<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 28, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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CSK AUTO, INC.
AND OTHER REGISTRANTS
(See "Calculation of Registration Fee")
(Exact name of registrant as specified in its charter)
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ARIZONA 5531 86-0221312
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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645 E. MISSOURI AVENUE
PHOENIX, ARIZONA 85012
(602) 265-9200
(Address, including zip code, and telephone number,
including area code, of registrant's and co-registrant's principal executive
offices)
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JAMES G. BAZLEN
645 E. MISSOURI AVENUE
PHOENIX, ARIZONA 85012
(602) 265-9200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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With copies to:
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CHARLES K. MARQUIS, ESQ. RICHARD M. RUSSO, ESQ.
GIBSON, DUNN & CRUTCHER LLP GIBSON, DUNN & CRUTCHER LLP
200 PARK AVENUE 1801 CALIFORNIA STREET, SUITE 4200
NEW YORK, NEW YORK 10166 DENVER, COLORADO 80202
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------
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11% Series A Senior Subordinated
Notes Due 2006 (the "Notes").. $125,000,000 100% $125,000,000 $37,880
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Guarantees of the Notes*........ $125,000,000 (2) (2)
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(1) Estimated pursuant to Rule 457(f) solely for the purposes of calculating the
registration fee.
(2) No separate consideration will be received for the Guarantees.
* Other Registrants
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EXACT NAME OF REGISTRANT STATE OR OTHER JURISDICTION OF PRIMARY STANDARD INDUSTRIAL I.R.S. EMPLOYER
AS SPECIFIED IN ITS CHARTER INCORPORATION OR ORGANIZATION CLASSIFICATION CODE NUMBERS IDENTIFICATION NUMBER
- --------------------------- ------------------------------ --------------------------- ---------------------
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Kragen Auto Supply Co. California 5531 94-2761234
Schuck's Distribution Co. Washington 5531 91-1542425
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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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
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<PAGE> 2
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.
SUBJECT TO COMPLETION, DATED FEBRUARY 28, 1997
CSK AUTO, INC.
OFFER FOR ALL OUTSTANDING
11% SENIOR SUBORDINATED NOTES DUE 2006
IN EXCHANGE FOR
11% SERIES A SENIOR SUBORDINATED NOTES DUE 2006
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1997, UNLESS EXTENDED.
CSK Auto, Inc., an Arizona corporation (the "Company"), hereby offers (the
"Exchange Offer"), upon the terms and subject to the conditions set forth herein
and in the related Letter of Transmittal, to exchange up to $125.0 million
aggregate principal amount of 11% Series A Senior Subordinated Notes Due 2006
(the "Notes") of the Company for a like amount of the privately placed 11%
Senior Subordinated Notes Due 2006 (the "Old Notes") of the Company issued on
October 30, 1996, from the holders thereof (together with the holders of Notes,
"Holders").
The Notes are being offered hereunder in order to satisfy the obligations
of the Company under a Registration Rights Agreement dated October 30, 1996 (the
"Registration Rights Agreement") by and among Kragen Auto Supply Co. and
Schuck's Distribution Co. (the "Initial Guarantors"), the Company, and
Donaldson, Lufkin & Jenrette Securities Corporation and Merrill Lynch, Pierce
Fenner & Smith Incorporated (the "Initial Purchasers"). The Exchange Offer is
designed to provide to Holders an opportunity to acquire Notes which, unlike the
Old Notes, are expected to be freely transferable at all times, subject to state
"blue sky" law restrictions, provided that the Holder is not an "affiliate" of
the Company within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and represents that the Notes are being acquired in the
ordinary course of such Holder's business and the Holder is not engaged in, and
does not intend to engage in, a distribution of the Notes. With the exception of
the freely transferable nature of the Notes, the Notes are substantially
identical to the Old Notes. See "The Exchange Offer -- Purpose of the Exchange
Offer."
The Company will accept for exchange any and all validly tendered Old Notes
on or prior to 5:00 P.M., New York time, on , 1997, unless extended
(the "Expiration Date"). Tenders of Old Notes made pursuant to the Exchange
Offer may be withdrawn at any time prior to the Expiration Date. In the event
the Company terminates the Exchange Offer and does not accept any Old Notes with
respect to the Exchange Offer, the Company will promptly return such Old Notes
to the Holders thereof. The Company will not receive any proceeds from the
Exchange Offer.
Interest on the Notes will be payable semi-annually on May 1 and November 1
of each year, commencing on May 1, 1997. The Notes will mature on November 1,
2006. Except as described below, the Notes will not be redeemable at the
Company's option prior to November 1, 2001. On or after November 1, 2001, the
Notes may be redeemed at the option of the Company, in whole or in part, at the
redemption prices set forth herein, together with accrued and unpaid interest
and Liquidated Damages (as defined herein), if any, to the date of redemption.
In addition, at any time on or prior to November 1, 1999, the Company may,
subject to certain requirements, redeem up to 35% of the original aggregate
principal amount of the Notes with the net cash proceeds of an Equity Offering
(as defined herein), at a price equal to 110% of the principal amount to be
redeemed, together with accrued and unpaid interest and Liquidated Damages, if
any, to the date of redemption; provided that at least 65% of the original
principal amount of the Notes remains outstanding. The Notes will not be subject
to any sinking fund requirement. Upon the occurrence of a Change of Control (as
defined herein), the Company will be required to make an offer to repurchase the
Notes at a price equal to 101% of the principal amount thereof, together with
accrued and unpaid interest and Liquidated Damages, if any, to the date of
repurchase. See "Description of Notes."
(Continued on following page)
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SEE "RISK FACTORS" BEGINNING ON PAGE 13 HEREIN FOR A DISCUSSION OF CERTAIN RISKS
THAT HOLDERS OF OLD NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
---------------------
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.
The date of this Prospectus is , 1997.
<PAGE> 3
The Notes will be general obligations of the Company subordinated in right
of payment to all Senior Indebtedness (as defined herein) of the Company. The
Notes will also be guaranteed by all of the Company's subsidiaries, including
the Initial Guarantors and any future U.S. subsidiaries on a senior subordinated
basis. The guarantees will be subordinated to the prior payment in full of all
Guarantor Senior Indebtedness (as defined herein) of such subsidiaries. At
November 24, 1996, the Company and its subsidiaries had outstanding an aggregate
principal amount of approximately $125.0 million of Senior Indebtedness and
Guarantor Senior Indebtedness (without duplication) which ranked senior in right
of payment to the Notes and guarantees.
The Old Notes were sold by the Company on October 30, 1996 to the Initial
Purchasers in a transaction not registered under the Securities Act in reliance
upon an exemption under the Securities Act. The Initial Purchasers subsequently
placed the Old Notes with qualified institutional buyers in reliance upon Rule
144A under the Securities Act and with a limited number of institutional
accredited investors that agreed to comply with certain transfer restrictions
and other conditions. Accordingly, the Old Notes may not be reoffered, resold or
otherwise transferred in the United States unless registered under the
Securities Act or unless an applicable exemption from the registration
requirements of the Securities Act is available.
Based on certain interpretive letters issued by the staff of the Securities
and Exchange Commission to third parties, the Company believes that a Holder of
Notes (other than (i) a broker-dealer who purchases such Notes directly from the
Company to resell pursuant to Rule 144A or any other available exemption under
the Securities Act or (ii) a person who is an affiliate of the Company within
the meaning of Rule 405 under the Securities Act) who exchanges Old Notes for
Notes in the ordinary course of business and who is not participating, does not
intend to participate, and has no arrangement or understanding with any person
to participate, in the distribution of the Notes, will be allowed to resell the
Notes to the public without further registration under the Securities Act and
without delivering to the purchasers of the Notes a prospectus that satisfies
the requirements of the Securities Act. See "The Exchange Offer -- Purpose of
the Exchange Offer" and "-- Resales of Notes." However, a broker-dealer who
holds Old Notes that were acquired for its own account as a result of
market-making or other trading activities may be deemed to be an "underwriter"
within the meaning of the Securities Act and must, therefore, deliver a
prospectus meeting the requirements of the Securities Act. If any other Holder
is deemed to be an "underwriter" within the meaning of the Securities Act or
acquires Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the Notes, such holder must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction, unless an exemption from
registration is otherwise available. For a period of one year from the
Expiration Date, the Company will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
There has been no public market for the Old Notes and no active public
market for the Notes is currently anticipated. The Company currently does not
intend to apply for the listing of the Notes on any securities exchange or to
seek approval for quotation through any automated quotation system. The Initial
Purchasers have advised the Company that each of the Initial Purchasers
currently intends to make a market in the Notes; however, neither is obligated
to do so and any market-making may be discontinued by either Initial Purchaser
at any time without notice. Accordingly, no assurance can be given as to the
liquidity or the trading market for the Notes.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange. However, the Exchange Offer is subject to
certain customary conditions. See "The Exchange Offer." Old Notes may be
tendered only in integral multiples of $1,000.
