the common areas of the Leased Premises.
Landlord and Tenant acknowledge and agree with one another that a
true and correct recapitulation and reconciliation of all outstanding accounts
between them is set forth on Schedule "1" attached hereto and made a part
hereof. Such Schedule indicates that Tenant presently owes to Landlord the sum
of $11,046.83. The Schedule is true, accurate and correct through October 31,
1991. At the execution hereof, Tenant shall pay to Landlord the foregoing sum
and all sums then due
<PAGE>
and payable by Landlord or Tenant under the Lease (together with all applicable
credits) shall be deemed paid in full.
2. Any and all references in the Restated Lease to the Leased
Premises as described on Exhibits A, Al, A2 and A3 to the Restated Lease, which
exhibits are hereby deleted in their entirety, are hereby modified to refer to
the space described on the attached Exhibits Al, A2, A3 and A4 which are hereby
inserted in lieu thereof. Any and all references in the Restated Lease to the
Leased Premises shall hereinafter refer to the space described in Exhibits Al,
A2, A3 and A4 attached hereto and incorporated by reference herein and therein.
3. The Restated Lease is hereby amended by DELETING SUBSECTION A OF
SECTION 1 in its entirety and inserting the following in lieu thereof:
"A. "LEASED PREMISES" shall mean the area shown as such on
EXHIBITS Al, A2, A3 and A4 attached hereto and made a part
hereof. The Leased Premises shall consist of:
(a) The Improved Space (herein so called) which
shall contain no less than the following:
(i) 76,868 rentable square feet during
the period commencing January 1,
1991 and ending June 30, 1991; and
(ii) 78,577 rentable square feet during
the remaining term of the Lease; and
(b) The Unimproved Space (herein so called) which
shall contain 12,123 rentable square feet."
4. The Restated Lease is hereby amended by DELETING SUBSECTION D OF
SECTION 1 in its entirety and inserting the following in lieu thereof:
"D. "LEASE TERM" shall mean the period beginning on the Lease
Commencement Date (i.e., August 1, 1989) and ending on
July 31, 1998. Any reference in this Lease to "Lease term"
or the words "DURING THE TERM" or "THE TERM" shall all be
deemed to include any extension thereof authorized under
this Lease."
Further references in the Restated Lease which would indicated that the Lease
Term would extend from August 1, 1998 through July 31, 1999 ("Interim Period")
shall be deemed excised. Where such excisions are made, the remaining text shall
be deemed amended accordingly. In addition, references to rentals or other
charges due during the Interim Period shall be deemed excised and the remainder
of the text shall be deemed to be modified accordingly.
-2-
<PAGE>
5. The Restated Lease is hereby amended effective as of January 1,
1991 by DELETING SUBSECTION E OF SECTION 1 in its entirety and inserting the
following in lieu thereof:
"E. "BASE RENT" shall mean the following for the periods and
space indicated, subject to the provisions set forth in
Section 3(c) below:
<TABLE>
<CAPTION>
ANNUAL BASE RENT
PER SQ. FT. OF
TENANT'S RENTABLE
MONTHLY BASE SQUARE FOOTAGE
RENT FOR THE OF THE IMPROVED
PERIOD IMPROVED SPACE SPACE
<S> <C> <C>
01/01/91 to 06/30/91 $ 97,622.36 $15.24
07/01/91 to 07/31/92 $ 99,792.79 $15.24
08/01/92 to 07/31/95 $114,722.42 $17.52
08/01/95 to 07/31/98 $124,151.66 $18.96
</TABLE>
<TABLE>
<CAPTION>
ANNUAL BASE RENT
PER SQ. FT. OF
TENANT'S RENTABLE
MONTHLY BASE SQUARE FOOTAGE
RENT FOR THE OF THE UNIMPROVED
PERIOD UNIMPROVED SPACE SPACE
<S> <C> <C>
01/01/91 to 12/31/91 $7,576.87 $7.50
01/01/92 to 12/31/92 $7,879.95 $7.80
01/01/93 to 12/31/93 $8,183.02 $8.10
01/01/94 to 12/31/94 $8,486.10 $8.40
01/01/95 to 12/31/95 $8,789.17 $8.70
01/01/96 to 12/31/96 $9,092.25 $9.00
01/01/97 to 12/31/97 $9,395.32 $9.30
01/01/98 to 07/31/98 $9,698.40 $9.60
</TABLE>
6. The Restated Lease is hereby amended by DELETING THE FIRST
SENTENCE IN SUBSECTION F OF SECTION 1 and inserting the following in lieu
thereof:
F. "TENANT'S RENTABLE SQUARE FOOTAGE" shall mean an amount
equal to 110.7% of the usable square feet occupied and
leased by Tenant. The usable square feet occupied,
utilized and leased by Tenant in the Unimproved Space is
10,952 square feet and the usable square feet occupied,
utilized and leased by Tenant in the Improved Space during
the period commencing January 1, 1991
-3-
<PAGE>
and ending June 30, 1991, is 69,438 square feet and
thereafter 70,982 square feet as more thoroughly set forth
below:
<TABLE>
<CAPTION>
PERIOD
01/01/90 TO DURING REMAINING
LOCATION 06/30/91 TERM OF LEASE
<S> <C> <C>
1st Floor 8,900 sq. ft 8,900 sq. ft
2nd Floor 10,562 sq. ft. 10,562 sq. ft.
3rd Floor 26,663 sq. ft. 26,663 sq. ft.
4th Floor 23,313 SQ. FT. 24,857 SQ. FT.
-------------- --------------
69,438 sq. ft. 70,982 sq. ft.
</TABLE>
Based on a 10.7% load factor, Tenant's Rentable Square Footage in the
Improved Space during the period commencing January 1, 1991 and
ending June 30, 1991 is 76,868 rentable square feet (69,438 usable
sq. ft x 1.107 = 76,868 rentable sq. ft.) and thereafter 78,577
rentable square feet (70,982 usable sq. ft. x 1.107 = 78,577 rentable
sq. ft.). Based on a 10.7% load factor, Tenant's Rentable Square
Footage in the Unimproved Space is 12,123 rentable square feet
(10,952 usable sq. ft. x 1.107 = 12,123 rentable sq. ft.)."
The parties acknowledge that, at certain places, the Restated Lease refers to
"TENANT IS TOTAL SQUARE FOOTAGE." The parties further acknowledge that, as of
the Effective Date, when used therein, the term "TENANT'S TOTAL SQUARE FOOTAGE"
shall mean and refer to the calculation of Tenant's Rentable Square Footage set
forth above (i.e., Tenant's usable square footage plus its PRO RATA share of the
Common Areas).
7. The Restated Lease is hereby amended by DELETING SUBSECTION G OF
SECTION 1 in its entirety and substituting in lieu thereof the following:
"G. "PERMITTED PURPOSE" shall mean use of the Improved Space for
general office purposes and purposes incidental thereto, and the use
of the Unimproved Space for storage for Tenant's property as long as
it remains unimproved or for general office purposes and incidental
purposes in the event it is subsequently improved."
8. The Restated Lease is hereby amended by DELETING THE FIRST
SENTENCE IN SUBSECTION A OF SECTION 3 and inserting the following in lieu
thereof:
"Effective as of August 1, 1991, Tenant covenants and
agrees to pay to Landlord during the term of this Lease,
at the place specified by Landlord, the
-4-
<PAGE>
Base Rent , without deduction or setoff (unless expressly
authorized by this Lease), due and payable in advance on
the first day of each month. Tenant shall also pay all
sales or transaction privilege taxes due or coming due on
all sums payable by Tenant to Landlord hereunder, whether
such tax is levied upon Tenant or Landlord. Taxes shall be
paid at the same time as payments of Base Rent or other
sums due hereunder. All sums payable by Tenant under this
Lease shall be deemed rent."
9. The Restated Lease is hereby amended by ADDING THE FOLLOWING AT
THE END OF SUBSECTION A OF SECTION 3:
"Notwithstanding any provision herein to the contrary, and
provided that Tenant is not in default in the payment of
Rent, then, as set forth in the 1990 Agreement:
(i) The monthly payment of Base Rent
commencing on January 1, 1991 and
the next seventy-eight (78) monthly
payments thereafter shall each be
reduced by the sum of Nine Thousand
Three Hundred Seventy-five and
No/100 Dollars ($9,375.00) per
month; and
(ii) commencing on August 1, 1997, the
monthly payments of Base Rent shall
again be payable in full in
accordance with the schedule set
forth in Subsection E of section 1
above."
10. Effective as of August 1, 1991, the Restated Lease is hereby
amended by DELETING sales taxes from the definition of and as an item to be
included in "Building Operating Costs."
11. Effective as of August 1, 1991, the Restated Lease is hereby
amended by DELETING SUBSECTION C OF SECTION 3 in its entirety and inserting the
following in lieu thereof:
"C. During the period January 1, 1991 through June 30, 1991, Tenant
shall be liable for Tenant's PRO RATA share of Building Operating
Costs, which shall be $5.35 per square foot of Tenant's Rentable
Square Footage of 76,868. During the period July 1, 1991 through
December 31, 1991, Tenant shall be liable for Tenant's pro rata share
of Building Operating Costs, which shall be $2.85 per square foot of
Tenant's Rentable Square Footage of 78,577. Thereafter, Tenant's
liability for its pro rata share of Building Operating Costs shall be
increased annually by an amount equal to the actual annual increase
of the Building Operating Costs per square foot of the total Building
square footage for the calendar year in question above the Building
Operating Costs per square foot of the total Building square footage
for the 1991
-5-
<PAGE>
calendar year. For example, the limit placed on Tenant's liability
for its pro rata share of Building Operating Costs for the 1992
calendar year shall be an amount equal to the product of Tenant's
Rentable Square Footage times the sum of $2.85 PLUS the increase, on
a per square foot basis, of such Building Operating Costs in 1992 as
opposed to 1991. If in 1992 such Building Operating Costs rose $.30
per square foot of the total Building square footage above the amount
that such Building Operating Costs were in 1991, then the limit
placed on Tenant's liability for its pro rata share of Building
Operating Costs for the 1992 calendar year would be $3.15 ($2.85 plus
$.30) per square foot of Tenant's Rentable Square Footage. If in 1993
Building Operating Costs rose $.60 per square foot of the total
Building square footage above the amount they were in 1991, then the
limit placed on Tenant's liability for its pro rata share of Building
Operating Costs for the 1993 calendar year would be $3.45 ($2.85 plus
$.60) per square foot of Tenant's Rentable Square Footage. For
purposes of computing Tenant's pro rata share of Building Operating
Costs, only Tenant's Rentable Square Footage for the Improved Space
shall be used in the calculation AS LONG, AS BUT ONLY AS LONG AS the
Unimproved Space remains unimproved. In the event the Unimproved
Space is subsequently improved, then commencing with the month in
which the construction of any improvements in the Unimproved Space is
commenced (i) Tenant's Rentable Square Footage for BOTH the Improved
Space and the portion of the Unimproved Space theretofore improved
shall be used for purposes of computing Tenant's PRO RATA share of
Building Operating Costs; and (ii) the monthly Base Rent for the
portion of the Unimproved Space theretofore improved shall be
increased and shall instead be based on the higher annual Base Rent
per square foot of Tenant's Rentable Square Footage of the Improved
Space and shall no longer be based on the lower annual Base Rent per
square foot of Tenant's Rentable Square Footage of the Unimproved
Space, as set forth in Section l(E) above."
12. The Restated Lease is hereby amended by DELETING the third to the
last sentence in SUBSECTION B OF SECTION 6 and inserting the following in lieu
thereof:
"Landlord and Landlord's management agency and mortgagee, if any,
shall be named as additional insureds under such insurance and such
insurance shall be primary and noncontributing with any insurance
carried by Landlord."
13. The Restated Lease is hereby amended by DELETING SECTION 12(a) in
its entirety and inserting the following in lieu thereof:
"Except as provided in Section 12 (b) , Tenant may not sell,
transfer, assign, sublet, encumber, or hypothecate all or any part of
Tenant's interest in the Leased Premises, or its estate or interest
in this Lease (hereafter, an "Assignment"), without the prior written
consent of Landlord and any attempt so to do shall be void and confer
no right upon the purchaser, transferee, assignee, sublessee or
encumbrance holder. However, in no event shall Landlord unreasonably
withhold or delay its consent to any proposed
-6-
<PAGE>
Assignment of the Leased Premises if the proposed Assignment does not
relate to Unimproved Space (as to which Landlord may withhold consent
in its sole discretion). In the event Tenant wishes to Assign its
interest in the Leased Premises, it shall provide to Landlord
reasonable information regarding the proposed Assignee's business and
method of operation. Unless Tenant requests a release from liability
(which Landlord is not obligated to grant), Tenant shall not be
obligated to provide financial statements for such proposed Assignee.
In the event that Landlord does not respond within ten (10) business
days after receipt of all such reasonable information, such proposed
Assignee shall be deemed approved. In addition, without the consent
of Landlord, which consent may be withheld in Landlord's sole, only
and unfettered discretion, any such Assignment shall not release
Tenant from any of its obligations under the Restated Lease, all of
the same to remain in full force and effect."
Section 12(b) of the Restated Lease shall remain unaffected.
14. The Restated Lease is hereby amended by DELETING SECTION 15 in
its entirety and inserting the following in lieu thereof:
"15. ADDITIONAL EXPANSION SPACE.
Tenant shall use the Unimproved Space solely for storage space by
Tenant and for no other purpose. Tenant acknowledges and agrees that
the Unimproved Space is leased by Tenant "as is," that Landlord has
no obligation to construct or to pay for the construction of any
improvements on the Unimproved Space and that if any improvements are
made to the Unimproved Space they shall be made at Tenant's sole cost
and expense. Notwithstanding any provision in this Lease to the
contrary, Landlord shall have the right at any time during the term
of this Lease to terminate Tenant's occupancy and lease of the
Unimproved Space, which at the time of termination remains
unimproved, by delivering thirty (30) day advance written notice
thereof to Tenant."
15. The Restated Lease is hereby amended by DELETING SECTION 16 in
its entirety and inserting the following in lieu thereof:
"16. [RESERVED]"
16. The Restated Lease is hereby amended by MODIFYING SECTION 18 to
reduce the covered parking spaces available to Tenant and its employees and
invitees to three hundred ten (310) instead of four hundred four (404).
17. The Restated Lease is hereby amended by DELETING SUBSECTION A OF
SECTION 27 which sets forth the original designated address for Landlord in its
entirety and inserting the following in lieu thereof:
-7-
<PAGE>
"A. If intended for Landlord:
Spectrum Properties Incorporated
c/o CBS Property Services, Inc.
645 East Missouri, Suite 108
Phoenix, Arizona 85012"
18. The Restated Lease is hereby amended by DELETING THE SECTION 40
in its entirety and inserting the following in lieu thereof:
Landlord hereby grants to Tenant two options ("Option") to extend the
term, each for a five-year period ("Option Term"). Except as provided
herein, each Option is granted on the same terms and conditions
provided for in the Lease, except for Rent and Lease term. The Base
Rent for the Option Terms shall be equal to 95% of the then-current
Fair Market Rental Value ("FMRV") as defined below for each Option
Term; provided, however, that the Base Rent for the first Option Term
shall be no less than $18.95 per square foot of Tenant's Total Square
Footage and no more than $24.00 per square foot of Tenant's Total
Square Footage and for the second Option Term, shall be no less than
$24.00 per square foot of Tenant's Total Square Footage and no more
than $28.00 per square foot of Tenant's Total Square Footage.
Monthly Base Rent shall be calculated based on the space leased
pursuant to this First Amendment, and may be modified by additional
Unimproved Space being improved by Tenant pursuant to the terms
hereof.
Tenant must give notice of its intent to exercise each option granted
herein within 180 days prior to the expiration of the Lease Term then
in effect. The Options may not be exercised if Tenant is then in
default under this Lease.
FMRV as used in this Section shall be Base Rent calculated at the
then-prevailing rate for similar space by a tenant having a similar
credit rating in comparable buildings located within the Phoenix
metropolitan area. FMRV shall be declared by Landlord in writing to
Tenant not less than eight (8) months prior to the commencement of
any Option Term. Upon exercise of Tenant's option to extend as herein
provided, Tenant shall notify Landlord in writing of its acceptance
or rejection of such proposed Base Rent. If, within ten (10) days of
Tenant's registering its rejection of Landlord's declaration, the
parties have not agreed upon FMRV, it shall be established by
arbitration under the commercial arbitration rules of the American
Arbitration Association then in effect or by such other method, if
any, as the parties may then agree upon. The parties agree to prevail
upon the American Arbitration Association, or such other party as may
then be agreed upon, to select qualified real estate brokers,
appraisers or building managers to comprise the three-person
arbitration panel and
-8-
<PAGE>
further agree that the FMRV established by arbitration shall be
binding. In the event the results of the arbitration are not known by
the start of an Option Term, Tenant shall pay a rental equal to the
Base Rent, as adjusted in accordance with Section 3 of the Lease,
payable in the month immediately preceding the day upon which the
option Term starts (the "Interim Rent") from the day upon which such
Term starts until the time the FMRV has been established by the
arbitration panel. Such FMRV shall then be used to calculate the Base
Rent which would have been payable by Tenant during such Option Term
and ending on the date the FMRV is established by arbitration, had
FMRV been changed commencing on the date the Option Term began. If
the Base Rent based on the FMRV is greater than the Interim Rent,
Tenant shall pay the difference, in lump sum, on the first day of the
month following the determination of FMRV or in the event that FMRV
is less than the Interim Rent, Landlord shall issue a credit for the
difference against Base Rent otherwise payable on the first day of
the month following the termination of FMRV.
19. The Restated Lease is hereby amended by DELETING SECTION 41 in
its entirety.
20. Tenant hereby acknowledges that as of the date this Amendment is
executed by Tenant and Landlord, November 22, 1991, the Restated Lease is in
full force and effect, Landlord is not in known default under the Restated
Lease, and Tenant does not have any defense to payment of rent, charge, lien or
claim of set off or any other claim against Landlord under or with respect to
the Restated Lease or against the rents payable thereunder. Similarly, Landlord
acknowledges that as of the date this Amendment is executed by Landlord, the
Restated Lease is in full force and effect and Tenant is not in known default
under the Restated Lease. Effective as of the date this Amendment is executed by
Tenant, Tenant does release, acquit and forever discharge Landlord and
Landlord's subsidiaries, affiliates, officers, directors, agents, employees,
respective heirs, personal representatives, successors, and assigns (hereinafter
collectively referred to as the "Released Parties") from any and all claims,
demands, debts, actions, causes of action, suits, contracts, agreements,
obligations, accounts, defenses, and liabilities of any kind and character
whatsoever, known or unknown, suspected or unsuspected, in contract or in tort,
at or in equity, including without limitation, such claims and defenses as
frauds, mistake and duress, which Tenant may ever have had, now have, or might
hereafter have against the Released Parties, jointly or severally, for or by
reason of any matter, cause, or thing whatsoever occurring before the date this
Amendment was executed by Tenant. Tenant acknowledges and agrees that this
release is not limited to claims which are known or disclosed and further
agrees, represents and warrants that the releases and waivers described in this
Section are unconditional, enforceable and irrevocable and shall survive
termination of the Restated Lease. However, in no event shall the foregoing
release extend to unknown causes of action which Tenant may have or claim to
have as respects or arises out of the condition of the Building or of the
construction or condition of the Leased Premises, to the extent that Tenant may
have the same or claim to have the same at any time in the future. Tenant
represents and warrants to Landlord that it knows no claims which it has at this
time relating to the Building or the Premises which are a part thereof.
-9-
<PAGE>
Landlord does hereby release, acquit and forever discharge Tenant and
Tenant's subsidiaries, affiliates, officers, directors, agents, employees,
respective heirs, personal representatives, successors, and assigns
(hereinafter collectively referred to as the "Tenant Released Parties") from any
and all known claims, demands, debts, actions, causes of action, suits,
contracts, agreements, obligations, accounts, defenses, and liabilities of any
kind and character whatsoever, in contract or in tort, at or in equity,
including without limitation, such claims and defenses as frauds, mistake and
duress, which Landlord may ever have had or now has against the Tenant Released
Parties, jointly or severally, for or by reason of any matter, cause, or thing
relating to or arising out of the Amended & Restated Lease and the Leased
Premises occurring before the date this Amendment was executed by Landlord.
21. Except as herein amended, the provisions of the Amended &
Restated Lease shall remain in full force and effect in accordance with the
provisions thereof.
22. This Amendment shall be binding upon and inure to the benefit of
the heirs, successors, personal representatives and assigns of the respective
parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
effective as of the day and year first above written.
"TENANT"
NORTHERN AUTOMOTIVE CORPORATION,
AN ARIZONA CORPORATION
Dated _______________________ By _____________________________________
Its _______________________________
"LANDLORD"
SPECTRUM PROPERTIES INCORPORATED,
AN OREGON CORPORATION
Dated _______________________ By _____________________________________
Its _______________________________
-10-
<PAGE>
EXHIBIT 10.15
TAX SHARING AGREEMENT
---------------------
THIS TAX SHARING AGREEMENT (the "Agreement") is entered into this
day of , 1996, by and among (i) CSK Group, Ltd., a Delaware corporation
("CSK"), (ii) CSK Holdings, Ltd., a Delaware corporation ("Holdings"), (iii) CSK
Holdings II, Ltd., a Delaware corporation ("Holdings II"), (iv) CSK Auto, Inc.,
a Delaware corporation ("Auto"), and (v) each of the corporations identified at
the end of this Agreement, which will be subsidiaries of Auto.