2
<PAGE> 4
AVAILABLE INFORMATION
CSK Auto, Inc. and the Initial Guarantors have filed with the Securities
and Exchange Commission (the "Commission") a registration statement relating to
the Notes offered hereby (herein, together with all amendments and exhibits,
referred to as the "Registration Statement") under the Securities Act. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information, reference is hereby made
to the Registration Statement. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an Exhibit to the Registration Statement, reference is made to
such exhibit for a more complete description thereof, and each such statement
shall be deemed qualified in its entirety by such reference. The Registration
Statement and the exhibits and schedules thereto may be inspected without charge
and copies at prescribed rates at the Public Reference Section of the Commission
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices at 7 World Trade Center, Suite 1300, New York, New
York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The Commission maintains a website that contains
reports, proxy and information statements and other information filed
electronically with the Commission at http://www.sec.gov. In addition, the
Company and the Initial Guarantors have agreed to furnish to Holders of the
Notes and Old Notes and prospective purchasers and securities analysts, upon
their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
NEW HAMPSHIRE RESIDENTS:
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER RSA 421-B WITH THE STATE OF NEW HAMPSHIRE NOR THE
FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE
STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE ATTORNEY GENERAL OR THE
SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND
NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR
EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE ATTORNEY
GENERAL HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR
RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION. IT IS
UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER,
OR CLIENT, ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS SECTION.
3
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TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION....................................... 3
SUMMARY..................................................... 5
RISK FACTORS................................................ 13
USE OF PROCEEDS............................................. 16
THE EXCHANGE OFFER.......................................... 17
ACQUISITION AND FINANCINGS.................................. 25
CAPITALIZATION.............................................. 26
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA... 27
SELECTED CONSOLIDATED FINANCIAL DATA........................ 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 31
BUSINESS.................................................... 40
MANAGEMENT.................................................. 53
CERTAIN TRANSACTIONS........................................ 59
PRINCIPAL STOCKHOLDERS...................................... 62
CREDIT AGREEMENT............................................ 64
DESCRIPTION OF NOTES........................................ 66
PLAN OF DISTRIBUTION........................................ 94
LEGAL MATTERS............................................... 95
EXPERTS..................................................... 95
CHANGE IN ACCOUNTANTS....................................... 95
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................. F-1
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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.
4
<PAGE> 6
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 footnotes thereto, appearing elsewhere in this Prospectus. As used
in this Prospectus unless otherwise indicated, the "Company" refers to CSK Auto,
Inc. and its subsidiaries, 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). In
addition to the historical information contained herein, certain statements in
this Prospectus constitute "forward-looking statements" under the Private
Securities Litigation Reform Act (the "Reform Act") which involve risks and
uncertainties. The Company's actual results may differ significantly from those
discussed herein. Factors that might cause such a difference include, but are
not limited to, those discussed under the captions "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" as well as those discussed elsewhere in this Prospectus. See "Risk
Factors -- Forward-Looking Statements."
THE COMPANY
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 November 24, 1996, the Company operated 577 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. Each chain has a long operating history,
established name recognition and a loyal customer base 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.
Beginning in fiscal 1994, the Company initiated a strategic review of its
operations in order to improve profitability, enhance customer service, improve
the efficiency of its operations and prepare the Company for accelerated growth.
In connection with this program, the Company designed and implemented a
sophisticated, centralized infrastructure, installed various store-level
information systems, initiated its Commercial Sales Program and accelerated its
store expansion and repositioning programs to increase the penetration of its
existing markets. Implementation of these initiatives involved large
expenditures, including approximately $51.3 million of capital and operating
expenditures, and caused certain operating inefficiencies, which adversely
impacted operating results during fiscal 1995. However, the Company believes
these initiatives have provided significant momentum to the Company's operations
and have enabled the Company to significantly improve its operating results
during fiscal 1996. During the forty-three weeks ended November 24, 1996, the
Company's sales increased to $652.0 million from $599.2 million and its EBITDA
increased to $40.4 million from $14.6 million in the comparable period during
fiscal 1995. See "Summary Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Several of the key initiatives that have been implemented by the Company
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 168 at
5
<PAGE> 7
November 26, 1995 and to 276 at November 24, 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
$73.2 million for the forty-three weeks ended November 24, 1996 from
$49.5 million in the comparable period during 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 is
evaluating opportunities to add Commercial Sales Centers to
additional existing stores and to new stores.
- 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 significantly 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.
For the forty-three weeks ended November 24, 1996, the Company's
warehouse and distribution expense as a percentage of sales declined to
3.7% from 4.8% during the comparable period of fiscal 1995.
- Store-Level Information Systems -- The Company installed several
store-level systems which have improved store labor productivity and
enabled the Company to provide enhanced customer service. These
initiatives have included installing a new Point-of-Sale system ("POS"),
integrating the POS with the Company's Electronics Parts Catalog,
implementing its Retail Paperless Management System and installing a
store-wide satellite communications network. For the forty-three weeks
ended November 24, 1996, the Company's store labor expense as a
percentage of sales declined to 12.2% from 12.7% during the comparable
period in fiscal 1995, partially as a result of these programs.
- Customer Service Initiatives -- In order to better develop its employees'
technical expertise and customer service skills, 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. The
Company believes these programs have resulted in an increased level of
customer service and store-level efficiency.
- Expanded Product Selection -- The Company expanded its Priority Parts
operation by improving its delivery system and adding eight 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.
- Centralized 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 November 24, 1996, over 200 of the Company's stores had
access to the Call Center.
- 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 nine stores.
The Company's strategy is to continue to increase its revenue and cash flow
by capitalizing on the systems and programs which it has implemented and by
substantially growing its store count. The Company believes that key components
of its expected profitability improvements will be: (i) the continued maturation
of its existing Commercial Sales Centers, combined with expansion of its
Commercial Sales Program to additional stores; (ii) increased operating margins
as a result of efficiencies in its warehouse and distribution
6
<PAGE> 8
system and its significant investments in store-level systems, which are
expected to improve store labor productivity; and (iii) accelerating the
Company's new store opening and relocation program.
The focus of the Company's expansion strategy is to open, relocate or
expand stores primarily in its 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 opened, relocated
or expanded 64 stores in fiscal 1996 and 63 stores in fiscal 1995 and plans to
open, relocate or expand approximately 75 to 100 stores in fiscal 1997. As of
February 2, 1997, the Company has executed purchase contracts or leases for 51
additional stores and is in various stages of negotiation for 78 more sites. The
Company has also identified numerous potential additional sites for future
expansion. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" for a discussion of
the anticipated capital expenditures and sources of financing for the Company's
expansion plans.
THE ACQUISITION
On October 30, 1996, certain affiliates of INVESTCORP S.A. ("Investcorp")
and certain other investors (collectively with Investcorp, the "Initial
Investcorp Group") acquired for $105.0 million in cash a 51% common equity
interest in CSK Group, Ltd. ("Holdings"), which holds 100% of the capital stock
of the Company. A corporation in which an affiliate of Investcorp holds a
minority interest also acquired $40.0 million principal amount of 12.0% senior
subordinated notes due 2008 of Holdings (the "Holdings Notes") for $40.0 million
in cash, increasing the total investment by such corporation and the Initial
Investcorp Group in securities of Holdings to $145.0 million. Following these
transactions, the Carmel Trust ("Carmel"), which previously had held 100% of the
common stock of Holdings, held a 49% common equity interest in Holdings (as more
fully described under "Principal Stockholders") and an affiliate of Carmel held
$10.0 million principal amount of Holdings Notes. Immediately prior to, and
following, the Acquisition and Financings, the Initial Investcorp Group
controlled a majority of the Company's Board of Directors. Simultaneously with
the closing of the Acquisition and Financings, Carmel, the Initial Investcorp
Group, Holdings and the Company entered into a stockholders' agreement with
respect to the voting and, in certain circumstances, the disposition of the
shares of capital stock of Holdings. See "Acquisition and Financings," "Use of
Proceeds" and "Certain Transactions -- Stockholders' Agreement."
The Company's executive offices are located at 645 E. Missouri Avenue,
Phoenix, Arizona 85012 and its telephone number is (602) 265-9200.
THE EXCHANGE OFFER
Securities Offered............ Up to $125,000,000 principal amount of 11%
Series A Senior Subordinated Notes Due November
1, 2006 (the "Notes").
The Exchange Offer............ The Notes are being offered in exchange for a
like principal amount of the Company's Old
Notes. Old Notes may be exchanged only in
integral multiples of $1,000. The issuance of
the Notes is intended to satisfy the
obligations of the Company under the terms of
the Registration Rights Agreement.
Tenders; Expiration Date;
Withdrawal.................. The Exchange Offer will expire at 5:00 P.M.,
New York City time on , 1997, or
such later date and time to which it is
extended by the Company (the "Expiration
Date"). Tenders of Old Notes pursuant to the
Exchange Offer may be withdrawn at any time
prior to the Expiration Date. In the event the
Company terminates the Exchange Offer and does
not accept for exchange any Old Notes pursuant
to the Exchange Offer, the Company will
promptly return such Old Notes to the Holders
thereof.
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<PAGE> 9
Accrued Interest on the
Notes......................... The Notes will bear interest from and including
the date of issuance of the Old Notes.
Accordingly, Holders who receive Notes in
exchange for Old Notes will forego accrued but
unpaid interest on their exchanged Old Notes
for the period from and including the date of
issuance of the Old Notes to the date of
exchange, but will be entitled to such interest
under the Notes.
Conditions of the Exchange
Offer......................... The Exchange Offer is subject to certain
customary conditions, any or all of which may
be waived by the Company. The Company currently
expects that each of the conditions will be
satisfied and that no waivers will be
necessary. See "The Exchange Offer --
Conditions to the Exchange Offer."
Procedures for Tendering Old
Notes......................... Each Holder wishing to accept the Exchange
Offer must complete and sign the Letter of
Transmittal, in accordance with the
instructions contained therein, and submit the
Letter of Transmittal to the Exchange Agent
identified below. See "The Exchange Offer --
Procedures for Tendering."
Guaranteed Delivery
Procedures.................... Holders of Old Notes who wish to tender their
Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes and Letter of Transmittal and
any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date, must tender their Old Notes
according to the guaranteed delivery procedures
set forth in "The Exchange Offer -- Guaranteed
Delivery Procedures."
Acceptance of Old Notes and
Delivery of Notes........... The Company will accept for exchange any and
all Old Notes which are properly tendered in
the Exchange Offer prior to 5:00 P.M., New York
City time on the Expiration Date. See "The
Exchange Offer -- Acceptance of Old Notes for
Exchange; Delivery of Notes."
Federal Income Tax
Considerations................ The exchange of Old Notes for Notes pursuant to
the Exchange Offer will not be a taxable event
for federal income tax purposes. See "The
Exchange Offer -- Federal Income Tax
Consequences."
Rights of Dissenting
Holders....................... Holders of Old Notes do not have any appraisal
or dissenters' rights in connection with the
Exchange Offer.
Exchange Agent................ Wells Fargo Bank, N. A.; telephone (602)
440-1459. See "The Exchange Offer -- Exchange
Agent."
Use of Proceeds............... There will be no cash proceeds to the Company
from exchanges made pursuant to the Exchange
Offer.
8
<PAGE> 10
CONSEQUENCES OF EXCHANGING OLD NOTES PURSUANT TO THE EXCHANGE OFFER
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, Holders of Old Notes (other than any
Holder who is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act) who exchanged their Old Notes for Notes pursuant to the
Exchange Offer generally may offer such Notes for resale, resell such Notes and
otherwise transfer such Notes without compliance with the registration and
prospectus delivery provisions of the Securities Act provided such Notes are
acquired in the ordinary course of the Holder's business and such Holder has no
arrangement with any person to participate in a distribution of such Notes. Each
broker-dealer that receives Notes for its own account in exchange for Old Notes
must acknowledge that it will deliver a prospectus in connection with any resale
of such Notes. See "Plan of Distribution." In addition, to comply with the
securities laws of certain jurisdictions, if applicable, the Notes may not be
offered or sold unless they have been registered or qualified for sale in such
jurisdiction or an exemption from registration or qualification is available and
the conditions thereto have been met. The Company has agreed, pursuant to the
Registration Rights Agreement and subject to certain specified limitations
therein, to register or qualify the Notes for offer or sale under the securities
or blue sky laws of such jurisdictions as any Holder of the Notes or the Old
Notes reasonably requests in writing. If a Holder of Old Notes does not exchange
such Old Notes for Notes pursuant to the Exchange Offer, such Old Notes will
continue to be subject to the restrictions on transfer contained in the legend
thereon. In general, the Old Notes may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. See "The Exchange Offer -- Purpose of the Exchange Offer" and "-- Resales
of Notes."
TERMS OF THE NOTES
The terms of the Notes are substantially identical in all material respects
to the terms of the Old Notes, except that the Notes are expected to be freely
transferable as described under "The Exchange Offer -- Resales of Notes."
Maturity................... November 1, 2006.
Interest Payment Dates..... May 1 and November 1 of each year, commencing on
May 1, 1997.
Optional Redemption........ Except as described below, the Notes will not be
redeemable by the Company prior to November 1,
2001. On or after that date, the Notes may, subject
to certain requirements, be redeemed at the option
of the Company, in whole or in part, at the
redemption prices set forth therein, together with
accrued and unpaid interest and Liquidated Damages
(as defined herein) thereon, if any, to the date of
redemption. In addition, at any time on or prior to
November 1, 1999, the Company may, subject to
certain requirements, redeem up to 35% of the
original aggregate principal amount of the Notes
with the net cash proceeds of an Equity Offering
(as defined herein) at a price equal to 110% of the
principal amount to be redeemed, together with
accrued and unpaid interest and Liquidated Damages,
if any, to the redemption date; provided that
immediately following such redemption not less than
65% of the original aggregate principal amount of
the Notes remains outstanding.
Mandatory Redemption....... None, except as set forth under "Description of
Notes -- Repurchase at the Option of
Holders -- Change of Control" and "-- Asset Sales."
Guarantee.................. The Notes will be unconditionally guaranteed on a
senior subordinated basis by all existing
subsidiaries and any future U.S. subsidiaries of
the Company.
Ranking.................... The Notes will be senior subordinated obligations
of the Company, subordinated in right of payment to
all existing and future Senior
9
<PAGE> 11
Indebtedness of the Company, including indebtedness
incurred under the Senior Credit Facility (as
defined herein). The guarantees of the subsidiaries
of the Company will be subordinated to the prior
payment in full of all Guarantor Senior
Indebtedness of such subsidiaries. At November 24,
1996, the Company and its subsidiaries had
outstanding an aggregate principal amount of
approximately $125.0 million of Senior Indebtedness
and Guarantor Senior Indebtedness (without
duplication) which ranked senior in right of
payment to the Notes and guarantees.
Change of Control.......... Upon an occurrence of a Change of Control, the
Company will be required to make an offer to
repurchase the Notes at a price equal to 101% of
the aggregate principal amount thereof plus accrued
and unpaid interest and Liquidated Damages thereon,
if any, to the date of purchase. The Company may be
prohibited in certain circumstances from making
such repurchase. See "Risk Factors -- Control of
the Company; Change of Control Put/Default Under
Senior Credit Agreement."
Certain Covenants.......... The indenture governing the Notes (the "Indenture")
contains certain covenants that impose limitations
on, among other things: (i) the incurrence of
additional indebtedness, (ii) the issuance of
Disqualified Stock (as defined herein) by the
Company and preferred stock by its subsidiaries,
(iii) the making of certain Restricted Payments (as
defined herein), (iv) the imposition of
restrictions on the payments of dividends and other
payment restrictions affecting subsidiaries, (v)
anti-layering, (vi) the incurrence of liens, (vii)
transactions with affiliates and (viii) the
consummation of certain mergers, consolidations or
sales of assets.
Absence of a Prior Public
Market for the Notes....... There has been no public market for the Old Notes
and no active public market for the Notes is
currently anticipated. The Initial Purchasers have
advised the Company that each of them currently
intends to make a market in the Notes. However,
neither Initial Purchaser is obligated to do so,
and any market making with respect to the Notes may
be discontinued at any time without notice. No
assurance can be given as to the liquidity of the
trading market for the Notes following the Exchange
Offer.