W I T N E S S E T H
-------------------
WHEREAS, CSK owns all of the outstanding stock of Holdings, an
intermediate holding company which will, directly or through Holdings II, own
all of the outstanding stock of Auto; and
WHEREAS, CSK, Holdings, Holdings II, Auto and others are members of an
affiliated group of corporations that file consolidated federal income tax
returns pursuant to Section 1501 et seq. of the Internal Revenue Code of 1986,
as amended (the "Code"), some or all of which may file combined, consolidated or
unitary tax returns for state or local taxes (such applicable corporations, as
the context may require, are the "CSK Affiliated Group"); and
WHEREAS, it is proposed that Auto stock be sold to persons who are not
members of the CSK Affiliated Group pursuant to a public offering (the "Public
Offering"); and
WHEREAS, after the Public Offering, Auto will continue to be a member
of the CSK Affiliated Group, and the parties desire to set forth their agreement
regarding how the tax liability and tax benefits of the CSK Affiliated Group
will be allocated among and shared by the members of the CSK Affiliated Group.
NOW, THEREFORE, in consideration of the covenants contained herein,
and intending to be legally bound hereby, the parties hereto agree as follows:
1. Certain Definitions. The following terms shall have the following
-------------------
meanings:
"CSK Group" shall mean CSK and all direct and indirect subsidiaries of
---------
CSK, and any predecessors of such corporations (within the meaning of Treasury
Regulation (S) 1.1502-1(f)(1)), which are or were eligible to be included in an
affiliated group of corporations under Section 1504(a) of the Code of which CSK
is the common parent, other than the Auto Group, or those members of the CSK
Group that are included in the Combined State Tax Return filed by the CSK
Affiliated Group for the tax year, as the context may require.
"Combined State Tax Liability" shall mean the liability of the CSK
----------------------------
Affiliated Group, the Auto Group, or the CSK Group as the context may, for all
state and local
<PAGE>
taxes computed on a combined, consolidated or unitary basis for the applicable
period or periods, together with any and all interest, additions to tax, fines
and penalties with respect thereto. State and local taxes include income taxes,
franchise taxes, excise taxes, or net profits taxes. State and local taxes do
not include sales, use, employment or withholding taxes.
"Combined State Tax Return" shall mean any tax return filed or
-------------------------
fileable by the CSK Affiliated Group on a combined, consolidated or unitary
basis covering any Combined State Tax Liability.
"Auto Group" shall mean Auto and all direct and indirect subsidiaries
----------
of Auto, and any predecessors of such corporations (within the meaning of
Treasury Regulation (S) 1.1502-1(f)(1)), which would be or would have been
eligible to be included in an affiliated group of corporations under (S) 1504(a)
of the Code of which Auto would be the common parent if Auto were not a member
of the CSK Affiliated Group, or those members of the Auto Group that are
included in the Combined State Tax Return filed by the CSK Affiliated Group for
the tax year, as the context may require.
"Departing Member" shall mean a member of the CSK Group or the Auto
----------------
Group, as the case may be, which has ceased to be a member of the CSK Affiliated
Group.
"Federal Consolidated Tax Liability" shall mean the liability of the
----------------------------------
CSK Affiliated Group, the Auto Group, or the CSK Group, as the context may
require, for all United States Federal income, environmental, excise, and
alternative or add-on minimum tax for the applicable period or periods, together
with any and all interest, additions to tax, fines and penalties with respect
thereto.
"Federal Consolidated Tax Return" shall mean any tax return filed or
-------------------------------
fileable by the CSK Affiliated Group on a consolidated basis pursuant to the
Code and the consolidated returns regulations promulgated thereunder, as the
Code and such regulations shall be in effect from time to time.
"Term of this Agreement" shall mean any period during which any member
----------------------
of the CSK Group and any member of the Auto Group are included in the CSK
Affiliated Group, and as to each member of the CSK Group or the Auto Group, as
the context may require, the period (i) commencing with and on the later of the
date of this Agreement or the date on which such member becomes a member of such
group and (ii) ending with and on the date such member becomes a Departing
Member with respect to either the CSK Group or the Auto Group.
"Treasury Regulations" shall mean the rules and regulations
--------------------
promulgated from time to time under the Code.
2. Preparation and Filing of Tax Returns.
-------------------------------------
2
<PAGE>
(a) For each tax year during the Term of this Agreement:
(i) Auto and each other member of the Auto Group shall to the extent
permitted by applicable law join in the filing by CSK of all Federal
Consolidated Tax Returns and all Combined State Tax Returns which include the
CSK Group (or are otherwise filed by CSK), and shall execute and file such
consents, elections and other documents that CSK determines may be required
or appropriate for the proper filing of such returns, and
(ii) CSK shall file on behalf of the CSK Affiliated Group and each
member thereof all such Federal Consolidated Tax Returns and Combined State
Tax Returns and CSK shall pay all taxes required to be paid by virtue of the
filing of such Federal Consolidated Tax Returns and Combined State Tax
Returns, subject to Sections 3 and 4 hereof. CSK shall also be entitled to
receive and retain, subject to Sections 3 and 4 hereof, any refunds of
federal and state taxes relating to any Federal Consolidated Tax Return or
Combined State Tax Return. CSK shall indemnify and hold the Auto Group
harmless from and against any claims by the Internal Revenue Service or any
state taxing authority in connection with the tax liability (including
interest and penalties) of the CSK Affiliated Group (but CSK shall be
entitled to receive from the Auto Group all amounts provided for under
Sections 3 and 4 hereof).
(b) CSK shall have sole and exclusive authority to make all determinations
and elections, and Auto on behalf of the members of the Auto Group shall execute
and file such consents, elections and other documents that CSK determines may be
required or appropriate, regarding the treatment of any item or the taking of
any position with respect to any item or transaction of Auto or any member of
the Auto Group includable in the Federal Consolidated Tax Returns or the
Combined State Tax Returns of the CSK Affiliated Group. All such determinations
and elections shall be conclusive and binding upon Auto and each member of the
Auto Group.
(c) Auto shall cause any corporation which, becomes eligible to be included
in the Auto Group to become a party to this Agreement.
(d) The Auto Group and each member thereof shall prepare and deliver to
CSK, on or before such dates as CSK reasonably shall determine, such
information, in such form and scope and as may be reasonably requested from time
to time by CSK, in order to permit CSK to prepare the Federal Consolidated Tax
Returns and the Combined State Tax Returns of the CSK Affiliated Group and to
calculate the Auto Group's share (actual and estimated) of (i) the Federal
Consolidated Tax Liability and (ii) the Combined State Tax Liability of the CSK
Affiliated Group, as well as any adjustments thereto pursuant to Sections 3 and
4 hereof.
3
<PAGE>
3. Federal Consolidated Tax Liabilities.
------------------------------------
(a) With respect to each tax year of the CSK Affiliated Group during the
Term of this Agreement, Auto shall pay to CSK a sum equal to that portion of the
Federal Consolidated Tax Liability of the CSK Affiliated Group for such tax year
that is allocable to the Auto Group pursuant to the allocation method set forth
in Treasury Regulations (S) 1.1552-1(a)(2) as if there were two members of the
CSK Affiliated Group, with the Auto Group being the first member and the CSK
Group being the second member.
(b) With respect to each tax year of the CSK Affiliated Group during the
Term of this Agreement, Auto shall pay to CSK a further sum equal to the amount,
if any, by which (i) the Federal Consolidated Tax Liability of the Auto Group
determined as if the Auto Group were a separate affiliated group filing a
separate consolidated federal income tax return for such year exceeds (ii) the
amount allocated to the Auto Group for such tax year pursuant to Section 3(a)
hereof, computed in a manner similar to the percentage method set forth in
Treasury Regulation (S)1.1502-33(d)(3) using 100%, as if there were two members
of the CSK Affiliated Group, with the Auto Group being the first and the CSK
Group being the second member.
(c) With respect to each tax year of the CSK Affiliated Group during the
Term of this Agreement, CSK shall pay to Auto the amount, if any, by which (i)
the Federal Consolidated Tax Liability of the CSK Group determined as if the CSK
Group were a separate affiliated group filing a separate consolidated Federal
income tax return for such year exceeds (ii) the Federal Consolidated Tax
Liability of the CSK Affiliated Group allocable to the CSK Group pursuant to
Section 3(a).
(d) With respect to each tax year of the CSK Affiliated Group during the
Term of this Agreement, Auto shall pay to CSK:
(i) within five (5) business days after notice thereof from CSK the
amounts payable under Sections 3(a) and 3(b) hereof, and
(ii) after notice thereof from CSK but no earlier than three (3)
business days prior to the date on which estimated tax payments on behalf of
the CSK Affiliated Group would be required, the amount which CSK estimates
would be payable by the Auto Group as estimated tax payments pursuant to
Section 6655(d)(1)(A) and (B)(i) of the Code based upon a separate estimated
tax liability for the Auto Group as determined pursuant to Section 3(b)(i)
hereof.
(e) With respect to each tax year of the CSK Affiliated Group during the
Term of this Agreement, CSK shall pay to Auto the amount payable under Section
3(d) hereof within five (5) business days after the Federal Consolidated Tax
Return is filed with respect to such tax year.
4
<PAGE>
(f) In the event that it shall be subsequently determined that Auto has
over-paid, or CSK has under-paid, any amount payable under this Section 3
(whether such determination is made by CSK, is based upon the filing by CSK of
any amended return or is based upon the results of any audit or the resolution
of any tax controversy), then CSK shall promptly pay such difference to Auto.
However, if it shall be subsequently determined that Auto has under-paid, or CSK
has over-paid, any amounts payable under this Section 3 (whether such
determination is made by CSK, is based upon the filing by CSK of any amended
return or is based upon the results of any audit or the resolution of any tax
controversy), Auto shall promptly pay to CSK such amount upon demand.
4. Combined State Tax Liabilities.
------------------------------
(a) With respect to each tax year of the CSK Affiliated Group during the
Term of this Agreement, Auto shall pay to CSK an amount equal to the portion of
the Combined State Tax Liability of the CSK Affiliated Group for such tax year
that is allocable to the Auto Group pursuant to an allocation method similar to
the method set forth in Treasury Regulation (S) 1.1552-1(a)(2) or any comparable
provision of state law as if there were two members of the CSK Affiliated Group,
with those members of the Auto Group included within the Combined State Tax
Return of the CSK Affiliated Group being the first member and all members of the
CSK Group included within such Combined State Tax Return being the second
member.
(b) With respect to each tax year of the CSK Affiliated Group during the
Term of this Agreement, Auto shall pay to CSK a further sum equal to the amount,
if any, by which (i) the Combined State Tax Liability of the members of the Auto
Group that are included within the Combined State Tax Return of the CSK
Affiliated Group for such year determined as if the Auto Group filed a separate
Combined State Tax Return for such year exceeds (ii) the amount allocated to the
Auto Group for such tax year pursuant to Section 4(a) hereof in a manner similar
to the percentage method set forth in Treasury Regulation (S)1.1502-33(d)(3)
using 100% or any comparable provision of state law, as if there were two
members of the CSK Affiliated Group, with those members of the Auto Group
included within the Combined State Tax Return of the CSK Affiliated Group being
the first member and those members of the CSK Group included within such
Combined State Tax Return being the other member.
(c) With respect to each tax year of the CSK Affiliated Group during the
Term of this Agreement, CSK shall pay to Auto the amount, if any, by which (i)
the Combined State Tax Liability of the CSK Group determined as if the members
of the CSK Group that are included within the Combined State Tax Return of the
CSK Affiliated Group for such year filed a Combined State Tax Return for such
year, exceeds (ii) the Combined State Tax Liability of the CSK Affiliated Group
allocable to the CSK Group pursuant to Section 4(a) hereof.
(d) With respect to each tax year of the CSK Affiliated Group during the
Term of this Agreement, the Auto Group shall pay to CSK:
5
<PAGE>
(i) within five (5) business days after notice thereof from CSK, the
amounts payable under Sections 4(a) and 4(b) hereof, and
(ii) after notice thereof from CSK but no earlier than three (3)
business days prior to the date on which estimated tax payments on behalf
of the CSK Affiliated Group would be required, the amount which CSK
estimates would be payable by the Auto Group pursuant to sections of the
relevant state tax statutes similar to Section 6655(d)(1)(A) and (B)(i) of
the Code based upon 100% of the estimated tax liability for the Auto
Group.
(e) With respect to each tax year during the Term of this Agreement, CSK
shall pay to Auto the amount payable under Section 4(c) hereof within five
(5) business days after any Combined State Tax Return is filed.
(f) In the event that it shall be subsequently determined that Auto has
over-paid, or CSK has under-paid, any amounts payable under this Section 4
(whether such determination is made by CSK, is based upon the filing by CSK
of any amended return or is based upon the results of any audit or the
resolution of any tax controversy), then CSK shall promptly pay such
difference to Auto. However, if it shall be subsequently determined that Auto
has under-paid, or CSK has over-paid, any amount payable under this Section 4
(whether such determination is made by CSK, is based upon the filing by CSK
of any amended return or is based upon the results of any audit or the
resolution of any tax controversy), Auto shall promptly pay to CSK such
amount upon demand.
5. Carrybacks of Departing Members. If a Departing Member shall incur a tax
-------------------------------
attribute in a separate return limitation year which it desires to carry back to
a taxable period in which such Departing Member was a member of the CSK
Affiliated Group, the Departing Member shall furnish to CSK all data relating to
the tax attribute, and CSK shall determine, in its sole discretion, whether to
file a return reflecting such tax attribute carryback. If CSK determines to
reflect such attribute, then the provisions of Section 3 and 4 shall apply to
such Departing Member. Nothing herein shall be deemed to require any Departing
Member to elect to carry back any tax attribute arising in any separate return
limitation year to a taxable period in which such Departing member was a member
of the CSK Group. All parties shall act reasonably in the application of this
Section 5. This Section 5 shall survive the expiration of the Term of this
Agreement (in whole or with respect to any member).
6. Tax Audits. In the event that there shall be any audit or examination of
----------
any tax return or report of the CSK Affiliated Group, each corporation that was
a member of the Auto Group during the tax year in question shall cooperate with
CSK in connection therewith and, without limiting the generality of the
foregoing, shall execute all protests, petitions and other documents and
instruments determined by CSK to be necessary or desirable to resolve or respond
to such audit or examination or any request for documents or information made by
any taxing authority. The cost and expense of resolving or responding to such
audit or examination or any request for documents or information made by any
taxing authority, and of any protests, litigation and other proceeding commenced
by or against CSK, the CSK Affiliated Group or any member of
6
<PAGE>
the CSK Affiliated Group shall be borne by the CSK Group or the Auto Group as
CSK shall determine to be fair in light of the nature of the controversy and
whether such matter relates to the tax liabilities of such member or members
under this Agreement, the Code, the Treasury Regulations or the provisions of
state or local law.
7. Obligations Under the Agreement.
-------------------------------
(a) This Agreement shall apply to all payments that would be due and
payable hereunder after the date hereof, including without limitation any
payment relating to a prior tax years of the CSK Affiliated Group that is not
closed by the applicable statute of limitations. Accordingly, any adjustments
with respect to tax years ended before the date hereof shall also be governed by
Sections 3 and 4 hereof. Similarly, payments must be made under this Agreement
with respect to the entire year which includes the date hereof.
(b) The obligations of CSK and Auto under Sections 3 and 4 shall continue
notwithstanding the expiration of the Term of this Agreement (in whole or with
respect to any member). Each member of the Auto Group is jointly and severally
liable for amounts payable by Auto pursuant to Sections 3 and 4, or for which
the Auto Group is liable pursuant to Section 6. Each member of the CSK Group is
jointly and severally liable for amounts payable by CSK pursuant to Section 3
and 4, or for which the CSK Group is liable pursuant to Section 6.
8. No Double Counting of Losses or Credits. If a loss or credit (or any
---------------------------------------
portion thereof) of any party to this Agreement is taken into account and
absorbed into the computation of the payments for any taxable year under Section
3 or 4 of this Agreement, then such loss or credit (or portion thereof) shall
not be treated as available to such party or otherwise taken into account in
computing the payments to or from such party for any subsequent taxable year
under Section 3 or 4 of this Agreement.
9. Continued Cooperation. With respect to any tax year of the CSK Affiliated
---------------------
Group to which this Agreement applies, during the Term of this Agreement and
continuing until the expiration of the statute of limitations for assessment and
collection of tax with respect to such tax year (including any waiver or
extension of time) and three months thereafter, the corporations that were
members of the CSK Group or the Auto Group during such tax year shall:
(a) reasonably cooperate with the other in the preparation and filing of
tax returns, information returns amended returns and claims for refund;
(b) retain records, documents, accounting data, and other information
(including computer data), which may be reasonably necessary to enable any
member of the CSK Affiliated Group to prepare and file tax returns or to
respond effectively to the audit of such returns; and
(c) give any corporation that was a member of the CSK Group or the Auto
Group during such tax year reasonable access to such records, documents,
accounting data, and other information (including computer data) and to the
appropriate
7
<PAGE>
personnel (insuring their cooperation) for the purpose of the preparation,
review, or responding to the audit of such returns.
10. Miscellaneous.
-------------
(a) This Agreement contains the entire agreement between the parties hereto
with respect to the transactions and matters which are the subject hereof, and
supersedes all prior agreements, arrangements or understandings with respect
thereto.
(b) The descriptive headings of this Agreement are for convenience only and
shall not control or affect the meaning or construction of any provision of this
Agreement.
(c) This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware (other than the choice of law principles
thereof).
(d) Any waiver of any term or condition of this Agreement, or any amendment
or supplementation of this Agreement, shall be effective only if in writing. A
waiver of any breach or failure to enforce any of the terms or conditions of
this agreement shall not in any way affect, limit or waive a party's rights
hereunder at any time to enforce strict compliance thereafter with every term or
condition of this Agreement.
(e) In the event that any provision contained in this Agreement shall be
determined to be invalid, illegal or unenforceable in any respect for any
reason, the validity, legality and enforceability of any such provision in every
other respect and the remaining provisions of this Agreement shall not, at the
election of the party for whose benefit the provision exists, be in any way
impaired.
(f) Any notice or other communication required or permitted pursuant to
this Agreement shall be in writing, and shall be deemed delivered (i) when
delivered personally against receipt, (ii) on the next business day if sent by
recognized overnight courier or by telecopy, or (iii) on the fifth day after
mailing by certified or registered mail, return receipt requested, to the
addressee at its address or telecopy number set forth on Schedule A hereto or to
such other address or telecopy number as may be provided by notice hereunder.
(g) The parties shall submit any dispute arising under this Agreement to
arbitration in New York, New York by an arbitrator selected by CSK and Auto or
if they cannot agree within 30 days, by three arbitrators, one selected by CSK,
one selected by Auto, and the third selected by those two arbitrators. Each
arbitrator must be an attorney or accountant specializing in the field of
taxation. The arbitration shall be conducted in accordance with the commercial
arbitration rules of the American Arbitration Association. The expenses of any
arbitration (including without limitation any advance payment or deposit
required in connection therewith and the arbitrators' fees, but excluding the
fees and disbursements of the respective attorneys or other representatives or
experts, if any, of
8
<PAGE>
the parties) shall be allocated by the arbitrator(s) based on the relative
fault of the CSK Group and the Auto Group. The decision of the arbitrator(s)
shall be conclusive and binding on the parties, and judgment on the
arbitration award may be entered in any court of competent jurisdiction.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
CSK GROUP, LTD.
By:___________________________
Name:_________________________
Title:________________________
CSK HOLDINGS, LTD.
By:___________________________
Name:_________________________
Title:________________________
CSK HOLDINGS II, LTD.
By:___________________________
Name:_________________________
Title:________________________
9
<PAGE>
CSK AUTO, INC.
By:___________________________
Name:_________________________
Title:________________________
AUTO SUBSIDIARIES
SCHUCK'S DISTRIBUTION CO.
______________________________
By:___________________________
Name:_________________________
Title:________________________
KAGEN AUTO SUPPLY CO.
______________________________
By:___________________________
Name:_________________________
Title:________________________
10
<PAGE>
SCHEDULE A
----------
CSK GROUP, LTD.
_____________________
_____________________
Attn:________________
Telecopier:__________
CSK HOLDINGS, LTD.
_____________________
_____________________
Attn:________________
Telecopier:__________
CSK HOLDINGS II, LTD.
_____________________
_____________________
Attn:________________
Telecopier:__________
CSK AUTO, INC.
_____________________
_____________________
Attn:________________
Telecopier:__________
SCHUCK'S DISTRIBUTION CO.
_____________________
_____________________
Attn:________________
Telecopier:__________
KRAGEN AUTO SUPPLY CO.