10
<PAGE> 12
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary consolidated statement of
operations, consolidated balance sheet and operating data of the Company. The
summary statement of operations and balance sheet 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 forty-three weeks ended November 26, 1995 and
November 24, 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 forty-three weeks
ended November 24, 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, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
FORTY-THREE WEEKS
FISCAL YEAR ENDED(1) ENDED
------------------------------ -------------------
JAN. 30, JAN. 29, JAN. 28, NOV. 26, NOV. 24,
1994 1995(2) 1996(3) 1995 1996(4)
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SQUARE FOOT DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................................... $645,426 $688,135 $718,352 $599,160 $651,959
Gross profit.................................... 247,861 277,777 284,535 237,005 269,052
Operating and administrative expenses........... 237,311 258,600 284,697 235,915 244,752
Operating profit (loss)......................... 10,550 19,177 (162) 1,090 24,300
Acquisition and Financings expenses............. -- -- -- -- 32,078
Net income (loss)............................... (650) 105,224 (9,094) (6,670) (16,036)
OTHER DATA:
EBITDA(5)....................................... $ 22,726 $ 32,282 $ 16,099 $ 14,616 $ 40,408
Occupancy expense............................... 29,286 32,232 35,357 28,885 31,941
Capital expenditures............................ 14,910 14,597 11,640 10,615 4,125
Commercial sales(6)............................. 18,602 32,630 60,840 49,463 73,164
Warehouse and distribution expense (as a
percentage of net sales)(7)................... 4.0% 4.3% 4.9% 4.8% 3.7%
Store labor expense (as a percentage of net
sales)(8)..................................... 11.0% 12.0% 12.7% 12.7% 12.2%
SELECTED ADDITIONAL OPERATING DATA:
Average net sales per store(9).................. $ 1,215 $ 1,272 $ 1,294 $ 1,082 $ 1,141
Average net sales per store square foot(9)...... 223 226 224 187 190
Percentage increase in comparable store net
sales(10)..................................... 9.9% 5.2% 2.1% 2.0% 6.3%
PRO FORMA DATA:(11)
Ratio of net debt to EBITDA(5)(12)......................................................... 5.1x
Ratio of EBITDA to interest expense(5)(13)................................................. 3.1x
</TABLE>
<TABLE>
<CAPTION>
FORTY-THREE WEEKS
FISCAL YEAR ENDED(1) ENDED
------------------------------ -------------------
JAN. 30, JAN. 29, JAN. 28, NOV. 26, NOV. 24,
1994 1995 1996 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SELECTED STORE DATA:
Beginning stores................................ 524 538 544 544 566
New stores...................................... 15 10 24 22 14
Relocated stores................................ 25 12 30 27 26
Closed stores (including relocated stores)...... (26) (16) (32) (29) (29)
Ending stores................................... 538 544 566 564 577
Expanded stores................................. 13 5 9 5 4
Stores with Commercial Sales Centers............ 5 59 176 168 276
Total store square footage (at period
end)(000s)(9)................................. 2,992 3,097 3,329 3,301 3,529
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
JANUARY 28, NOVEMBER 24,
1996 1996
-------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 4,364 $ 3,205
Net working capital....................................... 81,048 90,272
Total assets.............................................. 391,319 422,635
Total debt (including current maturities)................. 122,003 251,781
Stockholder's equity (deficit)............................ 59,997 (47,625)
</TABLE>
11
<PAGE> 13
- ---------------
(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. The interim
periods presented are both 43 weeks.
(2) Net income in fiscal 1994 includes an extraordinary gain of $97.2 million
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.
(3) Results of operations in fiscal 1995 include the following non-recurring
items: (i) cost of sales includes pre-opening expenses of $1.6 million
associated with the opening of the new distribution center in Phoenix,
Arizona, and (ii) operating and administrative expenses include $5.3
million of non-recurring software development costs associated with the new
store-level information systems installed by the Company during fiscal
1995. In addition, the Company believes that its operations and operating
results were adversely impacted during fiscal 1995 as a result of the
implementation and installation of many new initiatives. The Company
believes that the success of these initiatives has been a key factor in its
improved profitability during the forty-three weeks ended November 24,
1996. See "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(4) Amounts hereunder reflect certain non-recurring charges which were incurred
in October 1996 when the Acquisition and Financings were consummated,
including the following: (i) amounts paid to members of management pursuant
to an existing employee incentive plan of $19.9 million, of which one half
was paid in October 1996 (the remaining balance will be paid in October
1997), and (ii) expenses incurred in connection with the Acquisition and
Financings of $12.2 million. These amounts do not include a charge which is
expected to be approximately $12.5 million for store relocations which will
be recorded in January 1997. See "Management -- Equity Participation
Agreements," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 11 to Consolidated Financial
Statements.
(5) EBITDA represents income before net interest expense, provision for income
taxes, depreciation and amortization expense and extraordinary items.
While EBITDA is not intended to represent cash flow from operations as
defined by generally accepted accounting principles ("GAAP") (and should
not be considered as an indicator of operating performance or an
alternative to cash flow (as measured by GAAP)), it is included herein to
provide additional information with respect to the ability of the Company
to meet its future debt service, capital expenditure and working capital
requirements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(6) Represents sales to commercial customers, including sales from the
Company's Commercial Sales Centers.
(7) Warehouse and distribution expense is included in cost of sales.
(8) Store labor expense is included in operating and administrative expenses.
(9) 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.
(10) Comparable store net sales data is calculated based on the change in net
sales commencing after the time a new store has been opened twelve months.
The first twelve months during which a new store is open are not included
in the comparable store calculation. Relocations are included in comparable
store net sales from the date of opening.
(11) The pro forma data gives effect to the Acquisition and Financings as if
each had been consummated as of January 29, 1996. See "Unaudited Pro Forma
Condensed Consolidated Financial Data."
(12) Represents ratio of (i) net debt to (ii) annualized EBITDA in the
forty-three weeks ended November 24, 1996. Historical EBITDA in the
forty-three weeks ended November 26, 1995 and November 27, 1994 represented
approximately 90.8% and 88.4%, respectively, of the respective fiscal
year's total EBITDA. Net debt represents total debt less cash and cash
equivalents. In connection with the Acquisition and Financings, the Company
incurred certain non-recurring charges in the fourth fiscal quarter of 1996
in which the Acquisition and Financings were consummated. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(13) Interest expense includes amortization of deferred financing fees.
12
<PAGE> 14
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. Certain statements under this caption constitute "forward-looking
statements" under the Reform Act.
LEVERAGE
The Company is highly leveraged. At November 24, 1996, the Company had an
aggregate of $251.8 million of outstanding indebtedness for borrowed money.
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including the following: (i) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be impaired; (ii) a
substantial portion of the Company's cash flow from operations must be dedicated
to the payment of interest on the Notes and interest on its other existing
indebtedness, thereby reducing the funds available to the Company for other
purposes; (iii) indebtedness under the Senior Credit Facility will be at
variable rates of interest, which will cause the Company to be vulnerable to
increases in interest rates; (iv) the Company may be hindered in its ability to
adjust rapidly to changing market conditions; and (v) the Company's substantial
degree of leverage could make it more vulnerable in the event of a downturn in
general economic conditions or in its business.
The Senior Credit Facility matures prior to the maturity of the Notes. In
the event that the Company is unable to refinance the Senior Credit Facility or
raise funds to repay the facility through asset sales, sales of equity or
otherwise, its ability to pay the principal of and interest on the Notes would
be adversely affected.
SUBORDINATION
The Company's existing subsidiaries, including the Initial Guarantors, and
future U.S. subsidiaries (collectively, the "Subsidiary Guarantors") have
guaranteed (the "Subsidiary Guarantees") the obligations of the Company under
the Indenture and the Notes. The Notes and the Subsidiary Guarantees are general
obligations of the Company and each Subsidiary Guarantor, respectively, and are
subordinate in right of payment to all Senior Indebtedness and Guarantor Senior
Indebtedness as the case may be, of the Company and such Subsidiary Guarantor,
including all amounts owing under the Senior Credit Facility. In addition, the
borrowings under the Senior Credit Facility are secured by a first priority
security interest in substantially all the personal property of the Company.
Holdings has also issued a guarantee of the loans under the Senior Credit
Facility, which guarantee is secured by a pledge by Holdings of all issued and
outstanding capital stock of the Company. Each of the U.S. subsidiaries of the
Company has also issued a guarantee under the Senior Credit Facility which is
secured by a first priority security interest in substantially all personal
property of such subsidiary, and the Company has pledged the issued and
outstanding capital stock of each such subsidiary owned by the Company to secure
indebtedness under the Senior Credit Facility. See "Credit Agreement." In the
event of a bankruptcy, liquidation or reorganization of the Company or any
Subsidiary Guarantor, the assets of the Company or such Subsidiary Guarantor, as
the case may be, would be available to pay obligations on the Notes or its
Subsidiary Guarantee, as the case may be, only after all of its Senior
Indebtedness or Guarantor Senior Indebtedness, as the case may be, has been paid
in full, and there may not be sufficient assets remaining to pay amounts due on
any or all of the Notes then outstanding. At November 24, 1996, the Company and
its subsidiaries had outstanding an aggregate principal amount of approximately
$125.0 million of Senior Indebtedness and Guarantor Senior Indebtedness (without
duplication) which would rank senior in right of payment to the Notes and
guarantees and approximately $97.0 million of unused commitment under the Senior
Credit Facility. Additional Senior Indebtedness or Guarantor Senior
Indebtedness, as the case may be, including secured indebtedness, may be
incurred by the Company and the Subsidiary Guarantors from time to time subject
to certain restrictions contained in the Senior Credit Facility and the
Indenture. See "Description of Notes -- Subordination," "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock" and
"Credit Agreement."