_____________________
_____________________
Attn:________________
Telecopier:__________
11
<PAGE>
EXHIBIT 10.16
AGREEMENT OF PURCHASE AND SALE
AND
JOINT ESCROW INSTRUCTIONS
BY AND BETWEEN
NORTHERN AUTOMOTIVE CORPORATION,
AN ARIZONA CORPORATION
("SELLER")
AND
TRANSATLANTIC REALTY, INC.,
A DELAWARE CORPORATION
("PURCHASER")
DATED: MARCH 25, 1996
(#1195)
<PAGE>
TABLE OF CONTENTS
RECITALS..................................................................... 1
OPERATIVE PROVISIONS......................................................... 1
ARTICLE 1 Purchase and Sale; Leaseback......................... 1
1.1 Agreement to Purchase................................ 1
1.2 Purchase Price....................................... 2
ARTICLE 2 Title; Escrow; Deposit............................... 2
2.1 Title and Permitted Exceptions....................... 2
2.2 Escrow............................................... 3
2.3 Deposit.............................................. 3
2.4 Title Insurance...................................... 3
2.5 Right of Entry and Inspection........................ 3
2.6 Seller Deliveries.................................... 4
ARTICLE 3 Closing; Closing Date; Obligations of Seller and
Purchaser; Termination.............................. 5
3.1 Closing and Closing Date............................. 5
3.2 Obligations of Seller at Closing..................... 5
3.3 Obligations of Purchaser at Closing.................. 5
3.4 Conditions to Seller's Obligations................... 5
3.5 Conditions to Purchaser's Obligations................ 6
3.6 Termination.......................................... 7
3.7 Authorization to Complete Documents.................. 7
3.8 Recordations and Deliveries of Escrow Agent.......... 7
ARTICLE 4 Representations; Warranties; Covenants............... 8
4.1 Seller's Knowledge................................... 8
4.2 Representations and Warranties of Seller............. 8
4.3 Representations and Warranties of Purchaser.......... 9
ARTICLE 5 Closing Costs; Prorations; Condemnation.............. 9
5.1 Closing Costs........................................ 9
5.2 Condemnation......................................... 10
5.3 Casualty............................................. 10
ARTICLE 6 Brokerage Commissions................................ 10
6.1 Brokers.............................................. 10
ARTICLE 7 Miscellaneous........................................ 11
7.1 Survival of Terms.................................... 11
7.2 Binding Effect and Assignment........................ 11
7.3 Entire Agreement..................................... 11
7.4 Headings............................................. 11
7.5 Interpretation....................................... 11
7.6 Notices.............................................. 11
7.7 Governing Law........................................ 12
7.8 Severability......................................... 12
7.9 Attorneys' Fees...................................... 12
7.10 Waiver............................................... 12
7.11 Time of Essence...................................... 12
7.12 Covenant of Good Faith............................... 12
7.13 Inaction as Approval................................. 12
7.14 Reference to Days.................................... 13
7.15 Other Documents...................................... 13
7.16 Counterparts......................................... 13
SIGNATURES................................................................... 14
<PAGE>
EXHIBIT A - Descriptions of Land Parcels, Physical Addresses and
Purchase Price Allocations
EXHIBIT B - Memorandum of Lease
EXHIBIT C - Form of Lease
EXHIBIT D - Non-Foreign Affidavit
<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND
JOINT ESCROW INSTRUCTIONS
This Agreement of Purchase and Sale and Joint Escrow Instructions
("AGREEMENT") is entered into effective __________________________, 1996
("EFFECTIVE DATE") by and between NORTHERN AUTOMOTIVE CORPORATION, an Arizona
corporation ("SELLER") and TRANSATLANTIC REALTY, INC., a Delaware corporation
("PURCHASER"). Seller and Purchaser are sometimes hereinafter referred to
individually as "party" and collectively as "parties".
RECITALS
This Agreement is made with reference to the following facts:
A. Seller holds fee simple title to the "Property" as defined in
Section 1.1 below.
B. Purchaser desires to purchase the Property from Seller and Seller
desires to sell the Property to Purchaser on the terms and conditions contained
in this Agreement.
C. Concurrently with such purchase and sale, Seller intends to lease
the Property from Purchaser and Purchaser intends to lease the Property to
Seller pursuant to the terms of a separate lease agreement (the "LEASE") in the
form of EXHIBIT "C" attached hereto.
OPERATIVE PROVISIONS
In consideration of the mutual covenants and conditions contained
herein, the parties agree as follows:
ARTICLE 1
PURCHASE AND SALE; LEASEBACK
1.1 AGREEMENT TO PURCHASE. Purchaser agrees to purchase and Seller
agrees to sell, for the Purchase Price (as defined in Section 1.2 below) and
subject to and upon each and all of the terms and conditions hereinafter set
forth, all of the following (collectively, the "PROPERTY"):
(a) the parcels of land legally described on EXHIBIT "A",
attached hereto and made a part hereof having addresses at the
locations identified on EXHIBIT "A", together with all of Seller's
right, title and interest, if any, in and to all easements,
rights-of-way, appurtenances, and other rights and benefits thereunto
belonging, and to all public or private streets, roads, avenues,
alleys, or passways open or proposed, on or abutting said parcels of
land, and to any award made to or to be made in lieu thereof, and in
and to any award for damage to said parcel of land or any part
thereof by reason of a change of grade in any street, alley, road or
avenue, as aforesaid (the "LAND PARCEL");
(b) all of the buildings, parking lots, driveways, and
other improvements of every kind and description on, over and under
the Land Parcels; all building fixtures, facilities, conduits, ducts,
hot water heaters, oil burners, domestic water systems and
installations to provide fire protection, heat, exhaust, ventilation,
air conditioning, electrical power, light, plumbing, gas, sewer and
water thereto, which are used solely for the operation of buildings
(collectively, the "IMPROVEMENTS"); but excluding all of the
following whether or not located at or affixed in any way to the Land
Parcels, the buildings or Improvements: all furniture, trade
fixtures, equipment, telephone systems, security systems, computer
systems, cash registers, music systems, credit and debit card
systems, satellite systems, aisle racks, aisle shelving, displays,
signage (excluding any structural components of such signage) and all
items of tangible personal property (collectively, the "EXCLUDED
ASSETS");
(c) all intangible property used in connection with the
ownership of the Land and Improvements including, without limitation,
all contract rights, guarantees, licenses, permits, registrations and
warranties relating solely to the ownership or the maintenance of the
Land or the Improvements, or both including without limitation, all
licenses, permits and registrations pertaining to any clean-up or
remediation of Hazardous Materials (as defined in Subsection
4.1(h)(ii)) on or about the Premises, to the extent such permits and
registrations are necessary and may be assigned to Purchaser but
excluding any rights to the name Northern Automotive, Kragen,
Checker, Schuck's or any goodwill of Seller (the "INTANGIBLE PERSONAL
PROPERTY").
The Land Parcel and its related Improvements and Intangible Personal Property
are sometimes herein referred to as the "SITE".
1.2 PURCHASE PRICE. The purchase price to be paid by the Seller for
the Property shall be ______________________________________________________
Dollars ($__________) (the "PURCHASE PRICE") . The Purchase Price shall be paid
at the "Closing" (hereinafter defined) by bank wire of immediately available
funds in United States currency.
1
<PAGE>
ARTICLE 2
TITLE; ESCROW; DEPOSIT
2.1 TITLE AND PERMITTED EXCEPTIONS. The Property shall be conveyed
by Seller to Purchaser by general warranty deed (the "DEED") and shall not be
subject to any liens, charges, encumbrances, easements, restrictions, rights of
way, conditions, tenancies, exceptions or restrictions, other than the exception
set forth on EXHIBIT "B" (the "PERMITTED EXCEPTIONS") and those deemed approved
by Purchaser in writing prior to the Closing.
2.2 ESCROW. On the Effective Date, the parties may open escrow
("ESCROW") at Transamerica Title Insurance Company ("ESCROW AGENT") for the
purpose of completing the purchase and sale contemplated herein. This Agreement
(as may be modified by the parties hereinafter) shall constitute the escrow
instructions for the Escrow in addition to Escrow Agent's standard form escrow
instructions as Escrow Agent may reasonably require in order to carry out the
provisions of this Agreement. In the event of any inconsistency between the
provisions of this Agreement and the provisions of Escrow Agent's standard form
escrow instructions, the provisions of this Agreement shall govern.
2.3 DEPOSIT. Upon the opening of Escrow, Purchaser shall deposit
with Escrow Agent the sum of Fifty Thousand and No/100 Dollars ($50,000.00).
Such deposit shall be placed by Escrow Agent into an interest bearing account.
Such deposit, together with all interest accrued thereon, is referred to
hereinafter as the "DEPOSIT". Subject to the provisions of this Agreement, the
Deposit shall be applied as a credit against the Purchase Price on the Closing
Date (it being hereby agreed that the Deposit shall not be deemed applicable to
any Deferred Sites, as hereinafter defined).
THE DEPOSIT SHALL BE FULLY REFUNDABLE TO PURCHASER IF THE ESCROW
FAILS TO CLOSE AS A RESULT OF THE FAILURE OF A CONDITION FOR THE BENEFIT OF
PURCHASER. HOWEVER, IF THE ESCROW FAILS TO CLOSE AS A RESULT OF A DEFAULT BY
PURCHASER, SELLER AND PURCHASER AGREE THAT IT WOULD BE IMPRACTICABLE OR
EXTREMELY DIFFICULT TO ASCERTAIN THE ACTUAL RESULTING DAMAGES TO SELLER AND THAT
THE DEPOSIT CONSTITUTES A REASONABLE ESTIMATE OF SUCH DAMAGES AND IN SUCH EVENT
SHALL BE PAID TO SELLER AS LIQUIDATED DAMAGES. ANY SUCH PAYMENT OF LIQUIDATED
DAMAGES TO SELLER SHALL BE THE SOLE AND EXCLUSIVE REMEDY OF SELLER HEREUNDER.
IMMEDIATELY UPON ANY DEFAULT OF PURCHASER WHICH RESULTS IN THE FAILURE OF THE
CLOSE OF ESCROW, PURCHASER SHALL AUTHORIZE ESCROW AGENT TO PAY THE DEPOSIT TO
SELLER AND PURCHASER SHALL SIGN AND DELIVER TO ESCROW AGENT ESCROW CANCELLATION
INSTRUCTIONS AND ALL OTHER DOCUMENTS REQUIRED BY ESCROW AGENT TO UNCONDITIONALLY
INSTRUCT AND ENABLE ESCROW AGENT TO CANCEL ESCROW AND DELIVER THE DEPOSIT TO
SELLER.
(Initial) ___________ ___________
Seller Purchaser
2.4 TITLE INSURANCE. At the Closing (as defined in Section 3.1 below)
Seller, at its sole cost and expense, shall cause Escrow Agent to deliver an
assignment of Seller's existing title policies for the Site to Purchaser (the
"TITLE ASSIGNMENT").
2.5 RIGHT OF ENTRY AND INSPECTION. Prior to the Closing Date,
Purchaser and its representatives, agents and contractors shall have the right,
upon at least two (2) days prior written notice to Seller, to enter upon the
Property and conduct reasonable inspections thereof from time to time in
connection with the purchase and sale contemplated hereunder only on week days
and during the normal business hours of Seller's business at the Property. In no
event, shall Purchaser, its agents, representatives or contractors unreasonably
interfere with Seller's business at the Property. Purchaser shall be solely
responsible for all costs, expenses and fees in connection with such entry and
inspection. Purchaser hereby agrees to defend, indemnify and hold Seller
harmless from and against any and all liabilities, losses, damages, claims,
costs and fees (including, without limitation, reasonable attorneys' fees)
arising from or in any way in connection with such entry and inspection by any
one or more of Purchaser, its representatives, agents and contractors.
2.6 SELLER DELIVERIES. Seller shall, within or before the thirty (30)
day period immediately following the date of the opening of Escrow, deliver one
(1) copy of each of the following to Purchaser:
(a) A Preliminary Environmental Audit (Phase I) for the
Land Parcel (the "ENVIRONMENTAL REPORT");
(b) An existing survey of the Land Parcel;
(c) A set of as built plans and design specifications for
the Improvements located on the Land Parcel;
(d) A Certificate of Occupancy for the building on the
Land Parcel if such building has been completed;
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<PAGE>
(e) Evidence of current zoning of the Land Parcel; and
(f) Financial statements of Seller for the last two (2)
fiscal years.
Within the fifteen (15) day period immediately following the date of
Purchaser's receipt of all of the items set forth in (a) through (f) above,
Purchaser shall provide Seller with written notice setting forth Purchaser's
approval or disapproval of each item. Seller, at its cost, may, but is not be
obligated to, undertake to modify the disapproved items to the reasonable
satisfaction of Purchaser. In the event Seller elects not to, or is unable to
reasonably satisfy Purchaser as to any disapproved item on or before the Closing
Date (as defined in Section 3.1), Purchaser, at its option may (i) purchase the
Property without an adjustment in the Purchase Price or (ii) rescind this
Agreement, in which case this Agreement shall be of no further force and effect
and the Deposit shall be returned to Purchaser. All items not disapproved in
writing by Purchaser within the fifteen (15) day period immediately following
the date of Purchaser's receipt of all of the items set forth in (a) through (f)
above shall be deemed unconditionally approved by Purchaser.
ARTICLE 3
CLOSING; CLOSING DATE; OBLIGATIONS
OF SELLER AND PURCHASER; TERMINATION
3.1 CLOSING AND CLOSING DATE. The purchase and sale of the Property
shall be consummated at a closing ("CLOSING") which shall be held at the offices
of Escrow Agent or at such other place as mutually agreed upon by Seller and
Purchaser on a date as mutually agreed by the parties, but in no event later
than ______________ unless extended by mutual agreement of Seller and Purchaser
in the form of an amendment to this Agreement or by supplemental escrow
instructions signed by the parties. The actual date of the Closing is referred
to hereinafter as the "CLOSING DATE". All documents executed and delivered at
the Closing shall be dated as of the Closing Date.
3.2 OBLIGATIONS OF SELLER AT CLOSING. At the Closing, Seller shall:
(a) Execute, acknowledge and deliver the Deed to Escrow
Agent, together with a bill of sale for the Intangible Personal Property;
(b) Execute and deliver four (4) executed original
counterparts of the Lease to Escrow Agent;
(c) Execute, acknowledge and deliver to Escrow Agent one
(1) executed original counterpart of a Memorandum of Lease in substantially the
form of EXHIBIT "B" attached hereto and incorporated herein by reference for the
Lease ("MEMORANDUM"); and
(d) Deliver into Escrow any other documents, instruments,
records or agreements which Seller is required to deliver into Escrow hereunder.
3.3 OBLIGATIONS OF PURCHASER AT CLOSING. At the Closing, Purchaser
shall:
(a) Deliver the Purchase Price to Escrow Agent;
(b) Execute and deliver four (4) executed original
counterparts of the Lease to Escrow Agent; and
(c) Execute, acknowledge and deliver to Escrow Agent one
(1) executed original counterpart of the Memorandum to Escrow Agent; and
(d) Deliver into Escrow any other documents, instruments,
records or agreements which Purchaser is required to deliver into Escrow
hereunder.
3.4 CONDITIONS TO SELLER'S OBLIGATIONS. In addition to the
fulfillment of Purchaser's obligations herein and the other conditions provided
in this Agreement for the benefit of Seller, the obligation of Seller to sell
the Property to Purchaser is subject to fulfillment of each of the following
conditions within the time provided herein, or if no time is provided, no later
than the Closing Date:
(a) The representations and warranties of Purchaser
contained or referred to in this Agreement shall be true as of the Closing Date.
(b) Purchaser shall have performed all of its obligations
under this Agreement that are to be performed by Purchaser before or at Closing.
(c) All conditions for Seller's benefit which are
satisfied prior to the Closing Date shall remain satisfied as of the Closing
Date.
(d) Purchaser shall have delivered to Seller a certified
copy of Purchaser's certificate of authorization expressly authorizing the
purchase, sale and leaseback contemplated herein and in the Lease.
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3.5 CONDITIONS TO PURCHASER'S OBLIGATIONS. In addition to the
fulfillment of Seller's obligations herein and the other conditions provided in
this Agreement for the benefit of Purchaser, the obligation of Purchaser to
purchase the Property from Seller is subject to the fulfillment of each of the
following conditions within the time provided herein, or if no time is provided,
no later than the Closing Date:
(a) The representations and warranties of Seller contained
or referred to in this Agreement shall be true as of the Closing Date.
(b) Seller shall have performed all of its obligations
under this Agreement to be performed by Seller before or at the Closing.
(c) All conditions for Purchaser's benefit which have been
satisfied prior to the Closing Date shall remain satisfied as of the Closing
Date.
(d) Escrow Agent shall be irrevocably committed to issue
the Title Assignment to Purchaser.
(e) Purchaser shall have received from Seller evidence of
insurance coverage as required by the Lease.
(f) Purchaser shall have received a certified copy of the
resolutions of the board of directors of Seller authorizing the purchase, sale
and leaseback contemplated herein and in the Lease.
(g) Purchaser shall have received Seller's written
representations and warranties dated as of the Closing Date that (i) there has
been no material adverse change in the financial condition of Seller since the
date of the most recent financial statements delivered to Purchaser and there
are no conditions existing which would, to Seller's knowledge, cause a material
adverse change to the financial condition of Seller; and all financial
statements and records of Seller delivered to Purchaser are true, complete and
accurate in all material respects and such financial statements have been
compiled in accordance with generally accepted accounting principals and
accurately set forth the results of the operation of Seller for the periods
covered, and (ii) to Seller's knowledge, there has been no material adverse
change of the condition of any Site since the opening of Escrow and there are no
conditions existing which would cause a material adverse change in the condition
of any site since that date.
3.6 TERMINATION.
(a) If any conditions to the Closing are not satisfied as
provided in this Agreement, and not because of the default of either party, the
party for whose benefit any unsatisfied condition exists may terminate this
Agreement and cancel the Escrow, and all funds, including interest, and
documents deposited in the Escrow shall be returned to the party depositing the
same forthwith. In such event, the cancellation charges of Escrow Agent shall be
shared equally between the parties.
(b) If the Escrow fails to close as a result of Seller's
default, Purchaser may terminate this Agreement and cancel the Escrow and
recover from Escrow Agent all funds, including interest, and documents deposited
by it in the Escrow. In such event, the cancellation charges of Escrow Agent
shall be paid by Seller and Purchaser shall have all available remedies under
applicable law or in equity, including without limitation, the right to seek
specific performance, in connection with such default.
(c) If the Escrow fails to close as a result of
Purchaser's default, Seller may terminate this Agreement and cancel the Escrow
and recover all documents deposited by Seller into the Escrow and, in such
event, the sole remedy of Seller shall be to recover the Deposit pursuant to
Section 1.7. In such event, the cancellation charges of Escrow Agent shall be
paid by Purchaser.
3.7 AUTHORIZATION TO COMPLETE DOCUMENTS. If necessary, Escrow Agent
is authorized to insert the Closing Date as the effective date of documents
submitted to Escrow.
3.8 RECORDATIONS AND DELIVERIES OF ESCROW AGENT. When and only when
all conditions to Closing have been performed or waived by the parties and all
pre-Closing and Closing obligations of the parties have been preformed or
waived, Escrow Agent shall, at the Closing;
(a) record the Deed, then, immediately thereafter, record
the fully executed Memoranda (which may be produced by combining executed
original counterparts), in the appropriate official records for the county in
which the Site is located;
(b) deliver two (2) sets of the fully executed Lease
(which sets may be produced by combining executed original counterparts) to each
party; and
(c) deliver the Title Assignment to Purchaser.
Promptly after the Closing, Escrow Agent shall obtain and deliver to
each party one (1) set of conformed copies of the recorded Deed and Memorandum.
4
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ARTICLE 4
REPRESENTATIONS; WARRANTIES; COVENANTS
4.1 SELLER'S KNOWLEDGE. Any reference herein to Seller's knowledge or
notice of any matter or thing shall only mean such knowledge or notice that has
actually been received by James G. Bazlen and Don Watson (the "SELLER'S
REPRESENTATIVES"), and any representation or warranty of the Seller is based
upon those matters of which Seller's Representative has actual knowledge.
4.2 REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and
warrants to Purchaser the following:
(a) Seller is a corporation duly organized, validly
existing and in good standing in the State of Arizona.
(b) Seller is the owner of the fee simple title to the
Property.
(c) There is no pending or, to the best of Seller's
knowledge, threatened condemnation or similar proceeding affecting the Property
or any part of the same.
(d) All necessary corporate actions have been taken to
authorize the execution of this Agreement by Seller and Seller has the power to
enter into and perform this Agreement.
(e) Seller has the requisite power and authority to own
and operate the Property, to enter into this Agreement and to carry out the
transactions contemplated hereby and that this Agreement is binding on Seller in
accordance with its terms.
(f) Seller has obtained all corporate consents which, to
Seller's knowledge, are necessary to enter into and perform this Agreement and
the Lease.
(g) Seller has not received any notice from any
governmental authority of any proposed condemnation of any portion of the
Property or that the Property or the use thereof is in violation of or in
material non compliance with applicable laws; and, to Seller's knowledge, there
are presently in effect all material licenses, permits and other authorizations
necessary for the use, occupancy and operation of the Property as currently
operated.
(h) Except as may be disclosed in the Environmental
Reports, Seller has received no notice from any governmental authority having
jurisdiction over the Property of any uncured violations of any laws,
regulations, codes, ordinances, orders or legal requirements affecting the
Property, including, without limitation, notices relating to "Hazardous
Materials" (as hereinafter defined). For the purpose of this Agreement,
"Hazardous Materials" shall mean (a) "hazardous substance" as defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(42 U.S.C. Sections 9601 et seq.), as amended, (b) "hazardous waste" or "solid
waste" as defined in the Resource Conservation and Recovery Act of 1976 (42
U.S.C. Sections 6901 et seq.).