13
<PAGE> 15
FRAUDULENT CONVEYANCE CONCERNS
Any Subsidiary Guarantee that has been or will be provided by a Subsidiary
Guarantor could be challenged by other creditors of such Subsidiary Guarantor as
a fraudulent conveyance under relevant federal and state statutes and, under
certain circumstances (including a finding that such Subsidiary Guarantor was
insolvent at the time its Subsidiary Guarantee was incurred), a court could hold
that the obligations under such Subsidiary Guarantee may be voided, subordinated
to claims of other creditors, or limited to less than their stated amount. The
measure of insolvency for purposes of the foregoing may vary depending upon the
law of the jurisdiction that is being applied, but a company generally would be
considered insolvent if the sum of its debts is greater than all of its property
at a fair valuation or if the present fair salable value of its assets is less
than the amount that will be required to pay its probable liability on its
existing debts as they become absolute and mature.
RESTRICTIVE LOAN COVENANTS
The Senior Credit Facility imposes upon the Company certain financial and
operating covenants including, among other things, requirements that the Company
maintain certain financial ratios and satisfy certain financial tests,
limitations on capital expenditures, and restrictions on the ability of the
Company to incur indebtedness, pay dividends or take certain other corporate
actions, all of which may restrict the Company's ability to expand or to pursue
its business strategies. In addition, instruments evidencing future borrowings
by the Company will likely contain similar restrictions. Changes in economic or
business conditions, results of operations or other factors could in the future
cause a violation of one or more covenants in the Company's debt instruments,
entitling the holders of such indebtedness to declare the indebtedness
immediately due and payable. There can be no assurance that the assets of the
Company will be sufficient to repay any such accelerated indebtedness, and any
indebtedness containing cross-default provisions to such indebtedness, including
the Notes. See "Credit Agreement."
UNCERTAINTY OF GROWTH STRATEGY
The Company has experienced a net loss in three of the last five fiscal
years, including fiscal 1995. While the Company has taken various initiatives to
improve profitability, there can be no assurance that the Company will not
experience losses in the future. Such initiatives include the Company's
expansion strategy, which 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 are, 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."
CHANGE OF CONTROL PUT / DEFAULT UNDER SENIOR CREDIT AGREEMENT
Upon the occurrence of a Change of Control (as defined herein), the Company
will be required to make an offer to repurchase the Notes at a price equal to
101% of the principal amount thereof, together with accrued and unpaid interest
and Liquidated Damages thereon. In addition, a Change of Control of the Company
will give rise to a default and rights of acceleration under the Senior Credit
Facility and, in all likelihood, other Senior Indebtedness to which the Company
becomes a party. Such acceleration would prevent repurchase of the Notes as a
result of the subordination provisions applicable to the Notes until the Senior
Indebtedness has been paid in full, decreasing the likelihood that the Company
would have the financial resources to repurchase all or any part of the Notes,
and consequently there can be no assurance that sufficient resources will be
available for such purpose. Even if such acceleration does not occur, the
existence
14
<PAGE> 16
of a default under the Senior Credit Facility and, in all likelihood, other
Senior Indebtedness, will also prohibit payments on the Notes under certain
circumstances for a specified period. See "Description of Notes --
Subordination."
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. A disruption of these vendor
relationships could have a material adverse effect on 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 EXECUTIVE OFFICERS
Prior to the Acquisition, Jules Trump, who served as the Company's Chairman
of the Board and Chief Executive Officer until January 27, 1997, announced his
intention to leave the employ of the Company once a suitable replacement Chief
Executive Officer could be located. The Company has hired a new Chief Executive
Officer and Mr. Trump has left the employ of the Company, although he continues
to be a director of the Company. The Company believes that it has assembled an
effective management team and that the loss of any one member of such team would
not materially affect its operation. However, no assurance can be given that the
loss of one or more of the Company's executive officers would not have an
adverse impact on the Company. The Company does not maintain "key person" life
insurance with respect to its executive officers. 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 -- Directors and Executive Officers."
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 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.
LACK OF PUBLIC MARKET; RESTRICTIONS ON TRANSFERABILITY
There is currently no established market for the Old Notes. No assurance
can be given as to the liquidity of the trading market for the Notes, or, in the
case of non-tendering holders of Old Notes, the trading market for the Old Notes
following the Exchange Offer. If such markets were to exist, the Notes could
trade at prices that may be higher or lower than the initial market values
thereof depending on many factors, including prevailing interest rates and the
markets for similar securities. The Exchange Offer will not be conditioned upon
any minimum or maximum aggregate principal amount of Notes being tendered for
exchange. The Initial Purchasers have advised the Company that each of them
currently intends to make a market in the Notes. However, neither Initial
Purchaser is obligated to do so, and any market making with respect to the
15
<PAGE> 17
Notes may be discontinued at any time without notice. See "Description of
Notes -- Registration Rights; Liquidated Damages" and "Private Placement."
The Company does not intend to apply for listing of the Notes on any
securities exchange or for quotation through the Nasdaq National Market. The
liquidity of, and trading market for, the Notes may be adversely affected by
general declines in the market for similar securities, independent of the
financial performance of, and prospects for, the Company.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including, without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects," and words of similar import, constitute "forward-looking
statements" within the meaning of the Reform Act. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of the Company or the
retail industry to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions, both nationally and in those areas in which the Company operates;
demographic changes; prospects for the retail industry; competition; changes in
business strategy or development plans; the loss of key personnel; the
availability of capital to fund the expansion of the Company's business; and
other factors referenced in this Prospectus, including, without limitation,
under the captions "Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business." Given
these uncertainties, prospective investors are cautioned not to place undue
reliance on such forward-looking statements. The Company disclaims any
obligation to update any such factors or to publicly announce the results of any
revisions to any of the forward-looking statements contained herein to reflect
future events or developments.
USE OF PROCEEDS
The Company will receive no proceeds from the exchange of Notes for Old
Notes pursuant to the Exchange Offer.
16
<PAGE> 18
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Exchange Offer is designed to provide Holders of Old Notes with an
opportunity to acquire Notes which, unlike the Old Notes, will be freely
tradable at all times, subject to any restrictions on transfer imposed by state
"blue sky" laws and provided that (i) the Holder is not an affiliate of the
Company within the meaning of the Securities Act, and (ii) represents that the
Notes are being acquired in the ordinary course of such Holder's business and
the Holder is not engaged in, and does not intend to engage in a distribution of
the Notes. The outstanding Old Notes in the aggregate principal amount of $125.0
million were originally issued and sold on October 30, 1996 (the "Original Issue
Date") in order to provide financing in connection with the redemption of stock
of Holdings held by Carmel. The original sale to the Initial Purchasers was not
registered under the Securities Act in reliance upon the exemption provided by
Section 4(2) of the Securities Act and the concurrent resale of the Old Notes to
investors was not registered under the Securities Act in reliance upon the
exemption provided by Rule 144A promulgated under the Securities Act. The Old
Notes may not be reoffered, resold or transferred other than pursuant to a
registration statement filed pursuant to the Securities Act or unless an
exemption from the registration requirements of the Securities Act is available.
Pursuant to Rule 144, Old Notes may generally be resold (a) commencing one year
after the Original Issue Date, in an amount up to, for any three-month period,
the greater of 1% of the Old Notes then outstanding or the average weekly
trading volume of the Old Notes during the four calendar weeks immediately
preceding the filing of the required notice of sale with the Commission and (b)
commencing two years after the Original Issue Date, in any amount and otherwise
without restriction by a Holder who is not, and has not been for the preceding
90 days, an affiliate of the Company. The Old Notes are eligible for trading in
the PORTAL Market, and may be resold to certain Qualified Institutional Buyers
pursuant to Rule 144A. Certain other exemptions may also be available under
other provisions of the federal securities laws for the resale of the Old Notes.