(i) There are no outstanding options, purchase contracts,
or leases with Seller whereunder title to or possession of the Property has been
or may be transferred to a third party.
(j) To Seller's knowledge, real property improvements on
the Property, have in all material respects, been constructed in accordance with
the plans and design specifications to be provided to Purchaser pursuant to
Subsection 2.7(c).
(k) To Seller's knowledge, Seller's current operation at
the Property complies in all material respects with all applicable zoning and
use permits for the Property.
(l) Seller is not, as of the Effective Date, in default
with respect to any obligation (i) for labor or materials performed or supplied
in connection with the Property which would give rise to the filing of a
mechanics lien against the Property or (ii) under any Permitted Exception.
4.3 REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents
and warrants to Seller the following:
(a) Purchaser is a Delaware corporation organized and
validly existing under the laws of the State of Delaware.
(b) All consents and authorizations have been obtained
and all actions have been taken to fully authorize Purchaser's execution and
performance of this Agreement and the Lease.
(c) This Agreement, the Lease and all documents required
thereby to be executed by Purchaser are and shall be valid, legally binding
obligations of Purchaser, enforceable against Purchaser in accordance with their
terms.
5
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ARTICLE 5
CLOSING COSTS; PRORATIONS; CONDEMNATION
5.1 CLOSING COSTS. Purchaser shall pay, in connection with the
Closing, the cost of (i) the Title Assignment, (ii) the documentary transfer
taxes or other taxes assessed by any local authority on the transfer or leasing
of property and (iii) Escrow Agent's escrow fees. Each party shall bear its own
travel expenses, attorneys' fees and attorneys' costs and expenses in connection
with this Agreement and the purchase, sale and leaseback contemplated herein and
in the Lease. Since, pursuant to the Lease, Seller is remaining liable for all
property-related monetary obligation, there will be no prorations of any such
monetary obligations at Closing.
5.2 CONDEMNATION. If any portion of the Property, or any interest
therein, is taken before the Closing Date as a result of condemnation (including
the filing of any notice of intended condemnation or proceedings in the nature
of imminent domain), Seller shall immediately give Purchaser notice of the
taking. Within the five (5) day period immediately following the date Seller
delivers the notice to Purchaser, Purchaser shall elect either (i) to terminate
this Agreement and cancel Escrow or (ii) proceed with the purchase of the
Property and consummate the transaction contemplated under this Agreement in
accordance with its terms and Purchaser shall notify Seller of such election in
writing within such five (5) day period. If Purchaser elects option (ii), Seller
shall, at the Closing, assign to Purchaser all of Seller's rights, if any, to
receive a condemnation award for the Property except for any such award or
awards or portion thereof payable to Seller as compensation for resulting loss
(including, without limitation, loss of good will) or other negative impact to
Seller's business operations at the Property. If Purchaser fails to notify
Seller of Purchaser's election within such five (5) day period, Purchaser shall
be deemed to have elected option (i) above.
5.3 CASUALTY. If any material portion of the Property is destroyed or
damages by any casualty, including, without limitation, fire, flood or
earthquake before the Closing Date, Seller shall immediately give Purchaser
written notice of such casualty. Within the five (5) day period immediately
following the date Seller delivers such notice, Purchaser shall elect either (i)
to terminate this Agreement and cancel Escrow or (ii) proceed with the purchase
of the Property and consummate the transaction contemplated under this Agreement
in accordance with its terms. If Purchaser elects option (ii), Seller shall, at
the Closing, assign to Purchaser all of Seller's rights, if any, to receive
insurance proceeds for such casualty which shall be distributed to Seller
pursuant to the terms of the Lease. If Purchaser fails to notify Seller of
Purchaser's election within such five (5) day period, Purchaser shall be deemed
to have elected option (i) above.
ARTICLE 6
BROKERAGE COMMISSIONS
6.1 BROKERS. Seller and Purchaser each represent to the other that no
broker has been involved in connection with this transaction. If any claims for
brokerage commissions or fees are ever made against Seller or Purchaser relative
to the transactions contemplated by this Agreement, the party whose actions or
commitments form the basis of such claims shall indemnify and hold the other
party free and harmless from and against any and all such claims (including,
without limitation, reasonable attorneys' fees).
ARTICLE 7
MISCELLANEOUS
7.1 SURVIVAL OF TERMS. The representations and warranties made
herein by Seller and Purchaser shall only survive for twelve (12) months
following the Closing. Except to the extent of claims of specific breaches of
such representations and warranties made in writing by one party and delivered
to the breaching party by the end of said twelve-month period, no party shall
have any liability with respect to such representations and warranties after the
end of said twelve-month period. The other obligations of the parties hereto
shall not survive the termination of this Agreement or Closing, as applicable,
except as specifically provided in this Agreement.
7.2 BINDING EFFECT AND ASSIGNMENT. The terms, conditions and
covenants of this Agreement shall be binding on and shall inure to the benefit
of the parties and their respective successors, beneficiaries and assigns;
provided, however, neither Seller nor Purchaser may convey, assign or transfer
any interest whatsoever of, in or to this Agreement without the prior written
consent of the other party which consent shall not be unreasonably withheld,
conditioned or delayed.
7.3 ENTIRE AGREEMENT. This Agreement contains the entire
understanding between the parties relating to the transaction contemplated
herein. All prior or contemporaneous agreements, understanding, representations,
statements, oral or written, are merged into this Agreement and shall be of no
further force or effect. This Agreement may be amended only by a writing signed
by the parties.
7.4 HEADINGS. The article and section headings contained in this
Agreement are for reference purposes only and are not intended to govern, limit
or aid the interpretation of this Agreement and shall not in any way affect the
meaning of this Agreement.
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7.5 INTERPRETATION. Whenever the context so requires, the singular
and the plural shall each be deemed to include the other, and each of the
masculine, the feminine and the neuter shall each be deemed to include the
others. This Agreement shall be construed as a whole and in accordance with its
fair meaning, it being agreed that both parties participated in the negotiation
and drafting hereof.
7.6 NOTICES. Any notice, consent, approval or other communication
required or permitted relative to this Agreement shall be in writing and shall
be personally served, delivered by over-night courier or deposited in the United
States mail, first-class, certified, registered, postage prepaid, return receipt
requested, addressed to such party, at its address shown below. Either party may
change its address for the purposes of this Section 7.6 by giving written notice
of such change to the other party in the manner provided in this Section 7.6.
SELLER:
-------
Northern Automotive Corporation
645 E. Missouri Avenue
Phoenix, Arizona 85012
Attention: Legal Department
PURCHASER:
----------
Transatlantic Realty, Inc.
c/o The Trump Group
4 Stage Coach Road
East Brunswick, New Jersey 08816
Attention: James M. Lieb, Esq.
Any such notice, consent, approval or other communication shall be
deemed delivered when received or when returned to sender undelivered when sent
by United States mail as provided herein.
7.7 GOVERNING LAW. This Agreement shall be construed under and
governed by the internal laws of the State of Arizona without reference to
conflicts of law.
7.8 SEVERABILITY. If any one or more of the provisions of this
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement and this Agreement shall be construed as
if such invalid, illegal or unenforceable provision had never been contained in
this Agreement.
7.9 ATTORNEYS' FEES. In the event that either party institutes an
action or proceeding against the other relating to this Agreement, the
unsuccessful party in such action or proceeding agrees to reimburse the
successful party herein for its reasonable expenses of attorneys' fees and costs
of litigation.
7.10 WAIVER. No waiver by either party of any provision of this
Agreement shall be deemed a waiver of any other provision of this Agreement or
of any subsequent breach by the other party of the same provision.
7.11 TIME OF ESSENCE. Time is of the essence of this Agreement and of
each and every provision of the same.
7.12 COVENANT OF GOOD FAITH. In exercising their respective rights
and in performing their respective obligations under this Agreement, the parties
shall always act reasonably and in good faith and deal fairly with one another.
7.13 INACTION AS APPROVAL. Except as otherwise provided herein,
whenever a party has the right to approve or disapprove a matter provided in
this Agreement in writing within a specified period of time, the failure of such
party to affirmatively approve or disapprove the same in writing during the
specified period of time shall be deemed to be its unconditional approval of
such matter. Where no specific period of time for approval or disapproval is
provided in this Agreement, the close of business on the Closing Date shall be
deemed to be the expiration of the period of time for approval or disapproval.
7.14 REFERENCE TO DAYS. Each reference in this Agreement to days
shall be deemed a reference to calendar days.
7.15 OTHER DOCUMENTS. Each party agrees to sign any other and further
documents and instruments as may be reasonably necessary in order to accomplish
the intent of this Agreement.
7.16 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the Effective Date.
PURCHASER:
TRANSATLANTIC REALTY, INC.,
a Delaware corporation
By:__________________________________
Its Vice President
SELLER:
NORTHERN AUTOMOTIVE CORPORATION,
an Arizona corporation
By:__________________________________
Its Vice President
By:__________________________________
Its Assistant Secretary
8
<PAGE>
Exhibit 10.17
LEASE AGREEMENT
(CHECKER STORE NO. 1195)
between
TRANSATLANTIC REALTY, INC.
AS LESSOR
and
NORTHERN AUTOMOTIVE CORPORATION,
as lessee
DATED AS OF
______________________, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
1. Demise; Title; Condition........................................... 4
2. Term............................................................... 5
3. Rent............................................................... 5
4. Use................................................................ 6
5. Net Lease; Nonterminability........................................ 6
6. Taxes and Other Charges; Law and Agreements........................ 7
7. Liens.............................................................. 8
8. Indemnification; Fees and Expenses................................. 8
9. Environmental Matters.............................................. 9
10. Maintenance and Repair; Additions; Completion and Financing
of Project........................................................ 13
11. Condemnation and Casualty; Economic Abandonment.................... 14
12. Insurance.......................................................... 16
13. Intentionally Deleted.............................................. 18
14. Purchase Procedure................................................. 18
15. Quiet Enjoyment.................................................... 18
16. Survival........................................................... 19
17. Subletting; Assignment............................................. 19
18. Termination Right.................................................. 19
19. Advances by Lessor................................................. 20
20. Conditional Limitations - Events of Default and Remedies........... 20
21. Notices............................................................ 22
22. Estoppel Certificates.............................................. 23
23. No Merger.......................................................... 23
24. Surrender.......................................................... 23
25. Separability....................................................... 23
26. Signs Showing...................................................... 23
27. Certain Definitions................................................ 24
28. Intentionally Omitted.............................................. 24
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<PAGE>
29. Substitution Procedure............................................. 24
30. Waiver of Trial by Jury............................................ 24
31. Granting of Easements, Etc......................................... 24
32. Recording.......................................................... 25
33. Miscellaneous...................................................... 25
34. Seniority.......................................................... 25
35. Broker............................................................. 25
36. Confidentiality.................................................... 25
37. Landlord's Agreement............................................... 26
Appendix I......................................................... 28
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<PAGE>
THIS LEASE AGREEMENT, dated as of March 25, 1996 (as amended from
time to time, this Lease), between TRANSATLANTIC REALTY, INC., a Delaware
corporation (together with its successors and assigns as lessor hereunder,
Lessor), as lessor, having an office at 645 E. Missouri Avenue, Suite 400,
Phoenix, Arizona 85012 and NORTHERN AUTOMOTIVE CORPORATION, an Arizona
corporation, (herein, together with any entity succeeding thereto by
consolidation, merger or acquisition of its assets substantially as an entirety,
Lessee), as lessee, having an address at 645 E. Missouri Avenue, Suite 400,
Phoenix, Arizona 85012.
In consideration of the Leased Property and other good and valuable
consideration, the receipt and sufficiency of which are hereby expressly
acknowledged by Lessor and Lessee, Lessor and. Lessee hereby agree as follows:
Capitalized terms not otherwise defined when they first appear are
defined in Appendix I hereto.
1. DEMISE; TITLE; CONDITION. Lessor hereby leases and demises to
Lessee, and Lessee hereby leases, hires and takes from Lessor, subject to the
terms hereof, all of Lessor's right, title and interest in (i) the parcel of
land described in Schedule A hereto (the Land), (ii) all buildings and
improvements now or hereafter existing on the Land and fixtures appurtenant
thereto to the extent that such fixtures are incorporated into such buildings
and improvements and constitute real property under applicable law, including,
without limitation, the Project, but excluding Trade Fixtures (as hereinafter
defined) (all of the foregoing described in this clause (ii), collectively, the
Improvements) and (iii) all easements, rights and appurtenances thereto (the
Land, Improvements and all such easements, rights and appurtenances
collectively, the Leased Property).
The Leased Property is leased in its present condition without
representation or warranty by Lessor. Lessor has examined the Leased Property
and Lessor's title thereto, and has found the same to be satisfactory for all
purposes.
LESSOR HAS NOT MADE AN INSPECTION OF THE LEASED PROPERTY AND MAKES NO
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE LEASED
PROPERTY OR THE LOCATION, USE, DESCRIPTION, DESIGN, MERCHANTABILITY, FITNESS FOR
USE FOR A PARTICULAR PURPOSE, CONDITION OR DURABILITY THEREOF, OR AS TO QUALITY
OF THE MATERIAL OR WORKMANSHIP THEREIN, AND ALL RISKS INCIDENTAL TO THE LEASED
PROPERTY SHALL BE BORNE BY LESSEE (EXCEPT AS OTHERWISE EXPRESSLY SET FORTH
HEREIN). LESSOR SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY WITH RESPECT TO
ANY DEFECT OR DEFICIENCY OF ANY NATURE IN THE LEASED PROPERTY OR ANY PORTION
THEREOF, WHETHER PATENT OR LATENT. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN
NEGOTIATED AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION BY LESSOR
OF, AND LESSOR DOES HEREBY DISCLAIM ANY AND ALL WARRANTIES BY LESSOR, EXPRESS OR
IMPLIED, WITH RESPECT TO THE LEASED PROPERTY OR ANY PORTION THEREOF, WHETHER
ARISING PURSUANT TO THE UNIFORM COMMERCIAL CODE OR ANY OTHER LAW NOW OR
HEREAFTER IN EFFECT OR OTHERWISE.
Lessor acknowledges and agrees that all trade fixtures, machinery and
equipment and all replacements and substitutions therefor to the extent that the
same are not incorporated into the Improvements and are not real property under
applicable law, but specifically excluding the Improvements or any portion
thereof (such trade fixtures, machinery and equipment and all replacements and
substitutions therefor, collectively, Trade Fixtures), and all inventory are and
shall remain the property of Lessee, and Lessee may remove the same from the
Leased Property at any time prior to the termination of this Lease, provided
that Lessee shall repair any damage to the Leased Property resulting from such
removal. Lessee may, at its own cost and expense, finance or place liens or
security interests on or install or place or reinstall or replace or remove from
the Leased Property any such Trade Fixtures.
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<PAGE>
2. TERM.
(a) Subject to the provisions hereof, Lessee shall have and hold the
Leased Property for a basic term (the Basic Term) which shall begin on the Basic
Term Commencement Date and end at midnight on the later of the twentieth (20th)
anniversary of (a) the Basic Term Commencement Date or (b) the last day of the
month in which the Basic Term Commencement Date occurs if the Basic Term
Commencement Date occurs on any date other than the first day of the month,
unless sooner terminated or extended as hereinafter expressly provided.
(b) After the Basic Term Commencement Date, so long as no Event of
Default shall have occurred and be continuing on the last day of the then
current Term may elect to extend and renew the Term ("Renewal Option") for up to
four additional terms of five years each (each, a Renewal Term). Each such
election shall be exercised by Lessee not less than 180 days prior to the
expiration of the then current Term, by written notice to Lessor; provided,
however, that in order to avoid any forfeiture or inadvertent lapse of such
Renewal Option, if Lessee shall fail to give any such notice within the one
hundred eighty (180) day time limit and shall not have given Lessor prior
written notice of its intent not to exercise its Renewal Option, then and as
often as the same shall occur, Lessee's right to exercise such Renewal Option
shall nevertheless continue, as shall its tenancy hereunder (under the same
terms and conditions as theretofore in effect and notwithstanding that the then
current Term shall have expired), until thirty (30) business days after Lessor
shall have given Lessee a written notice of Lessor's election to terminate the
Renewal Option, during which period Lessee may exercise its Renewal Option at
any time prior to the expiration of such thirty (30) business day period. Upon
the giving of notice of renewal and extension in accordance with the foregoing
provisions, the Term of this Lease shall thereupon be renewed and extended in
accordance with such notice without further act by Lessor or Lessee, the same as
if such notice had been timely given hereunder. Either party, upon request of
the other, will execute and acknowledge, in form suitable for recording, an
instrument confirming any such extension. Time shall be of the essence with
respect to the giving of notice by Lessee of its election to extend any Term.
3. RENT.
(a) During the Basic Term, Lessee shall pay the rent provided in
Schedule B (Basic Rent) to Lessor (or to such other party as Lessor may from
time to time specify in writing) by bank wire transfer of immediately available
federal funds before 11:00 A.M., Eastern Time, at such place, within the
continental United States, as Lessor may from time to time designate to Lessee
in writing. Basic Rent shall be payable by Lessee in arrears in installments in
the amounts set forth in Schedule B and shall be due and payable on each Rent
Payment Date. If any Rent Payment Date falls on a day which is not a Business
Day, Basic Rent shall be due and payable on the next prior Business Day.
(b) All amounts that Lessee is required to pay or discharge pursuant
to this Lease in addition to Basic Rent (including, without limitation, amounts
payable as the Purchase Price for the Leased Property and any amounts payable
pursuant to Article 19 hereof or as liquidated damages pursuant to Article 20)
together with every premium, overdue interest and cost which may be added for
nonpayment or late payment thereof, shall constitute additional rent hereunder
(Additional Rent). In the event of any failure by Lessee to pay or discharge any
Additional Rent, Lessor shall have all rights, powers and remedies provided for
herein or by law or otherwise in the case of nonpayment of Basic Rent. Lessee
shall pay Additional Rent directly to the Person entitled thereto. Lessee also
covenants to pay to Lessor on demand as Additional Rent, interest at the annual
rate equal to two percent (2%) plus the corporate base rate announced by
Citibank, N.A. ("Overdue Rate"), calculated on the basis of a 360-day year of
twelve equal months, on (i) all overdue amounts of Basic Rent, (ii) all overdue
amounts of Additional Rent, arising out of obligations that Lessor shall have
paid on behalf of Lessee pursuant hereto from the date of such payment by Lessor
until paid in full and (iii) each other sum required to be paid by Lessee
hereunder that is overdue from the date such sum was due until the date received
by the Person entitled thereto.
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(c) After the payment of any amount to Lessor pursuant to paragraph
(d) of Article 10, paragraph (b) of Article 12, or Article 31 ("Repayment
Amount"), each installment of Basic Rent payable on and after the Rent Payment
Date occurring after such payment shall be appropriately reduced by an amount
equal to the product of one-twelfth the Repayment Amount multiplied by ten
percent (10%).
(d) During any Renewal Term, Basic Rent shall be fair market rent for
the Property as of the first day of such Term. If Lessor and Lessee are unable
to agree as to the fair market rent within thirty (30) days of Lessor's receipt
of Lessee's renewal notice, fair market rent shall be determined by arbitration
in accordance with the procedure set forth in Schedule H hereto. In the event
Lessee is dissatisfied with the determination of fair market rent pursuant to
the procedure set forth in Schedule H hereto, Lessee shall have the right to
vitiate its election to exercise the Renewal Option by delivering written notice
of such to Lessor within ten (10) business days after Lessee's receipt of the
information as to the amount of the fair market rent as determined pursuant to
the procedure set forth in Schedule H.
4. USE. Lessee may use the Leased Property for any lawful purpose;
provided, that a change in use would not result in, or increase the likelihood
of, a decline in the value of the Leased Property or increase the risk of loss
to Lessor, for example, by increasing the risk of liability with respect to
Hazardous Substances or otherwise under Environmental Laws. In no event shall
any covenant to operate be implied from or in connection with this Lease.
5. NET LEASE; NONTERMINABILITY.
(a) This lease is a 'bond net lease' and Lessee shall pay all Basic
Rent and Additional Rent without notice, demand, counterclaim, set-off,
deduction, or defense, and without abatement, suspension, deferment, diminution
or reduction, free from any charges, assessments, impositions, expenses or
deductions of any and every kind or nature whatsoever. All costs, expenses and
obligations of every kind and nature whatsoever relating to the Leased Property
and the appurtenances thereto and the use and occupancy thereof by Lessee or
anyone claiming by, through or under Lessee as lessee hereunder which may arise
or become due during or with respect to the Term shall be paid by Lessee other
than such costs or claims arising out of the gross negligence or willful
misconduct of Lessor. Lessee assumes the sole responsibility for the condition,
use, operation, maintenance and management of the Leased Property and Lessor
shall have no responsibility in respect thereof and shall have no liability for
damage to the property of Lessee or any sublessee of Lessee for any reason
whatsoever other than arising out of the gross negligence or willful misconduct
of Lessor.
(b) Except as otherwise expressly provided in paragraph (c) of
Article 3, paragraph (h) of Article 9, paragraph (c) of Article 11, or Article
18, this Lease shall not terminate, nor shall Lessee have any right to terminate
this Lease, nor shall Lessee be entitled to any abatement or reduction of rent
hereunder, nor shall Lessee have the right to be released or discharged from any
obligations or liabilities hereunder for any reason, including without
limitation, any damage to or destruction of all or part of the Leased Property;
any restriction, deprivation (including eviction) or prevention of, or any
interference with, any use or occupancy of the Leased Property; any
condemnation, requisition or other taking or sale of the use, occupancy or title
to the Leased Property; the inadequacy or failure of this Lease to lease to the
property intended to be leased hereby; Lessee's acquisition of ownership of the
Leased Property or any sale or other disposition of the Leased Property; the
impossibility or illegality of performance by Lessor or Lessee or both, the
failure of Lessor to deliver possession of the Leased Property; any action of
any court, administrative agency or other governmental authority, or any other
cause, whether similar or dissimilar to the foregoing, any present or future law
notwithstanding.
(c) Lessee will remain obligated under this Lease in accordance with
its terms, and win not take action to terminate, rescind or avoid this Lease for
any reason, notwithstanding any bankruptcy, insolvency, reorganization,
liquidation, dissolution or other
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proceeding affecting Lessor, or any assignee of Lessor, or any action with
respect to this Lease which may be taken by any receiver, trustee or liquidator,
or any assignee of Lessor or by any court in any such proceeding. Lessee waives
all rights at any time conferred by statute or otherwise to quit, terminate or
surrender this Lease or the Leased Property (except as otherwise expressly
provided in paragraph (h) of Article 9, paragraph (c) of Article 11, or Article
18) or to any abatement or deferment of any Basic Rent, Additional Rent or other
sum payable hereunder, or for damage, loss or expense suffered by Lessee on
account of any cause referred to in this Article 5 or otherwise.
6. TAXES AND OTHER CHARGES; LAW AND AGREEMENTS.
(a) Lessee shall pay and discharge, on or before the last day upon
which the same may be paid without interest or penalty, all taxes, including any
tax based upon or measured by gross rentals or receipts from the Leased
Property, assessments, levies, fees, water and sewer rents and other
governmental and similar charges, general and special, ordinary or
extraordinary, and whether or not the same shall have been within the express
contemplation of the parties hereto, and any interest and penalties thereon,
which are due during the Term (i.e., Lessee shall pay such taxes that become due
and payable during the Term regardless for what period such taxes are assessed
and Lessee's obligation for such taxes shall not extend to taxes due after the
Term) against (i) Lessor and which relate to Lessor's ownership of the Leased
Property, the use, occupancy, operation or possession of the Leased Property or
any part thereof or the transactions contemplated by this Lease, (ii) the Leased
Property or this Lease or the interest of Lessee or Lessor therein, (iii) Basic
Rent or Additional Rent or other sums payable by Lessee hereunder, (iv) the use,
occupancy, construction, repair or rebuilding of the Leased Property or any
portion thereof, or (v) gross receipts from the Leased Property. If any tax and
assessment levied or assessed against the Leased Property may legally be paid in
installments, Lessee shall have the option to pay such tax or assessment in
installments. Nothing in this Lease shall require payment by Lessee of any
franchise, estate, inheritance, succession, transfer (other than transfer taxes,
recording fees, or similar charges payable in connection with a conveyance
hereunder to Lessee or in connection with Lessor's or Lessor's Mortgagee's
exercise of remedies under this Lease after an Event of Default), net income or
profit taxes of Lessor (other than any gross receipts or similar taxes imposed
or levied upon, assessed against or measured by the Basic Rent, Additional Rent
or any other sums payable by Lessee hereunder or levied upon or assessed against
the Leased Property), any taxes imposed by any state or local government on, or
measured by, the net income of Lessor, unless any such tax is in lieu of or a
substitute for any other tax or assessment upon or with respect to the Leased
Property, which, would be payable by Lessee hereunder. Lessee shall furnish to
Lessor within 20 days after any written demand therefor by Lessor, proof of the
payment of any tax, assessment, fee, water and sewer rent or charge which is
payable by Lessee. Taxes, assessments, fees, water and sewer rents and other
governmental charges which are payable by Lessee shall be apportioned between
Lessor and Lessee as of the date on which this Lease terminates.
(b) Lessee shall pay all charges for utility, communication and other
services to the extent rendered or used during the Term on or about the Leased
Property, whether or not payment therefore shall become due after the Term.
(c) At Lessee's cost and expense, Lessee shall perform and comply
with all applicable Environmental Laws and in all material respects with all
other Legal Requirements, whether or not such Environmental Laws or other Legal
Requirements shall necessitate structural changes, improvements, interference
with use and enjoyment of the Leased Property, replacements or repairs,
extraordinary as well as ordinary, and Lessee shall so perform and comply,
whether or not such Environmental Laws or other Legal Requirements shall not
currently exist or shall hereafter be enacted or promulgated, and whether or not
such Environmental Laws or other Legal Requirements are within the present
contemplation of Lessor or Lessee. Lessee shall, at Lessee's cost and, perform
and comply in all material respects with the term of any easement granted or
released pursuant to Article 31. Lessee shall, at its expense, comply in all
material respects with all provisions of insurance policies required pursuant to
Article 12, and in all material respects with the provisions of all contracts,
agreements, instruments and restrictions affecting the Leased
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Property or any part thereof or its ownership, occupancy, use, operation or
possession. Notwithstanding the foregoing terms of this Paragraph 6(c), Lessee
shall not be responsible for such costs arising out of Lessor's gross negligence
or willful misconduct.
(d) Notwithstanding the provisions of this Article 6, Article 7 and
Article 9, if no Event of Default shall have occurred and be continuing, and
subject to compliance with the provisions of paragraph (d) of Article 9 hereof
with respect to certain liens relating to violations of Environmental Laws,
Lessee shall have the right to contest, by appropriate legal proceedings, any
tax, charge, levy assessment, lien or other encumbrance, and/or any Legal
Requirement affecting the Leased Property, and to postpone payment of or
compliance with the same during the pendency of such contest, provided that (i)
the commencement and continuation of such proceedings shall suspend the
collection thereof from, and suspend the enforcement thereof against, Lessor and
the Leased Property, (ii) no part of the Leased Property nor any Basic Rent or
Additional Rent shall be interfered with or shall be in danger of being sold,
forfeited, attached or lost, (iii) Lessee shall promptly prosecute such contest
to a final settlement or conclusion and (iv) there shall be no risk of the
imposition of criminal liability on Lessor for failure to comply therewith.
7. LIENS. Subject to the provisions of paragraph (d) of Article 6,
Lessee shall promptly, but in any event no later than 30 days after its Actual
Knowledge of the filing thereof but in any event prior to the enforcement of the
same, at its own expense remove and discharge of record, by bond or otherwise,
any charge, lien, security interest or encumbrance upon the Leased Property,
upon any Basic Rent, or upon any Additional Rent (but not upon Trade Fixtures)
which arises for any reason (except for liens arising out of the act or omission
of Lessor without the consent of Lessee), including, without limitation, liens
arising from the application of Environmental Laws and all other liens which
arise out of Lessee's possession, use, operation and occupancy of the Leased
Property, but not including any Permitted Encumbrances. Nothing contained in
this shall be construed as constituting the consent or request of Lessor,
express or implied, to or for the performance by any contractor, laborer,
materialman, or vender of any labor or services or for the furnishing of any
materials for any construction, alteration, addition, repair or demolition of or
to the Leased Property or any part thereof. Notice is hereby given that Lessor
will not be liable for any labor, services, or materials furnished or to be
furnished to Lessee, or to anyone holding any interest in the Leased Property or
any part thereof through or under Lessee, and that no mechanic's or other liens
for any such labor, services or materials shall attach to or affect the interest
of Lessor in and to the Leased Property. If Lessee shall fail to discharge any
charge, lien, security interest or encumbrance (other than upon Trade Fixtures)
within the time period permitted by this Lease, Lessor, upon five (5) business
days' prior written notice to Lessee, may discharge or require the discharge of
the same by payment or bond to the reasonable satisfaction of Lessor. Lessee
will repay to Lessor, upon demand, any and all amounts paid therefor, or by
reason of any liability on such bond, and also any and all reasonable incidental
expenses, including reasonable attorneys' fees, incurred by Lessor in connection
therewith.
8. INDEMNIFICATION; FEES AND EXPENSES. Lessee shall pay, and shall
protect, defend the Indemnified Parties against, and hold each Indemnified Party
harmless from all actual liabilities, obligations, losses, damages, costs,
expenses, fines, penalties, actions, judgments, suits and causes of action, ,
demands and proceedings of any kind or description and all costs and expenses of
any kind or nature (excluding consequential damages), including, without
limitation, all reasonable attorneys' fees, disbursements, expenses, court costs
and other costs of litigation related thereto (the foregoing collectively,
Losses (a) arising or alleged to arise from or in connection with this Lease or
the condition, use, operation, maintenance, subletting and management of the
Leased Property, (b) relating to the Leased Property and the appurtenances
thereto and the use and occupancy thereof by or anyone claiming by, through or
under Lessee, or (c) arising or alleged to arise from or in connection with any
of the following events: (i) any injury to, or death of, any person or any
damage to or loss of property on or adjacent to the Leased Property or growing
out of or directly or indirectly connected with, the ownership, use, occupancy,
operation, possession, condition, construction, repair or rebuilding of the
Leased Property or adjoining property, sidewalks, streets or ways or resulting
from the condition of any thereof, (ii) any claims by
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third parties resulting from any violation or alleged violation by Lessee of (A)
any provision of the Lease, (B) any Legal Requirement, (C) any other lease or
agreement relating to the Leased Property, (D) any contract or agreement to
which Lessee is a party, or (E) any restriction, law, ordinance or regulation,
affecting the Leased Property or the ownership, use, occupancy, condition,
operation, possession, construction, repair or rebuilding thereof or of
adjoining property, sidewalks, streets or ways; (iii) any contest permitted by
paragraph (d) of Article 6; or (iv) Lessee's failure to pay in accordance with
the terms and provisions hereof any item of Additional Rent or other sums
payable by Lessee hereunder. Lessee shall not be liable in any case to any
Indemnified Party for any Losses to the extent that they result solely from the
gross negligence or willful misconduct of such Indemnified Party. If any
Indemnified Party shall be made a party to any such litigation commenced against
any Indemnified Party or against Lessee, and if Lessee, at its expense, shall
fail to provide any Indemnified Party with counsel reasonably approved by such
Indemnified Party, Lessee shall pay all costs and reasonable attorneys' fees and
expenses incurred or paid by such Indemnified Party or its agent in connection
with such litigation. With Lessor's consent, Lessor may be represented by the
same counsel as Lessee in such action; provided, however, that Lessor may be
represented by separate counsel at Lessor's expense if, in Lessor's judgment,
separate counsel is necessary to protect Lessor's interest.
9. ENVIRONMENTAL MATTERS.
(a) Lessee represents and warrants (with respect to statements made
as of a particular date) and covenants to the Indemnified Parties that:
(i) at all times during the Term of this Lease, the
Leased Property and Lessee, shall comply in all
material respects with all applicable
Environmental Laws, including the effecting of
cures in compliance with Environmental Laws, if
applicable. Except as set forth in Schedule E,
Lessee has at all times during the term of this
Lease obtained all permits, licenses, and any
other authorizations to conduct operations at
the Leased Property that are required under all
applicable Environmental Laws as of the Basic
Term Commencement Date and shall obtain at all
times during the Term of this Lease, all
permits, licenses, and any other authorizations
to conduct operations at the Leased Property
that are required under any applicable
Environmental Laws, Lessee is, and at all times
during the term of this Lease shall be in
compliance in all material respects with all
terms and conditions of all permits, licenses,
and any other authorizations with respect to
the Leased Property required under all
applicable Environmental Laws as of the Basic
Term Commencement Date and Lessee shall comply
in all material respects with all terms and
conditions of all permits, licenses, and any
other authorizations required with respect to
the Leased Property under all applicable
Environmental Laws; Lessee shall cause any
alterations of, or construction on, the Leased
Property to be done in accordance in all
material respects with applicable Environmental
Laws, and in connection with any such
alterations or construction, shall remove and
dispose of, in compliance with applicable
Environmental Laws, any Hazardous Substances
present upon such Leased Property not in
material compliance with Environmental Laws and
which pose a threat to human health and the
environment;
(ii) Except as set forth in Exhibit E, as of the
Basic Term Commencement Date, no notices,
complaints or orders of violation or non-
compliance of any nature whatsoever regarding
alleged violations of, or strict liability
under, Environmental Laws have been issued to
Lessee or, to the best of its knowledge, to any
Person regarding the Leased Property, and no
federal, state or local governmental
environmental investigation or legal action by
a private party is pending or to Lessee's
Actual Knowledge threatened, in each case with
regard to the Leased
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Property or any use thereof or any alleged
violation of, or strict liability arising
under, Environmental Laws with regard to the
Leased Property; no liens have been placed upon
the Leased Property in connection with any
actual or alleged liability under any
Environmental Laws;
(iii) the Leased Property (a) except as set forth in
Exhibit E, as of the Basic Term Commencement
Date has not been used by Lessee or, to
Lessee's Actual Knowledge, by any other Person
to generate, manufacture, refine, produce or
process any Hazardous Substance or to store,
handle, treat, dispose, transfer or transport
any Hazardous Substance other than in
compliance with Environmental Laws, and (b)
except as set forth in Exhibit E, will not be
used by Lessee or any other Person at any time
during the Term of this Lease to generate,
manufacture, refine, produce or process any
Hazardous Substance or to store, handle, treat,
dispose, transfer or transport any Hazardous
Substance, other than in compliance with
Environmental Laws in connection with Lessee's
use of the Leased Property in accordance with
the provisions of Article 4, where such uses
will have no material adverse effect upon the
Leased Property;
(iv) except as set forth in Exhibit E, as of the
Basic Term Commencement Date, no surface
impoundments are (and during the Term of this
Lease, none will be) constructed, operated or
maintained in or on the Leased Property except
in accordance with applicable Environmental
Laws and no above ground tanks or other
containment structures will be constructed,
operated or maintained on the Leased Property
in violation of applicable Environmental Laws
and no underground storage tanks are (and
during the Term of this Lease, none will be)
constructed, operated or maintained in or on
the Leased Property except in accordance with
applicable Environmental Laws, as of the Basic
Term Commencement Date, to the best of Lessee's
knowledge, there is no asbestos nor asbestos-
containing material (except commercially
produced product in nonfriable bonded form, the
presence of which complies with all
Environmental Laws) located in, on, at or under
the Leased Property nor to Lessee's knowledge,
is there any PCB-containing equipment,
including PCB-containing transformers located
in, on, at or under the Leased Property in
violation of any applicable Environmental Laws
nor will Lessee cause after the date hereof any
of the foregoing be located in, on, at or under
the Leased Property at any time during the Term
of this Lease in violation of any applicable
Environmental Laws; and
(v) as of the Basic Term Commencement Date, other
than as set forth in Schedule E and other than
in connection with Lessee's past use of the
Leased Property in compliance with
Environmental Laws, no Hazardous Substances are
present at, in, on, over or under the Leased
Property in violation of any applicable
Environmental law (and which pose a threat to
human health and the environment); and
(vi) at all times during the Term of this Lease,
other than uses of such Hazardous Substances in
compliance with applicable Environmental Laws
in connection with Lessee's use of each Leased
Property in accordance with the provisions of
Article 4, where such uses will have no
material adverse effect upon the Leased
Property, Lessee shall not cause any Hazardous
Substances to be located at, in, on, over or
under the Leased Property.
(b) Upon obtaining Actual Knowledge thereof, Lessee shall give to
Lessor notice of the occurrence of any of the following events: (i) the failure
of the Leased Property or
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Lessee to materially comply with any Environmental Law in any manner whatsoever
as determined by a notice from a governmental authority having jurisdiction over
the Property; (ii) the issuance by a governmental authority having jurisdiction
over the Property to Lessee, or any sublessee of any portion of the Leased
Property or any assignee of Lessee by a governmental authority having
jurisdiction over the Property, of any notice, complaint or order of violation
or non-compliance of any nature whatsoever with regard to such Leased Property
or the use thereof with respect to Environmental Laws; (iii) any notice of a
pending or threatened investigation to determine whether Lessee's (or any
sublessee's or assignees) operations on the Leased Property are in violation of
any Environmental Law; (iv) any notice from any governmental agency having
jurisdiction over the Property requiring any corrective action with respect to
the Leased Property or any portion thereof under any Environmental Law; or (v)
any notice or other communication with respect to a pending or threatened
private party judicial or administrative action relating to violation of any
Environmental Law in connection with the use, occupancy or operation of the
Leased Property.
(c) At any time (i) if Lessor receives notice from a governmental
authority having jurisdiction over the Leased Property that a release of a
Hazardous Substance has occurred at the Leased Property, Lessor shall give
notice thereof to Lessee, and if Lessee shall not (A) commence to cure such
condition, to the extent necessary to meet Legal Requirements or comply fully
with applicable Environmental Laws or to prevent a material diminution in the
fair market value of the Leased Property related to the environmental condition,
within 30 days after receipt of such notice or as otherwise required by an
applicable Environmental Law and (B) thereafter diligently respond to such
release using then currently recognized procedures to achieve material
compliance with applicable Environmental Laws, or (ii) in any event after an
Event of Default has occurred under this Article IX and is continuing hereunder,
Lessor may cause to be performed or direct Lessee to cause to be performed an
environmental audit or site assessment of the Leased Property and the then uses
thereof reasonable in scope and most cost effective under the circumstances, to
cure such condition or to cause the Leased Property to materially comply with
any Legal Requirement. In all circumstances Lessee shall have the right to
participate in any such response. Such environmental audit or site assessment
shall be performed by an engineer qualified by law and experience to perform the
same and satisfactory to Lessor, shall include a review of the uses of the
Leased Property and compliance of the same with all Environmental Laws and shall
include an estimate of the cost to cure any breach or default in Lessee's
covenants hereunder. All costs and expenses incurred by Lessor in connection
with such environmental audit or assessment and any remediation required shall
be paid by Lessee upon demand. Such audit or assessment shall be addressed to
Lessor. Except as required by law, the results of such audit or assessment shall
not be disclosed to third parties by Lessor without the prior written consent of
Lessee.
(d) Subject to the provisions of paragraph (d) of Article 6 hereof,
in the event of a violation of any Environmental Law with respect to Lessee or
the Leased Property (whether disclosed by an environmental audit or site
assessment or otherwise), Lessee shall promptly perform all response actions to
clean up, contain, or remove any Hazardous Substances on, under or in the Leased
Property in accordance with, and as required by, applicable Environmental Laws
to cure any such violation of any Environmental Law, all at Lessee's sole cost
and expense. Lessee shall determine the nature and scope of all such required
response actions within 30 days after obtaining Actual Knowledge of any such
violation and shall complete all such actions within 120 days following the date
that the nature and scope of such required response actions are identified,
provided that if such remedial actions cannot be completed within such 120 day
period, and so long as is using its diligent efforts to achieve compliance with
Environmental Laws, the time within which such remedial actions may be completed
shall be extended for such period as may be reasonably necessary to complete
such remedial action with diligence. If, as a result of any such violation, a
lien attaches to the Leased Property that takes priority over the lien of
Lessor's mortgage, Lessee shall promptly, and in any event within 10 days after
the attachment of any such lien, discharge or contest such lien in accordance
with the provisions of Article 6 and post a bond or deposit an irrevocable
letter of credit with Lessor, in either event satisfactory in form and substance
and with a surety or obligor satisfactory to Lessor and in an amount sufficient
to discharge such lien.
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(e) In addition to, and not in liquidation of, any indemnity
contained in Article 8, Lessee agrees to indemnify, defend and hold harmless
each Indemnified Party from and against any and all Losses which may be suffered
or incurred by, or asserted against such Indemnified Party to the extent arising
directly or indirectly out of, (i) the use, storage, transportation, disposal,
treatment, release, threatened release, discharge, emission, generation or
presence of any Hazardous Substances at, from, on, over, under or in the Leased
Property during the Term of this Lease in violation of any applicable
Environmental Law, or (ii) any default in the performance of any obligation
under this Article 9 or any violation of any Environmental Law with respect to
the Leased Property or by Lessee or any Person claiming by, through or under
Lessee, or resulting from Lessee's failure to comply with this Article 9.
(f) The representations, warranties and obligations of Lessee, and
the rights and remedies of each Indemnified Party under this Article 9, are in
addition to and not in limitation of any other representations, warranties,
obligations, rights and remedies provided in this Lease or otherwise at law or
in equity.
(g) The obligations and liabilities of Lessee with respect to each
Indemnified Party, actual or contingent, under this Article 9 and relating to
the period through the end of the Term, shall survive such termination of this
Lease or the abandonment of the Property by Lessee, except with respect to
events and circumstances resulting solely from the acts of any Person other than
Lessee, any Affiliate of Lessee, or any Person claiming by or through Lessee or
any such Affiliate and occurring after the foreclosure of the lien of the
Lessor's mortgagee's mortgage and the sale of the Leased Property pursuant to
such foreclosure.