In connection with the original issue and sale of the Old Notes, the
Company and the Initial Guarantors entered into a Registration Rights Agreement,
pursuant to which they agreed to file with the Commission a registration
statement covering the exchange by the Company of the Notes for the Old Notes
(the "Exchange Offer Registration Statement"). The Registration Rights Agreement
provides that (i) the Company and the Initial Guarantors will file the Exchange
Offer Registration Statement with the Commission on or prior to 120 days after
the Original Issue Date, (ii) the Company and the Initial Guarantors will use
their respective best efforts to have the Exchange Offer Registration Statement
declared effective by the Commission on or prior to 210 days after the Original
Issue Date, (iii) unless the Exchange Offer would not be permitted by applicable
law or Commission policy, the Company and the Initial Guarantors will commence
the Exchange Offer and use their respective best efforts to issue on or prior to
30 business days after the date on which the Exchange Offer Registration
Statement is declared effective by the Commission, Notes in exchange for all Old
Notes tendered prior thereto in the Exchange Offer, and (iv) if obligated to
file a shelf registration statement covering the Old Notes (a "Shelf
Registration Statement"), the Company will file the Shelf Registration Statement
with the Commission on or prior to 60 days after such filing obligation arises
and use its best efforts to cause the Shelf Registration Statement to be
declared effective by the Commission on or prior to 180 days after such
obligation arises and cause such Shelf Registration Statement to remain
effective and usable for a period of three years following the initial
effectiveness thereof. If (a) the Company and the Initial Guarantors fail to
file any of the registration statements required by the Registration Rights
Agreement on or before the date specified for such filing, (b) any of such
registration statements is not declared effective by the Commission on or prior
to the date specified for such effectiveness, (c) the Company fails to
consummate the offer within 30 business days after the date on which the
Exchange Offer Registration Statement is declared effective, or (d) the Shelf
Registration Statement or the Exchange Offer Registration Statement is declared
effective but thereafter ceases to be effective or usable in connection with
resales of Transfer Restricted Securities (as defined below) during the periods
specified in the Registration Rights Agreement (each such event referred to in
clauses (a) through (d) above a "Registration Default"), the Company and the
Initial Guarantors, jointly and severally, will pay liquidated damages
("Liquidated Damages") to each Holder of Transfer Restricted Securities, with
respect to the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $.05 per week per
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<PAGE> 19
$1,000 principal amount of Transfer Restrictive Securities held by such person.
The amount of the Liquidated Damages will increase by an additional $.05 per
week per $1,000 principal amount of Transfer Restricted Securities with respect
to each subsequent 90-day period until all Registration Defaults have been cured
up to a maximum amount of Liquidated Damages of $.30 per week per $1,000
principal amount of Transfer Restricted Securities (regardless of whether one or
more than one Registration Default is outstanding). Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will cease. For
purposes of the foregoing, "Transfer Restricted Securities" means each Old Note
until (i) the date on which such Old Note has been exchanged by a person other
than a broker-dealer for a Note in the Exchange Offer, (ii) the date on which
such Old Note has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement, (iii) the date
on which such Old Note is distributed to the public pursuant to Rule 144 under
the Securities Act, or (iv) following the exchange by a broker-dealer in the
Exchange Offer of an Old Note for a Note, the date on which such Note is sold to
a purchaser who receives from such broker-dealer on or prior to the date of such
sale a copy of a prospectus meeting the requirements of the Securities Act in
connection with resales of securities received by the broker-dealer in any such
exchange.
The staff of the Commission has issued certain interpretive letters that
concluded, in circumstances similar to those contemplated by the Exchange Offer,
that new debt securities issued in a registered exchange for outstanding debt
securities, which new securities are intended to be substantially identical to
the securities for which they are exchanged, may be offered for resale, resold
and otherwise transferred by a holder thereof (other than (i) a broker-dealer
who purchases such securities from the issuer to resell pursuant to Rule 144A or
any other available exemption under the Securities Act or (ii) a person who is
an affiliate of the issuer within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provision
of the Securities Act, provided that the new securities are acquired in the
ordinary course of such holder's business and such holder has no arrangement
with any person to participate in the distribution of the new securities.
However, a broker-dealer who holds outstanding debt securities that were
acquired for its own account as a result of market-making or other trading
activities may be deemed to be an "underwriter" within the meaning of the
Securities Act and must, therefore, deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of the new
securities received by the broker-dealer in any such exchange. See "-- Resales
of Notes." The Company has not requested or obtained an interpretive letter from
the Commission staff with respect to this Exchange Offer, and the Company and
the Holders are not entitled to rely on interpretive advice provided by the
staff to other persons, which advice was based on the facts and conditions
represented in such letters. However, the Exchange Offer is being conducted in a
manner intended to be consistent with the facts and conditions represented in
such letters. If any Holder has any arrangement or understanding with respect to
the distribution of the Notes to be acquired pursuant to the Exchange Offer,
such Holder (i) could not rely on the applicable interpretations of the staff of
the Commission and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. In addition, each broker-dealer that receives Notes for its own
account in exchange for the Old Notes, where such Old Notes were acquired by
such broker-dealers as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Notes. See "Plan of Distribution." By delivering the
Letter of Transmittal, a Holder tendering Old Notes for exchange will represent
and warrant to the Company that the Holder is acquiring the Notes in the
ordinary course of its business and that the Holder is not engaged in, and does
not intend to engage in, a distribution of the Notes. Any Holder using the
Exchange Offer to participate in a distribution of the Notes to be acquired in
the Exchange Offer must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. Holders who do not exchange their Old Notes pursuant to this
Exchange Offer will continue to hold Old Notes that are subject to restrictions
on transfer.
It is expected that the Notes will be freely transferable by the Holders
thereof, subject to the limitations described in the immediately preceding
paragraph and in "-- Resales of Notes." Sales of Notes acquired in the Exchange
Offer by Holders who are "affiliates" of the Company within the meaning of the
Securities Act will be subject to certain limitation on resale under Rule 144 of
the Securities Act. Such persons will only be entitled to sell Notes in
compliance with the volume limitations set forth in Rule 144, and sales of Notes
by affiliates will be subject to certain Rule 144 requirements as to the manner
of sale, notice and the availability
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<PAGE> 20
of current public information regarding the Company. The foregoing is a summary
only of Rule 144 as it may apply to affiliates of the Company. Any such persons
must consult their own legal counsel for advice as to any restrictions that
might apply to the resale of their Notes.
The Notes otherwise will be substantially identical in all material
respects (including interest rate, maturity, security and restrictive covenants)
to the Old Notes for which they may be exchanged pursuant to this Exchange
Offer. See "Description of Notes."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth herein and in the
accompanying Letter of Transmittal, the Company will exchange $1,000 principal
amount of Notes for each $1,000 principal amount of its outstanding Old Notes.
Notes will be issued only in integral multiplies of $1,000 to each tendering
Holder of Old Notes whose Old Notes are accepted in the Exchange Offer.
The Notes will bear interest from and including the Original Issue Date.
Accordingly, Holders who receive Notes in exchange for Old Notes will forego
accrued but unpaid interest on their exchanged Old Notes for the period from and
including the Original Issue Date to the date of exchange, but will be entitled
to such interest under the Notes.
As of February 26, 1997, $125.0 million aggregate principal amount of Old
Notes were outstanding. This Prospectus and the Letter of Transmittal are being
sent to all registered Holders of Old Notes as of that date. Tendering Holders
will not be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Old Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than certain transfer taxes which may be imposed, in
connection with the Exchange Offer. See "-- Payment of Expenses."
Holders of Old Notes do not have any appraisal or dissenters' rights
connection with the Exchange Offer.
EXPIRATION DATE; EXTENSIONS; TERMINATION
The Exchange Offer will expire at 5:00 P.M., New York City time, on
, 1997 subject to extension by the Company by notice to the Exchange
Agent as herein provided. The Company reserves the right to extend the Exchange
Offer at its discretion, in which event the term "Expiration Date" shall mean
the time and date on which the Exchange Offer as so extended shall expire. The
Company shall notify the Exchange Agent of any extension by oral or written
notice and shall mail to the registered holders of Old Notes an announcement
thereof, each prior to 9:00 A.M., New York City time, on the next business day
after the previously scheduled Expiration Date.
The Company reserves the right to extend or terminate the Exchange Offer
and not accept for exchange any Old Notes if any of the events set forth below
under "-- Conditions to the Exchange Offer" occur and are not waived by the
Company, by giving oral or written notice of such delay or termination to the
Exchange Agent. See "-- Conditions to the Exchange Offer." The rights reserved
by the Company in this paragraph are in addition to the Company's rights set
forth below under the caption "-- Conditions to the Exchange Offer."