(h) Notwithstanding anything to the contrary set forth in this Lease,
in the event that in the good faith judgment of Lessee, (i) the nature and scope
of environmental remediation required hereunder is economically unfeasible, or
(ii) an environmental audit or site assessment of the Leased Property in
accordance with the requirements of paragraph (c) of this Article 9 would be
undesirable for Lessee to undertake or continue and if the chief executive
officer of Lessee has determined not to undertake or continue such relation,
environmental audit or site assessment, and if Lessee shall have provided to
Lessor an Officer's Certificate to that effect, then so long as there is no
Event of Default continuing hereunder, Lessee may elect by written notice to
Lessor either to purchase the Leased Property or to substitute another property
for the Leased Property in the manner and under the terms set forth in Article
29. A notice given by Lessor or Lessee pursuant to this paragraph (h) with
respect to the purchase of the Leased Property or the substitution of another
property for the Leased Property is referred to as an Article 9 Notice. If
Lessee elects to give an Article 9 Notice to Lessor, then Lessee shall give the
Article 9 Notice to Lessor not later than 120 days after (i) Lessee's Actual
Knowledge of the event or events giving rise to Lessee's obligation to undertake
such environmental remediation, or (ii) Lessee's election not to undertake or
continue such remediation, environmental audit or site assessment. (Lessee will
be deemed to have made such election if Lessee has not proceeded with and
diligently prosecuted such required activities.) An Article 9 Notice from Lessee
to Lessor shall (a) contain a description of the nature, scope and estimated
cost of the required environmental remediation, environmental audit or site
assessment, (ii) be accompanied by the appropriate Officer's Certificate and
(iii) contain the irrevocable commitment of Lessee either to purchase the Leased
Property or to substitute another property for the Leased Property in the manner
and under the terms set forth in Article 29. If Lessee elects to purchase the
leased Property pursuant to an Article 9 Notice, then Lessee shall purchase the
Leased Property on a Rent Payment Date specified by Lessor within 90 days of the
giving of the Article 9 Notice for the applicable Purchase Price in accordance
with the terms of Article 14. If Lessee elects to substitute a property for the
Leased Property pursuant to an Article 9 Notice, then Lessee shall effect such
substitution in accordance with the provisions of Article 29 within 120 days of
the giving of the Article 9 Notice, and if Lessee does not effect such
substitution within such 120 day period, then Lessee shall purchase the Leased
Property on the Rent Payment Date first occurring after such 120 day period for
the then applicable Purchase Price in accordance with the provisions of Article
14.
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10. MAINTENANCE AND REPAIR; ADDITIONS; COMPLETION AND FINANCING OF
PROJECT.
(a) Lessee will, at its sole cost and expense, keep and maintain the
Leased Property, including any altered, rebuilt, additional or substituted
buildings and other improvements, in the same condition as on the Basic Term
Commencement Date (or if any such improvements shall not have been completed on
the Basic Term Commencement Date, on the date of completion thereof), ordinary
wear and tear excepted, will make all structural and non-structural, and
ordinary and extraordinary changes, repairs and replacements, foreseen or
unforeseen, which may be reasonably required, whether or not caused by its act
or omission, to be made upon or in connection with the improvements to the
Leased Property in order to keep the same in such condition unless such damage
is caused by the gross negligence or willful misconduct of Lessor. Subject to
the provisions of paragraph (d) of Article 6 hereof, Lessee shall take all
action necessary to maintain the Leased Property in compliance with all
applicable Environmental Laws and in compliance in all material respects with
all other Legal Requirements and shall keep the Leased Property orderly and free
and clear of rubbish. Lessor shall not be required to maintain, alter, repair,
rebuild or replace any improvements on the Leased Property or to maintain the
Leased Property unless such repair or maintenance obligation arises out of the
gross negligence or willful misconduct of Lessor, and Lessee expressly waives
the right to make repairs at the expense of Lessor pursuant to any law at any
time in effect.
(b) If any Improvements shall encroach upon any property, street or
right-of-way adjoining or adjacent to the Leased Property, or shall violate in
any material respect any restrictive covenant affecting the Leased Property or
any part thereof, or shall impair in any material respect the rights of others
under or obstruct any easement or right-of-way to which the Leased Property is
subject, then, promptly after the written request of the Person legally entitled
to the cure of any such encroachment, violation, impairment or obstruction,
Lessee shall, at its sole cost and expense, either (i) obtain effective waivers
or settlements of all claims, liabilities and damages resulting from each such
encroachment, violation, impairment or obstruction or (ii) if after reasonable
efforts by Lessee, Lessee is unable to obtain such waivers or settlements, make
such changes in the Improvements and take such other action as shall be
reasonably necessary to remove such encroachments or obstructions and to end
such violations or impairments, including, if necessary, the alteration or
removal of any Improvement. Any such alteration or removal shall be made to the
same extent as if such alteration or removal were an alteration under the
provisions of paragraph (c) of this Article 10 and there shall be no abatement
of rent by reason of such alteration or removal.
(c) In addition to the Project, Lessee shall have the right to make
non-structural and structural alterations, modifications or improvements to the
existing Improvements and to make any alterations, additions, modifications or
improvements to the Leased Property whether or not structurally integrated with
the existing Improvements (an Addition) without Lessor's consent; provided,
however, that prior to commencing any Addition having a projected cost exceeding
$500,000, Lessee shall have delivered to Lessor an Officer's Certificate, both
certifying that such Addition, if constructed in accordance with the plans and
specifications therefor, will not adversely affect the structural integrity of
the Improvements or materially impair the utility, fair market value, useful
life or operation of the Leased Property, and will conform with the character
and quality of the existing Improvements and all applicable Legal Requirements.
All Additions will be constructed in a good and workmanlike manner using a
quality of material and workmanship at least as good as the original work or
installation of the Improvements and in compliance with all applicable Legal
Requirements and will be completed in a commercially reasonable time period.
Each Addition shall be made at the sole cost and expense of Lessee and may not
be encumbered. All Additions (other than Trade Fixtures) shall become the
property of Lessor and subject to this Lease.
(d) Lessee shall cause the Project to be Substantially Complete in
conformity with the requirements of paragraph (c) of this Article 10, but
subject to "Force Majeure" events and delays caused by Lessor, to the same
extent as if the Project were alterations made under the provisions of paragraph
(c) of this Article 10. Lessee shall deliver to Lessor promptly after
Substantial Completion of the Project, but in no event later than 90 days after
the Completion Date, an Officer's Certificate, (i) to the effect that the
Project is Complete, (ii) certifying the Final Project Cost together with a
detailed breakdown thereof, (iii) if the Final Projected Cost exceeds Lessor's
Project Cost, certifying that Lessee has paid
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such excess, and (iv) certifying that (A) all certificates of occupancy required
for full operation of the Leased Property for its intended use have been
obtained, (B) the Project has been completed in compliance with all applicable
Environmental Laws and in all material respects with all other Legal
Requirements, all urban redevelopment plans, redevelopment agreements,
regulations, and all other agreements relating to the Project and (C) all
consents with respect to any thereof have been obtained and are in full force
and effect. If the Final Project Cost is less than Lessor's Project Cost, then
at Lessor's election made by written notice to Lessee within 30 days after
receipt of the Officer's Certificate certifying the Final Project Cost, Lessee
shall pay to Lessor, on the first Rent Payment Date occurring after receipt of
such notice by Lessee, an amount equal to the difference between the Final
Project Cost and the Lessor's Project Cost. If such amount is paid to Lessor,
then each installment of Basic Rent thereafter payable shall be reduced in
accordance with Paragraph 3(c) hereof.
(e) [INTENTIONALLY DELETED]
(f) All work done in accordance with this Article 10 shall comply
with the requirements of all insurance policies required to be maintained by
Lessee hereunder.
(g) If Lessee wishes to make any additions, alterations or
modifications to the Leased Property not otherwise permitted by the terms of
this Lease and Lessor refuses to consent thereto, then Lessee may, within 30
days thereafter substitute a property for the Leased Property subject to and in
accordance with the provisions of Article 29.
11. CONDEMNATION AND CASUALTY; ECONOMIC ABANDONMENT.
(a) Lessee hereby assigns to Lessor any award, compensation,
insurance proceeds or other payment to which may become entitled by reason of
its interest in the Leased Property (i) if the Leased Property, or any portion
thereof, is damaged or destroyed by fire or other casualty or cause, or (ii) by
reason of any condemnation, requisition or other taking or sale of the use,
occupancy or title to the Leased Property or any portion thereof in, by or on
account of any actual or threatened eminent domain proceeding or other action by
any governmental authority, civil or military, or other Person having the power
of eminent domain. So long as there is no Event of Default continuing hereunder,
Lessee is hereby authorized and empowered to, at its cost and expense, in the
name and behalf of Lessor and Lessee or otherwise, to appear in any such
proceeding or other action, to negotiate, accept and prosecute any claim for any
award, compensation, insurance proceeds or other payment on account of any such
loss, damage or destruction, condemnation, requisition or other taking or sale
and to cause any such award, compensation, insurance proceeds or other payment
to be paid to Lessor. In addition, so long as there is no Event of Default
continuing hereunder, Lessee, at its sole cost and expense, shall be entitled to
submit, negotiate, accept and prosecute a claim for any award, compensation or
insurance proceeds or other payment payable to the extent payable for
interruption of s business, Lessee's moving expenses, Trade Fixtures, inventory
or any other property owned by that is not part of the Leased Property (any such
insurance proceeds or other payment payable to Lessee to the extent made for
interruption of Lessee's business, Lessee's moving expenses, Trade Fixtures,
inventory or any other property owned by Lessee that is not part of the Leased
Property hereinafter referred to as Lessee's Loss), and Lessee shall retain any
award applicable thereto. Furthermore, Lessee shall use reasonable efforts to
achieve the maximum award obtainable under the circumstances. Lessor may, at
Lessor's sole cost and expense, appear in any such proceeding or other action,
in a manner consistent with the foregoing. All amounts so paid or payable to
Lessor or Lessee be retained by, or paid over to, the party entitled thereto in
accordance with the provisions of this Article 11. To the extent that Lessor
does not appear and act at such proceeding, Lessee shall take all reasonable
appropriate action in connection with each such claim, proceeding or other
action, and shall pay its costs and expenses in connection therewith.
(b) If the Leased Property or any part thereof shall be condemned or
taken in the exercise of the power of eminent domain by any sovereign,
municipality or other public or private authority or shall be damaged or
destroyed by fire or other casualty, and Lessee may
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not, or does not, elect either to terminate the Lease or to substitute another
property for the Leased Property pursuant to paragraph (c) of this Article 11,
then Lessee shall give prompt written notice of such condemnation or casualty to
Lessor and, upon payment of the Net Award to Lessee, shall proceed with
diligence and promptness to carry out any necessary demolition and to restore,
repair, replace, and/or rebuild the Leased Property in order to restore the
Leased Property, as nearly as practicable, to a condition and fair market value
not less than the condition required to be maintained and fair market value
thereof immediately prior to such condemnation or casualty regardless of whether
the Net Award is sufficient for such purposes. All repair work done by Lessee
pursuant to this paragraph shall comply with the terms of any restriction,
easement, condition or covenant or other matter affecting title to either Leased
Property, and shall be undertaken and completed in a good and workmanlike manner
and in compliance with all Legal Requirements then in effect with respect to the
Leased Property.
Except as provided in paragraph (c) of this Article 11, Basic Rent
and Additional Rent shall not abate hereunder by reason of any taking of, damage
to or destruction of the Leased Property, and this Lease shall continue in full
force and effect and Lessee shall continue to perform and fulfill all of
Lessee's obligations, covenants and agreements hereunder notwithstanding such
taking, damage or destruction.
(c) If, at any time during the Term of this Lease all or
"substantially all" (as defined below) of the Leased Property shall be condemned
or taken in the exercise of the power of eminent domain by any sovereign,
municipality or other public or private authority or shall be damaged or
destroyed by fire or other casualty (referred to as a Substantial Taking), or if
a casualty or condemnation shall occur during the last three (3) years of the
then current Term, then Lessee may give notice to Lessor of Lessee's intention
not to restore the Leased Property and to terminate this Lease or to substitute
another property for the Leased Property in accordance with the provisions of
Article 29.
If, on any anniversary of the first day of the Basic Term of this
Lease occurring on or after the third such anniversary, the Lessee shall
determine that the Leased Property shall have become uneconomic or unsuitable
for the continued use in the business of the Lessee, then Lessee may elect by
written notice to Lessor to substitute another property for the Leased Property
in the manner and under the terms set forth in Article 29.
"Substantially all" of the Leased Property shall be deemed to have
been condemned, damaged, destroyed or taken, as the case may be, if the chief
executive officer of Lessee shall have, in good faith, determined that the
remaining portion of the Leased Property shall not be of sufficient size or
character to permit the continued operation by Lessee of its business operations
on an economically feasible basis, assuming that such remaining portion had been
repaired and restored to the fullest extent reasonably practicable and Lessee
shall have provided to Lessor an Officer's Certificate to that effect and
certifying that Lessee is discontinuing its use of the Leased Property.
If (i) there shall be a Substantial Taking and Lessee shall have
determined not to restore the Leased Property, or (ii) in the good faith
judgment of the chief executive officer of Lessee, the Leased Property shall
have (independently of any condemnation or casualty) become uneconomic or
unsuitable for its continued use in the business of Lessee, and Lessee has
determined to discontinue the use of the Leased Property permanently (referred
to as an Economic Abandonment) or (iii) a casualty or condemnation shall have
occurred during the last three (3) years of the then current Term and Lessee
shall have determined not to restore the Leased Property, then Lessee shall, in
either case, give notice to Lessor of Lessee's intention to terminate this Lease
with respect to the Leased Property not later than 120 days after the occurrence
of such casualty, condemnation or taking, or Economic Abandonment, whichever is
applicable. Lessee's notice to Lessor shall (A) contain a description of the
relevant condemnation, taking or casualty, (B) be accompanied by an Officer's
Certificate as to the applicable determination by Lessee's chief executive
officer and stating that Lessee has discontinued the use of the Leased Property
or will discontinue such use within a reasonable period (not more than 90 days)
after the date of such proposed termination, (C) specify the date on which this
Lease shall terminate, which shall be the
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Rent Payment Date first occurring at least 90 days after such notice is given
(the Termination Date), and (D) either (1) state that Lessee will substitute
another property for the Leased Property in the manner and under the terms
described in Article 29, or (2), in the case of a Substantial Taking, or
casualty or condemnation occurring during the last three (3) years of the then
current Term, contain, at the option of Lessee, the irrevocable offer of Lessee
to purchase the Leased Property (and the Net Award hereinafter referred to) on
such Termination Date or state that the Lease will terminate, or (3), in the
case of an Economic Abandonment, contain the irrevocable offer of Lessee to
purchase the Leased Property on such Termination Date. If Lessee elects to
substitute a property, Lessee will comply with the provisions of Article 29. If
an offer to purchase is made and if Lessor shall reject any such offer to
purchase by written notice given to Lessee not later than 30 days prior to such
Termination Date, then this Lease shall terminate on such Termination Date and
the Net Award shall be paid and belong to Lessor. Unless Lessor shall reject the
same as provided in the preceding sentence, Lessor shall be conclusively deemed
to have accepted such offer, and on such Termination Date Lessor shall transfer,
and Lessee shall purchase, the Leased Property and the Net Award in accordance
with the provisions of Article 14. Upon completion of such purchase, and payment
by Lessee of the Purchase Price and any other sums owed by Lessee pursuant to
Article 14, the entire award, compensation, insurance proceeds or other payment,
if any, on account of any such condition, taking or casualty, less any expenses
reasonably incurred by Lessor in collecting such award, compensation, insurance
proceeds or other payment and not already paid (or reimbursed to Lessor) by
Lessee pursuant to the last sentence of paragraph (a) of Article 11, shall be
paid and belong to Lessee (such award, compensation, insurance proceeds or other
payment, less such expenses, plus, in the case of any award with respect to a
condemnation or taking, any investment income earned with respect to the
foregoing amounts, being herein called the Net Award).
(d) Notwithstanding any other provision to the contrary contained in
this Article 11, in the event of a temporary condemnation, this Lease shall
remain in full force and effect and Lessee shall be entitled to the Net Award
allowable to such temporary condemnation, except that any portion of the Net
Award allocable to the time period after the expiration or termination of the
Term shall be paid to Lessor.
12. INSURANCE.
(a) Lessee shall, at its cost and expense, maintain or cause to be
maintained valid and enforceable insurance of the following character and shall
cause to be delivered to Lessor annual certificates of the insurers as to such
coverage:
(i) "all risks" property insurance, and during any
period of construction builder's risk insurance
on a completed value basis, covering the Leased
Property and all replacements and additions
thereto, and all building materials and other
property which constitute part of the Leased
Property in a manner consistent with insurance
maintained by Lessee on properties similar to
the Leased Property and in any event in amounts
not less than the actual replacement cost of
the Leased Property less the Land, foundation,
footings and excavation costs and other
uninsurable items.
(ii) public liability insurance covering legal
liability against claims for bodily injury,
death or property damage, occurring on, in or
about the Leased Property and the adjoining
land, streets, sidewalks or ways or occurring
as a result of construction and use and
occupancy of facilities located on the Leased
Property or as a result of the construction
thereof or the use of products or materials
manufactured, processed, constructed or sold,
or services rendered, on the Leased Property,
in the minimum amount of $2,000,000 with
respect to any one occurrence, accident or
disaster or incidence of negligence.
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(iii) Worker's compensation insurance (or other
similar insurance or self-insurance program
permitted and in compliance with the laws of
the State in which the Leased Property is
located) covering all Persons employed in
connection with any work done on or about the
Leased Property with respect to which claims
for death or bodily injury could be asserted
against Lessor, Lessee or the Leased Property,
complying with the laws of the State in which
the Leased Property is located.
Such insurance shall be written by insurance companies domiciled in the United
States with a General Policy rating of B+7 or better in Best's Key Rating Guide
and that are legally qualified to issue such insurance in the State in which the
Leased Property is located and shall name as insured and Lessor as additional
insureds with respect to insurance described in clauses (i) and (ii) and, to the
extent applicable, clause (iv), above, and shall name Lessor as loss payee, for
distribution to itself and Lessor, and Lessee, as their interests may appear,
with respect to insurance described in clause (i). Such insurance may provide
for such deductible amounts as are customarily provided for in insurance
maintained by Lessee on like properties and may be obtained by Lessee by
endorsement on its blanket insurance policies, provided that the Leased Property
shall be separately scheduled so that no loss at any other property shall reduce
the amount payable with respect to the Leased Property.
(b) If, after restoration of the Leased Property in accordance with
the provisions of paragraph (b) of Article 11 following a condemnation or
casualty, there remains any Net Award in excess of the cost of restoration of
the Leased Property, then, if required by Lessor, all of such remaining Net
Award shall be paid to Lessor. If Lessor does not so require such payment, then
so long as no Event of Default shall have occurred and be continuing, all of
such remaining Net Award shall be paid to Lessee. If all of such remaining Net
Award is paid to Lessor, then each installment of Basic Rent thereafter payable
shall be reduced in the manner provided in Paragraph 3(c) herein.
(c) Any recovery by Lessor under policy of insurance maintained in
accordance with clause (i) of paragraph (a) of this Article 12 shall be applied
by Lessor in the manner provided in paragraphs (b) or (c) of Article 11 or
paragraph (b) of this Article 12. Every insurance policy maintained pursuant to
this Lease shall (i) provide that the issuer waives all rights of subrogation
against Lessor, any successor to Lessor's interests in the Leased Property; and
(ii) provide that 30 days' advance written notice of cancellation, modification,
termination or lapse of coverage shall be given to Lessor and that such
insurance, as to the interest of Lessor, shall not be invalidated by any act or
neglect of Lessor or any party, nor by any foreclosure or any other proceedings
relating to the Leased Property, nor by any change in the title ownership of the
Leased Property, nor by use or occupation of the Leased Property for purposes
more hazardous than are permitted by such policy; and (iii) be primary and
without right or provision of contribution as to any other insurance carried by
Lessor any other interested party.
(d) Lessee shall not obtain or carry separate insurance concurrent in
form or contributing in the event of loss with that required in this Article 12
to be furnished by Lessee, unless Lessor is included as a named insured, with
loss payable as provided in this Lease and otherwise complying with the
requirements of this Lease. Lessee shall immediately notify Lessor whenever any
such separate insurance is obtained and shall deliver to Lessor the policy or
policies, duplicates thereof or a certificate of insurance evidencing the same
satisfactory to Lessor.
(e) Lessee shall deliver to Lessor prior to the execution of this
Lease the original or duplicate policies or certificates of insurers,
satisfactory to Lessor, evidencing all of the insurance required hereunder.
Lessee shall, within three Business Days prior to the expiration of any such
policy, deliver to Lessor either original or duplicate policies or such
certificates evidencing the renewal of any such policy. If Lessee fails to
maintain or renew any insurance required by this Lease, or to pay the premium
therefor, or to so deliver any such policy or certificate, then Lessor, at its
option, upon five (5) business days' prior written approval to Lessee, but
without obligation to do so, may procure such insurance. Any sums so expended by
Lessor shall be payable on demand as Additional Rent hereunder.
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(f) Lessee shall comply with all of the terms and conditions of each
insurance policy maintained pursuant to the terms of this Lease.
(g) Anything contained in this Article 12 to the contrary
notwithstanding, so long as Lessee's Net Worth shall exceed $25,000,000, Lessee
shall have the right to self-insure with respect to (a) the insurance required
by clauses (i) and (ii) of paragraph 12(a) pursuant to a plan of self-insurance
maintained in accordance with sound accounting and actuarial principles pursuant
to which Lessee's unfunded reserves for self-insurance do not exceed 5% of
Lessee's Net Worth and (b) the insurance required by clause (iii) of paragraph
12(a) pursuant to a plan of self-insurance that complies with applicable state
law.
13. INTENTIONALLY DELETED.
14. PURCHASE PROCEDURE.
(a) In the event of the purchase of the Leased Property by Lessee
pursuant to any provision of this Lease, the terms and conditions of this
Article 14 shall apply.
(b) On the closing date fixed for the purchase of Lessor's interest
in the Leased Property:
(i) Lessee shall pay to Lessor, in lawful money of
the United States in immediately available
funds, at Lessor's address hereinabove stated
or at any other place in the United States that
Lessor may designate, the Purchase Price,
together with the Reinvestment Premium, when
required; and
(ii) Lessor shall execute and deliver to Lessee a
good and sufficient special warranty deed,
assignment or such other instrument or
instruments as may be appropriate, which shall
transfer all of Lessor's interest in the Leased
Property, in each case free and clear of
Lessor's mortgage and subject to (A) Permitted
Encumbrances, (B) exceptions and restrictions
attaching to the Leased Property after the
beginning of the Term (other than those created
or caused by or through Lessor without the
consent of Lessee but in no event including any
liens, security interests or encumbrances for
the payment of money), and (C) all Legal
Requirements. Lessor shall also pay to Lessor
the Net Award, if any and assign to Lessee all
rights to any award not yet received; and
(iii) Lessee shall pay all charges incident to such
transfer, including but not limited to all
transfer taxes, recording fees, title insurance
premiums and federal, state and local taxes
(except for any net income or profit taxes of
Lessor or Lessor's mortgagee), excluding any
attorneys' fees and expenses of Lessor's
counsel; and
(iv) Lessee shall pay to Lessor all Basic Rent,
Additional Rent and other sums payable by
Lessee under this Lease, due and payable
through the date Lessee purchases the Leased
Property.
15. QUIET ENJOYMENT. So long as no Event of Default under this Lease
shall have occurred and be continuing, Lessor covenants that Lessee shall and
may at all times peaceably and quietly have, hold and enjoy the Leased Property
during the Term of this Lease. Notwithstanding the foregoing, Lessor may
exercise its rights and remedies under Article 19 and the last sentence of
Article 13. Any failure by Lessor to comply with the foregoing covenant shall
not give Lessee any right to cancel or terminate this Lease, or to abate, reduce
or make deduction from or offset against any Basic Rent, Additional Rent or
other sum payable under this Lease, or to fail to perform or observe any other
covenant, agreement or obligation hereunder. Subject to the foregoing sentence,
Lessee shall have the right to obtain injunctive or other relief against Lessor
for breach of the aforesaid covenant of peaceful and quiet possession and
enjoyment of the Leased Property.
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16. SURVIVAL. In the event of the termination of this Lease as herein
provided, the obligations and liabilities of Lessee, actual or contingent, under
this Lease which arose at or prior to such termination shall survive such
termination to the extent so expressly stated with respect to each individual
covenant.
17. SUBLETTING; ASSIGNMENT.
(a) Subject to the provisions set forth below in this Article 17,
Lessee may sublet the Leased Property or any portion thereof or assign its
interest in this Lease provided that (i) no Event of Default under this Lease
has occurred and is continuing on the date of each such sublease or assignment,
and (ii) each sublease or assignment shall be made expressly subject to the
provisions hereof, including, without limitation, the provisions of Article 4
relating to use of the Leased Property. In the event that Lessee proposes to
sublet the Leased Property or any portion thereof or assign its interest in this
Lease, unless expressly stated elsewhere herein to the contrary, Lessee must
obtain Lessor's written consent, which consent will not be unreasonably withheld
or delayed. Lessee shall not be required to obtain the prior written consent of
Lessor for the assignment or sublet of the Lease or any portion thereof in
connection with any of the following:
(i) In the event that Lessee is a corporation, if shares of
such corporation are transferred by sale, assignment,
bequest, inheritance, operation of law or otherwise,
whether or not such transfer results in a change in the
present control of such corporation;
(ii) In the event that Lessee is a partnership, if partnership
interests are transferred by sale, assignment, bequest,
inheritance, operation of law or otherwise, whether or not
such transfer results in a change in control or ownership
of such partnership; or
(iii) The Transfer of the Lease to an Affiliate.
In addition, Lessee shall have the right to assign this Lease without the
written consent of Landlord to an entity with whom Lessee shall merge or
consolidate or to an entity purchasing all of the stores of Lessee located in
the state in which the Property is located. Lessee shall be entitled to retain
all rents payable under any sublease.
(b) Unless expressly stated elsewhere herein to the contrary, no
sublease or assignment of this Lease shall affect or reduce any obligations of
Lessee or any rights of Lessor hereunder, and all obligations of Lessee
hereunder shall continue in full effect as the obligations of a principal and
not of a guarantor or surety, as though no subletting or assignment had been
made.
(c) Within 10 days after the execution of any such sublease or
assignment, Lessee shall deliver to Lessor a conformed copy thereof and of any
short form lease or memorandum of lease which has been prepared for recording
purposes.
(d) Neither this Lease nor the Term of this Lease shall be mortgaged
by Lessee, nor shall Lessee, without the prior written approval of Lessor (not
to be unreasonably withheld or delayed) mortgage or pledge the interest of
Lessee in and to any sublease of the Leased Property or any portion thereof or
the rental payable thereunder. Any such mortgage or pledge, and any sublease or
assignment not permitted by this Article 17, shall be void.
18. TERMINATION RIGHT.
(a) Not less than 240 days prior to the expiration of the tenth year
of the Basic Term, Lessee shall send written notice (the 10-Year Notice) to
Lessor of its election to make an offer to purchase the Leased Property (a
Purchase Offer) for a price equal to the Purchase Price.
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(b) If Lessee fails to provide the 10-Year Notice in a timely manner,
Lessee shall be deemed to have waived its rights to proceed under Paragraph
18(a) and this Lease shall continue for the balance of the Term.
(c) If Lessee shall have elected to make a Purchase Offer pursuant to
paragraph (a) of Article 18 then Lessor shall have 60 days after receipt of the
10-Year Notice within which to accept or reject the Purchase Offer. If Lessor
accepts the Purchase Offer, then, on the last day of the tenth (10th) lease
year, Lessee shall purchase the Leased Property for the Purchase Price, together
with all Additional Rent and any other sums then due and payable by Lessee under
Article 14. Upon payment of such Purchase Price and all such sums by Lessee,
this Lease shall terminate and Lessor, at the expense of Lessee, shall, on the
last day of the tenth year of the Basic Term, convey the Leased Property to
Lessee, all subject to and in accordance with the terms of this Lease.
(d) Not less than 180 days prior to the expiration of the Basic Term
(at the end of year 20), Lessee shall send notice to Lessor of its election to
either (i) extend the Term pursuant to paragraph (b) of Article 2 or (ii)
purchase the Property at the Purchase Price or (iii) allow the Lease to
terminate. If Lessee shall have elected to purchase the Property pursuant to the
foregoing clause (ii), then on the last day of the Basic Term, Lessee shall
purchase the Property for the Purchase Price, together with all Additional Rent
and any other sums then due and payable by Lessee under this Lease. Upon payment
of all such sums, this Lease shall terminate and Lessor shall, upon receipt of
such sums, convey the Property to Lessee, all subject to and in accordance with
the terms of Article 14. If Lessee has not elected to renew the Lease or
purchase the Property, then the Lease will terminate on the last day of the
Basic Term.
19. ADVANCES BY LESSOR. If Lessee shall fail to make or perform any
payment or act required by this Lease, then, upon five Business Days notice to
Lessee in the event of any such failure that would in Lessor's reasonable
determination directly or indirectly have an adverse effect on the Leased
Property, or otherwise upon ten Business Days notice to Lessee (or in any event
upon shorter notice or no notice, to the extent necessary to meet an emergency
or a governmental limitation), Lessor may at its option make such payment or
perform such act for the account of Lessee, and Lessor shall not thereby be
deemed to have waived any default or released Lessee from any obligation
hereunder. Amounts so paid by Lessor and all incidental costs and expenses
(including reasonable attorney's fees and expenses) incurred in connection with
such payment or performance shall constitute Additional Rent and shall be paid
by Lessee to Lessor on demand.
20. CONDITIONAL LIMITATIONS - EVENTS OF DEFAULT AND REMEDIES.
(a) Any of the following occurrences or acts shall constitute an
Event of Default under this Lease:
(i) if Lessee shall for three (3) business days
after written notice from Lessor to Lessee (A)
default in making payment of any installment of
Basic Rent or other sum required to be paid by
Lessee hereunder, (B) fail to keep in full
force and effect the casualty or general
liability insurance coverage required to be
maintained by Lessee hereunder, (C) default in
the performance of any obligation under Article
7 or paragraph (d) of Article 9 with respect to
any lien that takes priority over the lien of
the mortgage; (D) default in the obligation to
purchase the Leased Property or to substitute a
Replacement Property therefor, when required to
do so by any provision of this Lease; or (E)
default in the obligation to deposit funds into
escrow when required to do so under paragraph
(e) of Article 10 hereof; or
(ii) if Lessee shall default in the performance of
any other covenant, agreement or obligation on
the part of Lessee to be performed under this
Lease and such default shall continue for a
period of 30 days after the receipt of written
notice of such default from Lessor, provided,
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however, that in the case of a default which
can with reasonable diligence be remedied by
Lessee, but not within a period of 30 days, if
Lessee shall commence within such period of 30
days to remedy the default and thereafter shall
prosecute the remedying of such default with
all reasonable diligence, the period of time
within which to remedy the default after
receipt of such notice shall be extended for
such period not to exceed 120 days as may be
reasonable to remedy the same with all
reasonable diligence; or
(b) This Lease and the term and estate hereby granted are subject to
the limitation that whenever an Event of Default shall have occurred and be
continuing Lessor may, at Lessor's option, elect to (i) re-enter the Leased
Property without notice, and remove all Persons and property therefrom, either
by summary proceedings or by any suitable action or proceeding at law, or
otherwise, without being liable to indictment, prosecution or damages therefor,
and may have, hold and enjoy the Leased Property, together with the
appurtenances thereto and the improvements thereon; or (ii) terminate this Lease
at any time by giving notice in writing to Lessee, electing to terminate this
Lease and specifying the date of termination, and the Term of this Lease shall
expire by limitation at midnight on the date specified in such notice as fully
and completely as if said date were the date originally fixed for the expiration
of the Term, and Lessee shall thereupon quit and peacefully surrender the Leased
Property to Lessor, without any payment therefor by Lessor.
(c) In case of any such re-entry, termination and/or dispossession as
provided in the immediately preceding paragraph, (i) the Basic Rent and
Additional Rent shall become due thereupon and be paid up to the time of such
re-entry, dispossession and/or expiration, together with such expenses,
including reasonable attorneys' fees, as Lessor shall incur in connection with
such re-entry, termination and/or dispossession; and (ii) Lessor shall attempt
in good faith relet the Leased Property or any part thereof (but shall be under
no obligation to do so) for its sole account, either in the name of Lessor or
otherwise, for a term or terms which may, at Lessor's option, be equal to or
less than or exceed the period which would otherwise have constituted the
balance of the Term, and (iii) Lessee shall also pay to Lessor the amount by
which the Basic Rent exceeds the net amount, if any, of the rents collected on
account of the leases of the Leased Property in connection with any reletting
thereof for each monthly period which would otherwise have constituted the Term,
which amounts shall be paid in monthly installments by Lessee on the respective
Rent Payment Dates specified therefor, and any suit brought to collect said
amounts for any period shall not prejudice in any way the rights of Lessor to
collect the deficiency in any subsequent period by a similar action or
proceeding; and (iv) Lessee shall also pay to Lessor all other damages and
expenses that Lessor shall reasonably have sustained by reason of the breach of
any provision of this including without limitation reasonable attorneys' fees
and expenses, brokerage commissions and expenses incurred in altering, repairing
and putting the Leased Property in good order and condition and in preparing the
same for reletting which expenses shall be paid by Lessee as they are incurred
by Lessor. At the option of Lessor exercise at any time, whether or not Lessor
shall have collected any current damages pursuant to the preceding clause (iii),
Lessor forthwith shall be entitled to recover from Lessee on demand as
liquidated damages (it being agreed that it would be impracticable or extremely
difficult to fix the actual damages), in addition to any other proper claims but
in lieu of and not in addition to any amount which would thereafter have become
payable under the preceding clause (iii) or (iv), either (A) an amount equal to
the excess, if any, of (a) all Basic Rent, Additional Rent and other sums which
would be payable under this Lease from the date of such demand for what would be
the then unexpired Term of this Lease in the absence of such expiration,
termination, re-entry or repossession, discounted at two percent (2%) in excess
of the corporate base rate then announced at Citibank, N.A., over (b) the then
fair rental value of the Leased Property, discounted at two percent (2%) in
excess of the corporate base rate then announced at Citibank, N.A. for the same
period. If any law shall limit the amount of such liquidated final damages to
less than the amount above agreed upon, Lessor shall be entitled to the maximum
allowable under such law. Lessor, at Lessor's option, may make such alterations
or decorations in the Leased Property as Lessor, in Lessor's sole judgment,
considers advisable and necessary for the purpose of
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reletting the Leased Property; and the making of such alterations or decorations
shall not operate or be construed to release Lessee from liability hereunder as
aforesaid.
(d) No receipt of moneys by Lessor from Lessee after a termination of
this Lease by Lessor shall reinstate, continue or extend the Term of this Lease
or affect any notice theretofore given to Lessee, or operate as a waiver of the
right of Lessor to enforce the payment of Basic Rent and Additional Rent or
related amounts to be paid by Lessee to Lessor for the purchase of the Leased
Property then due or thereafter falling due, it being agreed that after the
commencement of suit for possession of the Leased Property, or after final order
or judgment for the possession of the Leased Property, Lessor may demand,
receive and collect any moneys due or thereafter falling due without in any
manner affecting such suit, order or judgment, all such moneys collected being
deemed payments on account of the use and occupation of the Leased Property or,
at the election of Lessor, on account of Lessee's liability hereunder. Lessee
hereby waives any and all rights of redemption provided by any law, statute or
ordinance now in effect or which may hereafter be enacted.
(e) The word "re-enter", as used in this Lease, shall not be
restricted to its technical legal meaning, but is used in the broadest sense. No
such taking of possession of the Leased Property by Lessor shall constitute an
election to terminate the Term of this Lease unless notice of such intention be
given to or unless such termination be decreed by a court.
(f) If an action shall be brought for the enforcement of any
provision of this Lease, in which it is found that an Event of Default has
occurred, Lessee shall pay to Lessor all costs and other expenses which may
become payable as a result thereof, including reasonable attorneys' fees and
expenses. In the event Lessee shall prevail in connection with such action
brought for the enforcement of any provision of this Lease, Lessor shall pay to
Lessee all court costs and other expenses arising out of such action, including
reasonable attorneys' fees and expenses and costs of appeal.
(g) No right or remedy herein conferred upon or reserved to Lessor is
intended to be exclusive of any other right or remedy, and every right and
remedy shall be cumulative and in addition to any other legal or equitable right
or remedy given hereunder, or at any time existing. The failure of Lessor to
insist upon the strict performance of any provision or to exercise any option,
right, power or remedy contained in this Lease shall not be construed as a
waiver or a relinquishment thereof for the future. Receipt by Lessor of any
Basic Rent or Additional Rent or any other sum payable hereunder with knowledge
of the breach of any provision contained in this Lease shall not constitute a
waiver of such breach, and no waiver by Lessor of any provision of this Lease
shall be deemed to have been made unless made under signature of an authorized
representative of Lessor.
21. NOTICES. All communications herein provided for or made pursuant
hereto shall be in writing and shall sent by (i) reputable overnight delivery
service for delivery the next Business Day, and the giving of such communication
shall be deemed complete on the immediately succeeding Business Day after the is
deposited with such delivery service or (ii) legible fax with original to follow
in due course (failure to send such original shall not affect the validity of
such fax notice), and the giving of such communication shall be complete when
such fax is received:
(a) if to Lessor, Transatlantic Realty, Inc.
c/o The Trump Group
4 Stage Coach Road
East Brunswick, NJ 08816
Attn: James M. Lieb, Esq.
(b) if to Lessee, Northern Automotive Corporation
645 E. Missouri Avenue
Suite 400
Phoenix, Arizona 85012
Attn: Don Watson
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with a copy to: Northern Automotive Corporation
645 E. Missouri Avenue
Suite 400
Phoenix, Arizona 85012
Attn: Mary Z. Horton
22. ESTOPPEL CERTIFICATES. Lessee agrees that at any time and from
time to time during the term of this Lease, it will promptly, but in no event
later than ten days after request by Lessor, execute, acknowledge and deliver to
Lessor a certificate stating, to the best of Lessee's knowledge, (a) that this
Lease is unmodified and in full force and effect (or if there have been
modifications, that this Lease is in full force and effect as modified, and
setting forth any modifications); (b) the date to which Basic Rent, Additional
Rent and other sums payable hereunder have been paid; (c) whether or not there
is an existing Event of Default by Lessee in the payment of Basic Rent or any
other sum required to be paid hereunder, and whether or not there is any other
existing Event of Default by Lessee with respect to which a notice of default
has been served or of which Lessee has Actual Knowledge, and, if there is any
such Event of Default, specifying the nature and extent thereof, (d) whether or
not there are any set-offs, defenses or counterclaims against enforcement of the
obligations to be performed hereunder existing in favor of Lessee; and (e)
stating that Lessee is in possession of the Leased Property or setting forth the
parties in possession and identifying the instruments pursuant to which they
took possession.
23. NO MERGER. Lessee agrees that there shall be no merger of this
Lease or of any sublease under this Lease or of any leasehold or subleasehold
estate hereby or thereby created with the fee or any other estate or ownership
interest in. the Leased Property or any part thereof by reason of the fact that
the same entity may acquire or own or hold, directly or indirectly, (a) this
Lease or any sublease or any leasehold or subleasehold estate created hereby or
thereby or any interest in this Lease or any such sublease or in any such
leasehold or subleasehold estate and (b) the fee estate or other estate or
ownership interest in the Leased Property or any part thereof.
24. SURRENDER.
(a) Upon the expiration or earlier termination of the Term of this
Lease, Lessee shall peaceably leave and surrender the Leased Property to Lessor
in the same condition in which the Leased Property was originally received from
Lessor on the Interim Term Commencement Date, except as constructed, repaired,
rebuilt, restored, altered or added to as required by or permitted by any
provision of this Lease (ordinary wear and tear excepted). Lessee shall remove
from the Leased Property on or prior to such expiration or earlier termination
all Trade Fixtures and other property situated thereon which is not the property
of Lessor, and shall repair any damage caused by such removal. Property not so
removed shall become the property of Lessor, and Lessor may cause such property
to be removed from the Leased Property and disposed of, and Lessee shall pay the
cost of any such renewal and disposition and of repairing any damage caused by
such removal.
(b) Except for surrender upon the expiration or earlier termination
of the Term hereof, no surrender to Lessor of this Lease or of the Leased
Property shall be valid or effective unless agreed to and accepted in writing by
Lessor.
25. SEPARABILITY. Each provision contained in this Lease shall be
separate and independent and the breach of any such provision by Lessor shall
not discharge or relieve Lessee from its obligation to perform each obligation
of this Lease to be performed by Lessee. If any provision of this Lease or the
application thereof to any Person or circumstance shall to any extent be invalid
and unenforceable, the remainder of this Lease, or the application of such
provision to persons or circumstances other than those as to which it is invalid
or unenforceable, shall not be affected thereby, and each provision of this
Lease shall be valid and enforceable to the extent permitted by law.
26. SIGNS SHOWING. During the three month period preceding the date
on which the then current Term of this Lease shall expire, Lessor may, (a) place
signs in reasonable
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locations on the grounds in front of the Leased Property advertising that the
same will be available for rent or purchase, and (b) upon not less than 24 hours
telephonic notice to Lessee, show the Property to prospective lessees or
purchasers during nominal business hours as Lessor may elect.
27. CERTAIN DEFINITIONS. As used in this Lease, capitalized terms not
otherwise defined have the meanings set forth in Appendix I hereto.
28. INTENTIONALLY OMITTED.
29. SUBSTITUTION PROCEDURE.
(a) In the event that Lessee is required or entitled to substitute a
property for the Leased Property (any such substituted property, a "Replacement
Property") under any provision of this Lease, then Lessee may do so with
Lessor's approval of the Replacement Property, which approval will not be
unreasonably withheld or delayed so long as the Replacement Property conforms to
the following:
(i) the Replacement Property is a retail or other
facility used by Lessee, or any Affiliate of
Lessee in the ordinary course of its business
and is located in the United States;
(ii) the fair market value of the Replacement
Property is not less than the fair market value
of the Leased Property and is at least equal to
the then outstanding principal balance of the
Notes, such fair market value to be determined
at Lessor's request, by an appraisal conducted
by an MAI appraiser selected by Lessee and
reasonably approved by Lessor using an
appraisal methodology reasonably satisfactory
to Lessor, the fees and expenses of such
appraiser to be born solely by Lessee;
(iii) the real property component of the Replacement
Property is a fee estate or a leasehold estate
which is either subordinated to the mortgage or
which gives the Trustee the right to cure
defaults, to continue and freely assign the
Lease, or to obtain a new Lease; and
(iv) the Replacement Property substantially conforms
in all material respects to the closing
conditions satisfied with respect to the Leased
Property at the time of the Closing including,
by way of example and not limitation, with
respect to title, survey and environmental
matters.
(b) Upon approval of a Replacement Property by Lessor, Lessor and
Lessee shall take all actions that are reasonably required to effect the
substitution of the Replacement Property for the Leased Property, consistent
with the terms of Article XIV and including, without limitation, the execution
and delivery of an amendment to this Lease in form and substance satisfactory to
Lessor. Lessee shall pay all costs and expenses relating to the substitution of
the Replacement Property for the Leased Property including, without limitation,
the fees and expenses of counsel to Lessor, all such costs and to be payable on
demand as Additional Rent hereunder and as a condition precedent to the
substitution of the Replacement Property for the Leased Property.
30. WAIVER OF TRIAL BY JURY. Lessor and Lessee hereby waive trial by
jury in any litigation brought by either against the other on any matter arising
out of or in connection with this Lease or the Leased Property.
31. GRANTING OF EASEMENTS, ETC. If no Event of Default has occurred
and is continuing, Lessee may from time to time in writing request Lessor to
join with Lessee (at Lessee's cost and expense), to (i) grant new or release
existing easements, party wall rights, licenses, rights of way, minor land
releases and other rights and privileges in the nature of easements free of the
lien of the Mortgage for the purposes of providing utilities and the like to the
Leased Property, and (ii) execute and deliver any instrument, in form and
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substance reasonably acceptable to Lessor, necessary or appropriate to make or
confirm such grants or releases to any Person, with or without consideration;
provided that Lessee shall have delivered an Officer's Certificate to Lessor to
the effect that such grant or release does not materially interfere with and is
not materially detrimental to the conduct of Lessee's business on the Leased
Property and does not impair the usefulness or the fair market value of the
Leased Property. If the value (as certified by Lessee) of the Leased Property is
lessened thereby by an amount exceeding $100,000, or if the consideration
received for such grant exceeds $100,000, Lessor may require Lessee to pay to
Lessor an amount equal to such diminution in value or such consideration for
application to the prepayment of the Notes (and a corresponding rent reduction).
32. RECORDING. Lessor and Lessee will execute, acknowledge, deliver
and cause to be recorded or filed in the manner and place required by any
present or future law, a memorandum hereof, and all other instruments,
including, without limitation, financing statements, continuation statements,
releases and instruments of similar character, which shall be reasonably
requested by Lessor or Lessee as being necessary or appropriate in order to
protect their respective interests in the Leased Property.
33. MISCELLANEOUS. This Lease shall be binding upon and shall inure
to the benefit of and be enforceable by the parties hereto and their respective
successors and assigns permitted hereunder. This Lease may not be amended,
changed, waived, discharged or terminated orally, but only by an instrument
specifically evidencing an intent to amend signed by the party against whom
enforcement thereof is sought. No failure, delay, forbearance or indulgence on
the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, or as an acquiescence in any breach, nor
shall any single or partial exercise of any right, power or remedy hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. This Lease and the rights and obligations in respect
hereof shall be governed by, and construed and interpreted in accordance with,
the laws of the state in which the Leased Premises is located. In connection
with this Lease, Lessee hereby agrees to the non-exclusive personal jurisdiction
of and venue in the state courts of the Commonwealth of Massachusetts and the
United States District Courts located in the Commonwealth of Massachusetts. All
headings are for reference only and shall not be considered part of this Lease.
This Lease may be executed in any number of counterparts, each of which shall be
an original, and such counterparts together shall constitute but one and the
same instrument.
34. SENIORITY. This Lease is senior to and shall remain senior at all
times during the term of the Lease to any mortgage or deed-of-trust against the
Property.
35. BROKER. Lessor and Lessee each covenant that they have not dealt
with any real estate broker or finder with respect to this Lease, and each party
shall hold the other party harmless from all damages, claims, liabilities or
expenses, including reasonable and actual attorneys' fees (through all levels or
proceedings), resulting from any claims that may be asserted against the other
party by any real estate broker or finder with whom the indemnifying party
either has or it purported to have dealt.
36. CONFIDENTIALITY. The parties hereto, including, but not limited
to, their heirs, successors, assigns and legal representatives, agree that this
Lease may not be recorded (although a Memorandum of Lease may be recorded) and
that all such parties hereby agree to use their best reasonable efforts to
preserve the confidentiality of this transaction. This confidentiality agreement
extends to any developers, bankers, lawyers, accountants, employees, agents,
brokers or any other persons acting on behalf of the parties hereto. The parties
hereto agree to use their best reasonable efforts to avoid discussing with, or
disclosing to, any third parties (except those parties listed above) any of the
terms, conditions or particulars in connection with this transaction. It is
specifically agreed by way of illustration, but not by limitation, that the
covenant of confidentiality set forth herein shall not be breached if such
information is disclosed in connection with or due to any governmental law or
ordinance, but this covenant of confidentiality shall be breached if Lessor , or
any of Lessor's developers, bankers, accountants, agents, lenders, lawyers or
other similar parties, discloses the content of, or delivers a copy of this
Lease to, any third
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party without the express written consent of all parties to this Lease.
Notwithstanding the foregoing, if the information contained in this Lease is an
integral part of any sale and/or finance, and Lessor is required to submit this
Lease to prospective lenders and purchasers directly or through their brokers,
then any such disclosure is authorized by Lessee so long as non-disclosure
statements are obtained from such prospective lenders, purchasers and/or brokers
prior to disclosure by Lessor of the contents of this Lease.
37. LANDLORD'S AGREEMENT. Lesser agrees to promptly execute and
deliver to Lessee from time to time a Landlord's Agreement in the form attached
hereto as Schedule I.
[Signatures on following page]
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IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease to be
duly executed under seal and delivered as of the date first written above.
LESSOR:
TRANSATLANTIC REALTY, INC.,
a Delaware corporation
By: /s/ James G. Bazlen
------------------------------
James G. Bazlen
Its Vice President
LESSEE:
NORTHERN AUTOMOTIVE CORPORATION
By:_____________________________
Its Vice President
By:_____________________________
Its Asst. Secretary
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APPENDIX I
DEFINITIONS
"Actual Knowledge" means (i) by Lessee with respect to the occurrence
or non-occurrence of an event, knowledge of such occurrence or non-occurrence by
an Applicable Officer of Lessee, (ii) by the Owner with respect to the
occurrence or non-occurrence of an event, knowledge of such occurrence or non-
occurrence by an Applicable Officer of General Partner, and (iii) by the Trustee
with respect to the occurrence or non-occurrence of an event, knowledge of such
occurrence by any officer in the corporate trust administration department of
the Trustee.
"Addition" has the meaning set forth in paragraph (c) of Article 10
of the Lease.
"Additional Rent" has the meaning set forth in paragraph (b) of
Article 3 of the Lease.
"Affiliate" means, with respect to any Person, a Person which,
directly or indirectly, controls, or is controlled by or is under common control
with, such Person. The term "control" means the possession, directly or
indirectly, or the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Applicable Officer" with respect to Lessee means the president,
executive vice president, treasurer or financial vice president of Lessee, as
applicable, and with respect to General Partner means the president or treasurer
of General Partner.
"Article 9 Notice" has the meaning set forth in paragraph (h) of
Article 9 of the Lease.
"Article 10 Notice" has the meaning set forth in paragraph (e) of
Article 10 of the Lease.
"Bankruptcy Code" means Title 11 of the United States Code, as
amended, or any successor statutory provisions.
"Bankruptcy Laws" has the meaning set forth in Section 7.1 of the
Indenture.
"Basic Rent" has the meaning set forth in paragraph (a) of Article 3
of the Lease.
"Basic Term" has the meaning set forth in paragraph (a) of Article 2
of the Lease.
"Basic Term Commencement Date" means the date of the Lease.
"Business Day" means any day other than a Saturday, Sunday or other
day on which banks are authorized to be closed in New York or Massachusetts.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"default" or "Default" when used in the Lease means any act or
occurrence which, with notice, lapse of time or both, would constitute an Event
of Default under the Lease.
"Depositary" has the meaning set forth in paragraph (b) of Article 11
of the Lease.
"Economic Abandonment" has the meaning set forth in paragraph (c) of
Article 11 of the Lease.
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"Environmental Laws" means and includes but shall not be limited to
the Resource Conservation and Recovery Act (42 U.S.C. ss.6901 ET SEQ.), as
amended by the Hazardous and Solid Waste Amendments of 1984, the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. ss.9601 ET
SEQ.), as amended by the Superfund Amendments and Reauthorization Act of 1986,
the Hazardous Materials Transportation Act (49 U.S.C. ss.1801 ET HQ.), the Toxic
Substances Control Act (15 U.S.C. ss.2601 ET SEQ.), Clean Air Act (42 U.S.C.
ss.7401 ET SEQ.), the Clean Water Act (33 U.S.C. ss.1251 ET SEQ.), The Federal
Insecticide, Fungicide and Rodenticide Act (7 U.S.C. ss.136 ET SEQ.), the
Occupational Safety and Health Act (29 U.S.C. ss.651 ET SEQ.) and all applicable
federal, state and local environmental laws, including obligations under the
common law, ordinances, rules, regulations and publications, as any of the
foregoing may have been or may be from time to time amended, supplemented or
supplanted, and any other federal, state or local laws, including obligations
under the common law, ordinances, rules, regulations and publications, now or
hereafter existing relating to regulation or control of Hazardous Substances or
environmental health and safety.
"Event of Default" has the meaning set forth in Article 20 of the
Lease.
"Force Majeure" means acts of God, strikes, lockouts, labor
difficulties, delays on account of adverse weather conditions, explosions,
sabotage, accidents, riots, civil commotions, acts of wars, results of any
warfare or war-like conditions in this or any foreign country, fire, casualty,
condemnation or causes beyond the reasonable control of each not enumerated
herein whether or not such causes shall be similar or dissimilar to any of the
specifications of excuse here and above stated.
"GAAP" means generally accepted accounting principles as in effect in
the United States of America at the time of application to the provisions of the
Operative Documents.
"Grant" means to grant, bargain, sell, warrant, alienate, remise,
demise, release, convey, assign, transfer, mortgage, pledge, create and grant a
security interest in and right of set-off against, deposit set over and confirm.
"Hazardous Substances" means (i) those substances included within the
definitions of or identified as "hazardous substances", "hazardous materials",
or "toxic substances" in or pursuant to, without limitation, the Comprehensive
Environmental Response Compensation and Liability Act of 1980 (42 U.S.C. ss.9601
ET SEQ.) (CERCLA), as amended by Superfund Amendments and Reauthorization Act of
1986 (Pub. L. 99-499, 100 Stat 1613) (SARA), the Resource Conservation and
Recovery Act of 1976 (42 U.S.C., ss. 6901 ET SEQ.) (RCRA), the Occupational
Safety and Health Act of 1970 (49 U.S.C ss. 651 ET SEQ.) (OSHA), and the
Hazardous Materials Transportation Act, 49 U.S.C. ss. 1801 ET SEQ., and in the
regulations promulgated pursuant to said laws, all as amended; (ii) those
substances listed in the United States Department of Transportation Table (40
CFR 172.101 and amendments thereto) or by the Environmental Protection Agency
(or any successor agency) as hazardous substances (40 CFR Part 302 and
amendments thereto); (iii) any material, waste or substance which is or contains
(A) petroleum, including crude oil or any fraction thereof, natural gas, or
synthetic gas usable for fuel or any mixture thereof, (B) asbestos, (C)
polychlorinated biphenyls, (D) designated as "hazardous substance" pursuant to
Section 311 of the Clean Water Act, 33 U.S.C. ss. 1251 ET SEQ., (33 U.S.C. ss.
1321) or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. ss.
1317); (E) flammable explosives; (F) radioactive materials; and (iv) such other
substances, materials and wastes which are or become regulated as hazardous,
toxic or "special wastes" under applicable local, state or federal law, or the
United States government, or which are classified as hazardous, toxic or as
"special wastes" under federal, state or local laws or regulations.
"Improvements" means all buildings and improvements now or hereafter
existing on the Land Parcel and fixtures appurtenant thereto, including, without
limitation, the Project, but excluding Trade Fixtures.
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"Indemnified Parties" means the Lessor, its respective successors,
transferees and assigns, and all shareholders, officers, directors, employees,
attorneys and agents of any of the foregoing, and any Person holding any
beneficial interest in any of the foregoing.
"Land" or "Land Parcel" means the land in more particularly described
in Schedule A to the Lease.
"Leased Property" has the meaning set forth in Article 1 of the
Lease.
"Legal Requirement" means all applicable laws, rules, orders,
ordinances, regulations and requirements now existing or (except to the extent
any exemption or so called "grandfathering" provision is available) hereafter
enacted or promulgated, of every government and municipality and of any agency
thereof having jurisdiction over Lessor, Lessee or the Leased Property, relating
to the ownership, use, occupancy or operation of the Leased Property, or the
improvements thereon, or the facilities or equipment thereon or therein, or the
streets, sidewalks, vaults, vault spaces, curbs and gutters adjoining the Leased
Property, or the appurtenances to the Leased Property, or the franchises and
privileges connected therewith or the transactions contemplated by the Operative
Documents, and including without limitation, all applicable building laws,
health codes, safety rules, handicapped access, zoning and subdivision laws and
regulations and Environmental Laws.
"Lessee" means Northern Automotive Corporation, and its permitted
successors and assigns as under the Lease.
"Lessee's Loss" has the meaning set forth in paragraph (a) of Article
11 of the Lease.
"Lessor" means Transatlantic Realty, Inc. and its successors and
assigns as the owner of the Property (also referred to as the Owner).
"Losses" has the meaning set forth in Article 8 of the Lease.
"Market Rent" has the meaning set forth in Schedule H of the Lease.
"Market Value" has the meaning set forth in Schedule H of the Lease.
"Mortgage" means any deed of trust, mortgage or similar lien on the
Leased Property in favor of Lessor's Mortgagee.
"Net Award" has the meaning set forth in paragraph (c) of Article 12
of the Lease.
"Net Worth" means, as of the date of computation, the sum of the
consolidated stockholders' equity of Lessee and its Subsidiaries determined in
accordance with GAAP, and one-half of the UFO Reserve (if applicable).
"Officer's Certificate" means a certificate executed and delivered by
an Applicable Officer of or such other officer of Lessee as is in the best
position to know the substance of the mutters con in such certificate.
"Owner" means Transatlantic Realty, Inc. and its successors and
assigns as the owner of the Property (also referred to as Lessor).
"Permitted Encumbrances" has the meaning set forth in Schedule D of
the Lease.
"Person" means an individual, a corporation, a partnership, an
association, a joint stock company, a trust, an unincorporated organization, a
governmental body or a political subdivision, a municipal corporation, a public
corporation or any other group or organization of individuals.
"Project" means the construction of certain Improvements as part of
the Leased Property, as more particularly described on Schedule G to the Lease.
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<PAGE>
"Project Cost" means the actual cost incurred by Lessee for its own
account or on behalf of Lessor in connection with the development, design and
construction of the Project including the acquisition and due diligence costs of
the Land Parcel, hard costs and design fees related to buildings and
improvements and equipment that is incorporated into the improvements or as a
functional part of the improvements, related site work including acquisition of
necessary easements, storm drainage, off-site road construction and utilities,
including roads and utilities subsequently dedicated to municipalities or other
public authorities, professional and consulting fees, title and survey expenses,
indirect construction costs (including construction period interest, taxes,
insurance and other costs capitalized during construction), fees and expenses
related to the acquisition and leasing of the Leased Property, and fees and
expenses related to the structuring and placement of the financing obtained by
Lessor in order to finance all or part of its cost of constructing and/or
acquiring the Property. The Project Cost will be reduced from time to time, by
any Net Award paid to Lessor pursuant to paragraph (d) of Article 10 or
paragraph (b) of Article 12.
"Property" means, as of any given date, the Owner's interests in the
Land Parcel and the Improvements, together with the appurtenances thereto
described in Granting Clause First of the Indenture.
"Purchase Election Notice" has the meaning set forth in paragraph (f)
of Article 17 of the Lease.
"Purchase Event Notice" has the meaning set forth in paragraph (a) of
Article 27 of the Lease.
"Purchase Price" at any time means the fair market value of the
Property pursuant to Schedule H attached hereto, together with all accrued and
unpaid Basic Rent, Additional Rent and all other sums due under the Lease.
"Regulations" means the applicable proposed, temporary or final
Income Tax Regulations promulgated under the Code, as such regulations may be
amended or supplemented from time to time.
"Renewal Term" has the meaning set forth in Article 2 of the Lease.
"Rent Payment Date" has the meaning set forth in Schedule B.
"Replacement Property" has the meaning set forth in Article 28 of the
Lease.
"Substantial Completion" or "Substantially Complete" means that the
Project is complete, subject only to punchlist items to be completed, the cost
of which is no more than 10% of the Estimated Project Cost, and that a temporary
or final Certificate of Occupancy shall have been issued with respect thereto by
the applicable governmental authority.
"Term" means any period during which the Lease is in effect,
including the Interim Term, the Basic Term, and any Renewal Term which may be
effected pursuant to Article 2 of the Lease.
"Termination Date" has the meaning set forth in paragraph (c) of
Article 11 of the Lease.
"Trade Fixtures" has the meaning set forth in Article 1 of the Lease.
"Uniform Commercial Code" means the Uniform Commercial Code as
enacted in the State of North Carolina, as amended from time to time.
"Unrelated Person" means any person or persons acting in concert,
other than: (i) past and present officers, directors, or employees of Lessee
(Associates) or any members of their immediate families, including children,
grandchildren, great grandchildren, and their respective spouses; (ii) trustees
or trusts, principally for the benefit of Associates and/or any
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<PAGE>
such members of their immediate families; (iii) corporations and/or partnerships
controlled by Associates and/or any such members of their immediate families
and/or any such trustees or trusts; and (iv) employee stock ownership plans and
other stock plans which are controlled by Associates and/or any such members of
their immediate families and/or any such trustee or trustees.
The words "hereof," "herein," "hereto," "hereby," and "hereunder" refer to the
Lease. All words and terms importing the singular number shall, where the
context requires, import the plural number and vice versa.
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<PAGE>
EXHIBIT 11.1
CSK AUTO, INC.
STATEMENT OF COMPUTATION OF COMMON
AND COMMON EQUIVALENT SHARES
AND EARNINGS PER SHARE (1)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Thirteen weeks
---------------
Ended
-----
January 30, January 29, January 28, April 30, April 28,
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1995 1996
----- ---- ---- ---- ----
Weighted-average common shares outstanding 30,300 30,300 30,300 30,300 30,300
Incremental Common Stock equivalents from
Cheap Stock options granted (2) 538 538 538 538 538
Common Stock issued to certain officers (3) 22 22 22 22 22
----------- ---------- ---------- ---------- ----------
Weighted-average common and common
equivalent shares outstanding 30,860 30,860 30,860 30,860 30,860
=========== ========== ========== ========== ==========
Pro forma shares issued (4) 6,586 6,632 6,700
----------- ---------- ---------- ---------- ----------
Pro forma weighted average
common and common equivalent shares outstanding 37,446 37,492 37,560
=========== ========== ========== ========== ==========
Net income (loss) $ (650) $ 105,224 $ (9,094) $ (1,798) $ 1,499
=========== ========== ========== ========== ==========
Adjustment to net income (loss) (5) 5,921 1,251 1,448
----------- ---------- ---------- ---------- ----------
Pro forma net income (loss) (3,173) (547) 2,947
=========== ========== ========== ========== ==========
Net income (loss) per share (6) $ (0.02) $ 3.41 $ (0.29) $ (0.06) $ 0.05
=========== ========== ========== ========== ==========
Pro forma net income (loss) per share $ (0.08) $ (0.01) $ 0.08
========== ========== ==========
</TABLE>
(1) This exhibit should be read in conjunction with "Summary of Significant
Accounting Policies- Earnings Per Share and Earnings Per Share
(unaudited)" in Note 2 to the CSK AUTO, INC. financial statements.
(2) Common equivalent shares consist of Cheap Stock options granted (using the
treasury stock method) See "Management - Stock Based Plans" and "Management-
Equity Participation Agreements."
(3) Represents shares of Common Stock sold to certain officers of the
Company during June 1996 for a purchase price of $12.75 per share.
(4) Pro forma shares issued represents the incremental shares necessary to
retire the debt based on assumed net proceeds per share of $13.81.
(5) Pro forma net income (loss) is adjusted to reflect the elimination of
interest expense and deferred financing costs, net of the related tax
effect.
(6) Primary and Fully Diluted earnings per share are the same for all periods
presented.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF CSK AUTO, INC.
1. Kragen Auto Supply Co.
2. Schuck's Distribution Co.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated May 21, 1996 relating to
the financial statements of CSK Auto, Inc., which appears in such Prospectus. We
also consent to the application of such report to the Financial Statement
Schedule for the three years ended January 28, 1996 listed under Item 16(b) of
this Registration Statement when such schedule is read in conjunction with the
financial statements referred to in our report. The audits referred to in such
report also included this schedule. We also consent to the references to us
under the headings "Experts" and "Selected Financial Data" in such Prospectus.
However, it should be noted that Price Waterhouse LLP has not prepared or
certified such "Selected Financial Data."
PRICE WATERHOUSE LLP
Phoenix, Arizona
June 24, 1996