PROCEDURES FOR TENDERING
The tender to the Company of Old Notes by a Holder thereof pursuant to one
of the procedures set forth below and the acceptance thereof by the Company will
constitute an agreement between such Holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
Except as set forth below, a holder who wishes to tender Old Notes for
exchange pursuant to the Exchange Offer must transmit a properly completed and
duly executed Letter of Transmittal, including all other documents required by
such Letter of Transmittal, to the Exchange Agent at the address set forth below
under "Exchange Agent" on or prior to the Expiration Date. In addition, either
(i) certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal, or (ii) a timely
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<PAGE> 21
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes, if such procedure is available, into the Exchange Agent's account at The
Depository Trust Company pursuant to the procedure of book-entry transfer
described below, must be received by the Exchange Agent prior to the Expiration
Date, or (iii) the holder must comply with the guaranteed delivery procedures
described below. LETTERS OF TRANSMITTAL AND OLD NOTES SHOULD NOT BE SENT TO THE
COMPANY. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US
A PROXY.
Signatures on a Letter of Transmittal must be guaranteed unless the Old
Notes tendered pursuant thereto are tendered (i) by a registered Holder of Old
Notes who has not completed the box entitled "Special Issuance and Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of any firm
that is a member of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. (the "NASD") or a commercial
bank or trust company having an office in the United States (an "Eligible
Institution"). In the event that signatures on a Letter of Transmittal are
required to be guaranteed, such guarantee must be by an Eligible Institution.
The method of delivery of Old Notes and other documents to the Exchange
Agents is at the election and risk of the Holder, but if delivery is by mail it
is suggested that the mailing be made sufficiently in advance of the Expiration
Date to permit delivery to the Exchange Agent before the Expiration Date.
If the Letter of Transmittal is signed by a person other than a registered
Holder of any Old Note tendered therewith, such Old Note must be endorsed or
accompanied by appropriate bond powers, in either case signed exactly as the
name or names of the registered Holder or Holders appear on the Old Note(s).
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Old Notes will be resolved by the Company,
whose determination will be final and binding. The Company reserves the absolute
right to reject any or all tenders that are not in proper form or the acceptance
of which would, in the opinion of counsel for the Company, be unlawful. The
Company also reserves the right to waive any irregularities or conditions of
tender as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding. Unless waived, any irregularities in
connection with tenders must be cured within such time as the Company shall
determine. Neither the Company nor the Exchange Agent shall be under any duty to
give notification of defects in such tenders or shall incur liabilities for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such irregularities have been cured or waived. Any Old
Notes received by the Exchange Agent that are not properly tendered and as to
which the irregularities have not been cured or waived will be returned by the
Exchange Agent to the tendering Holder, unless otherwise provided in the Letter
of Transmittal, as soon as practicable following the Expiration Date.
The Company's acceptance for exchange of Old Notes tendered pursuant to the
Exchange Offer will constitute a binding agreement between the tendering person
and the Company upon the terms and subject to the conditions of the Exchange
Offer.
BOOK ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Depository Trust Company for purposes of the Exchange
Offer within two business days after the date of this Prospectus, and any
financial institution that is a participant in the Depository Trust Company's
systems may make book-entry delivery of Old Notes by causing the Depository
Trust Company to transfer such Old Notes into the Exchange Agent's account at
the Depository Trust Company in accordance with such Depository Trust Company's
procedures for transfer. However, although delivery of Old Notes may be effected
through book-entry transfer at the Depository Trust Company, the Letter of
Transmittal or facsimile thereof with any required signature guarantees and any
other required documents must, in any case, be transmitted to and
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<PAGE> 22
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent" on or prior to the Expiration Date or the guaranteed delivery
procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder of the Old Notes, the
certificate number or numbers of such Old Notes and the principal amount of
Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within five New York Stock Exchange trading days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof)
together with the certificate(s) representing the Old Notes, or a
Book-Entry Confirmation, as the case may be, and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer, or a Book-Entry Confirmation, as the
case may be, and all other documents required by the Letter of Transmittal
are received by the Exchange Agent within five New York Stock Exchange
trading days after the Expiration Date.
Upon request of the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Company will not be required to issue Notes
in respect of any properly tendered Old Notes not previously accepted, and may
terminate the Exchange Offer by oral or written notice to the Exchange Agent and
the Holders, or at its option, modify or otherwise amend the Exchange Offer, if
any material change occurs that is likely to affect the Exchange Offer,
including, but not limited to, the following:
(a) there shall be instituted or threatened any action or proceeding
before any court or governmental agency challenging the Exchange Offer or
otherwise directly or indirectly relating to the Exchange Offer or
otherwise affecting the Company;
(b) there shall occur any development in any pending action or
proceeding that, in the sole judgment of the Company, would or might (i)
have an adverse effect on the business of the Company, (ii) prohibit,
restrict or delay consummation of the Exchange Offer, or (iii) impair the
contemplated benefits of the Exchange Offer;
(c) any statute, rule or regulation shall have been proposed or
enacted, or any action shall have been taken by any governmental authority
which, in the sole judgment of the Company, would or might (i) have an
adverse effect on the business of the Company, (ii) prohibit, restrict or
delay consummation of the Exchange Offer, or (iii) impair the contemplated
benefits of the Exchange Offer; or
(d) there exists, in the sole judgment of the Company, any actual or
threatened legal impediment (including a default or prospective default
under an agreement, indenture or other instrument or obligation to which
the Company is a party or by which it is bound) to the consummation of the
transactions contemplated by the Exchange Offer.
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<PAGE> 23
The Company expressly reserves the right to terminate the Exchange Offer
and not accept for exchange any Old Notes upon the occurrence of any of the
foregoing conditions. In addition, the Company may amend the Exchange Offer at
any time prior to 5:00 P.M., New York City time, on the Expiration Date if any
of the conditions set forth above occur. Moreover, regardless of whether any of
such conditions has occurred, the Company may amend the Exchange Offer in any
manner which, in its good faith judgment, is advantageous to the Holders.
The foregoing conditions are for the sole benefit of the Company and may be
waived by the Company, in whole or in part, in its sole discretion. Any
determination made by the Company concerning an event, development or
circumstance described or referred to above will be final and binding on all
parties.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will accept all Old Notes validly tendered prior to 5:00 P.M., New York
City time, on the Expiration Date. The Company will deliver Notes in exchange
for Old Notes promptly following the Expiration Date.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Old Notes when, as and if the Company has given oral
or written notice thereof to the Exchange Agent. The Exchange Agent will act as
agent for the tendering Holders for the purpose of receiving the Notes. Under no
circumstances will interest be paid by the Company or the Exchange Agent by
reason of any delay in making such payment or delivery.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, any such unaccepted Old Notes will be returned, at the Company's
expense, to the tendering Holder thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address set forth below under "Exchange
Agent." Any such notice of withdrawal must specify the name of the person having
tendered the Old Notes to be withdrawn, identify the Old Notes to be withdrawn
(including the principal amount of such Old Notes), and (where certificates for
Old Notes have been transmitted) specify the name in which such Old Notes are
registered, if different from that of the withdrawing Holder. If certificates
for Old Notes have been delivered or otherwise identified to the Exchange Agent,
then, prior to the release of such certificates the withdrawing Holder must also
submit the serial numbers of the particular certificates to be withdrawn and a
signed notice of withdrawal with signatures guaranteed by an Eligible
Institution unless such Holder is an Eligible Institution. If Old Notes have
been tendered to the procedure for book-entry transfer described above, any
notice of withdrawal must specify the name and number of the account at the
Depository Trust Company to be credited with the withdrawn Old Notes and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old Notes which
have been tendered for exchange but which are not exchanged for any reason will
be returned to the Holder thereof without cost to such Holder (or, in the case
of Old Notes tendered by book-entry transfer into the Exchange Agent's account
at the Depository Trust Company pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account maintained with
the Depository Trust Company for the Old Notes) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described under "-- Procedures for Tendering" above at any time on or prior to
the Expiration Date.
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FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the material United States federal income tax
consequences of the Exchange Offer is for general information only. It is based
on the Internal Revenue Code of 1986, as amended to the date hereof (the
"Code"), existing and proposed Treasury regulations, and judicial and
administrative decisions, all of which are subject to change at any time,
possibly on a retroactive basis. The following relates to Old Notes, and Notes
received therefor, that are held as "capital assets" within the meaning of
Section 1221 of the Code by persons who are citizens or residents of the United
States. It does not discuss state, local or foreign tax consequences, nor does
it discuss tax consequences to categories of Holders that are subject to special
rules, such as foreign persons, tax-exempt organizations, insurance companies,
banks and dealers in stocks and securities. Federal income tax consequences may
vary depending on the particular status of an investor. No rulings will be
sought from the Internal Revenue Service ("IRS") with respect to the federal
income tax consequences of the Exchange Offer.
THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MIGHT BE RELEVANT TO AN INVESTOR'S DECISION TO PARTICIPATE IN THE
EXCHANGE OFFER. EACH INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR CONCERNING THE
APPLICATION OF THE FEDERAL INCOME TAX LAWS AND OTHER TAX LAWS TO ITS PARTICULAR
SITUATION BEFORE DETERMINING WHETHER TO PARTICIPATE IN THE EXCHANGE OFFER.
The Exchange Offer
The exchange of Old Notes for Notes pursuant to the Exchange Offer will not
constitute a material modification of the terms of either the Old Notes or the
Notes and, accordingly, such exchange will not constitute an exchange for
federal income tax purposes. Accordingly, such exchange will have no federal
income tax consequences to the Holders of the Old Notes, regardless of whether
such Holders participate in the Exchange Offer or not, and each Holder of Notes
will continue to be required to include interest on such Notes in its gross
income in accordance with such Holder's method of accounting for federal income
tax purposes. The Company intends, to the extent required, to take the position
described above.
Backup Withholding
Under the Code, a Holder of a Note may be subject, under certain
circumstances, to "backup withholding" at a 31% rate with respect to payments of
interest thereon or the gross proceeds from the disposition thereof. This
withholding generally applies only if the Holder (i) fails to furnish his or her
social security number or other taxpayer identification number ("TIN") within a
reasonable time after request therefor, (ii) furnishes an incorrect TIN, (iii)
is notified by the IRS that he or she has failed to report properly payments of
interest and dividends and the IRS has notified the Company that he or she is
subject to backup withholding or (iv) fails, under certain circumstances, to
provide a certified statement, signed under penalty of perjury, that the TIN
provided is his or her correct number and that he or she is not subject to
backup withholding. Any amount withheld from a payment to a Holder under the
backup withholding rules is allowable as a credit against such Holder's federal
income tax liability, provided that the required information is furnished to the
IRS. Corporations and certain other entities described in the Code and Treasury
regulations are exempt from such withholding if their exempt status is properly
established.
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EXCHANGE AGENT
Wells Fargo Bank, N.A., has been appointed as Exchange Agent for the
Exchange Offer. All correspondence in connection with the Exchange Offer and the
Letter of Transmittal should be addressed to the Exchange Agent as follows:
<TABLE>
<S> <C>
By Hand Delivery, Mail or Overnight Express
(Insured or registered recommended): By Facsimile:
Wells Fargo Bank, N.A. (602) 440-1389
Corporate Trust Division
#4101-082
100 West Washington
Phoenix, Arizona 85003
By Telephone:
Attention: Kathleen Jakubowicz (602) 440-1459
</TABLE>
Requests for additional copies of the Prospectus or the Letter of
Transmittal should be directed to the Exchange Agent or the Company.
PAYMENT OF EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The Company,
however, will pay reasonable and customary fees and reasonable out-of-pocket
expenses to the Exchange Agent in connection therewith. The Company will also
pay the cash expenses to be incurred by it in connection with the Exchange
Offer, including accounting, legal, printing, and related fees and expenses.
ACCOUNTING TREATMENT
The Notes will be recorded at the same carrying value as the Old Notes, as
reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized. The
Company's expenses of the Exchange Offer will be capitalized for accounting
purposes.
RESALES OF NOTES
With respect to resales of Notes, based on certain interpretive letters
issued by the staff of the Commission to third parties, the Company believes
that a Holder of Notes (other than (i) a broker-dealer who purchases such Notes
directly from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a person who is an affiliate of the
Company within the meaning of Rule 405 under the Securities Act) who exchanged
Old Notes for Notes in the ordinary course of business and who is not
participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of the Notes,
will be allowed to resell the Notes to the public without further registration
under the Securities Act and without delivering to the purchasers of the Notes a
prospectus that satisfies the requirements of the Securities Act. However, a
broker-dealer who holds Old Notes that were acquired for its own account as a
result of market making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act. If any
other Holder is deemed to be an "underwriter" within the meaning of the
Securities Act or acquires Notes in the Exchange Offer for the purpose of
distributing or participating in a distribution of the Notes, such holder must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction, unless an
exemption from registration is otherwise available. For a period of one year
from the Expiration Date, the Company will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale.
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ACQUISITION AND FINANCINGS
On October 30, 1996, the Initial Investcorp Group acquired (the
"Acquisition") from Carmel, a trust governed by the laws of Canada, a 51%
interest in Holdings for $105.0 million in cash. Holdings holds 100% of the
capital stock of the Company. A corporation in which an affiliate of Investcorp
holds a minority interest also purchased $40.0 million aggregate principal
amount of Holdings Notes for $40.0 million in cash. Holdings in turn purchased
$40.0 million of preferred stock of the Company. The Company then borrowed
$100.0 million under the Senior Credit Facility, which was used by Holdings,
together with the proceeds from the sale of the Old Notes and the sale of $40.0
million of Holdings Notes, following a dividend to Holdings by the Company, to
redeem the stock of Holdings held by Carmel for $238.5 million. Carmel then
purchased from Holdings for $100.9 million a 49% interest in Holdings. An
affiliate of Carmel purchased $10.0 million aggregate principal amount of
Holdings Notes, and Holdings in turn purchased $10.0 million of preferred stock
of the Company. The Company then repaid amounts outstanding under the Prior
Credit Agreement (as defined herein), which was terminated, paid $9.9 million to
members of management pursuant to a previously existing employee incentive plan
and incurred additional expenses of $22.2 million related to the foregoing. The
foregoing transactions other than the Acquisition are collectively referred to
as the "Financings." Following the Acquisition and Financings, the Initial
Investcorp Group owns a 51% common equity interest in Holdings, a corporation in
which an affiliate of Investcorp holds a minority interest owns $40.0 million
aggregate principal amount of Holdings Notes, Carmel owns a 49% common equity
interest in Holdings and an affiliate of Carmel owns $10.0 million aggregate
principal amount of Holdings Notes. Holdings owns 100% of the common equity and
$50.0 million of preferred stock of the Company. The Initial Investcorp Group
controls a majority of the Company's Board of Directors. Simultaneously with the
closing of the Acquisition and Financings, Carmel, the Initial Investcorp Group,
Holdings and the Company entered into a stockholders' agreement with respect to
the voting and, in certain circumstances, the disposition of the shares of
capital stock of Holdings. See "Use of Proceeds" and "Principal Stockholders."
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<PAGE> 27
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
November 24, 1996. This table should be read in conjunction with "Description of
Notes," "Credit Agreement," "Unaudited Pro Forma Condensed Consolidated
Financial Data" and the Consolidated Financial Statements of the Company and the
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF
NOVEMBER 24,
1996
-------------
(IN THOUSANDS
OF DOLLARS)
<S> <C>
Cash and cash equivalents................................... $ 3,205
========
Long-term debt (including current portion):
Senior Credit Facility(1)................................. $103,000
Notes..................................................... 125,000
Capital lease obligations................................. 23,781
--------
Total long-term debt.............................. 251,781
--------
Stockholder's deficit:
Redeemable preferred stock(2)............................. 1
Common stock.............................................. 1
Additional paid-in capital................................ 46,018
Receivable from stockholder(3)............................ (5,966)
Accumulated deficit(4).................................... (87,679)
--------
Total stockholder's deficit....................... (47,625)
========
Total capitalization.............................. $204,156
========
</TABLE>
- ---------------
(1) The Senior Credit Facility provides for a $100.0 million term loan and a
$100.0 million revolving loan credit facility. At November 24, 1996, $100.0
million was outstanding under the term loan and $3.0 million was outstanding
under the revolving loan credit facility.
(2) In connection with the Acquisition and Financings, the Company issued $50.0
million of redeemable preferred stock to Holdings. The preferred stock is
recorded net of a $4.0 million fee directly associated with the cost of
issuance.
(3) Represents a receivable from Carmel to recognize Carmel's commitment to fund
a portion of the Company's obligation under its existing equity
participation program. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Effect of the Acquisition
and Financings" and "Management -- Equity Participation Agreements."
(4) Reflects dividends paid to Holdings and non-recurring charges which were
incurred when the Acquisition and Financings were consummated in October
1996.
26
<PAGE> 28
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed financial data (the "Pro Forma
Financial Data") has been prepared by the Company's management from the
Consolidated Financial Statements of the Company and the Notes thereto included
elsewhere in this Prospectus. The unaudited pro forma condensed statements of
operations for the fiscal year ended January 28, 1996, and the forty-three weeks
ended November 24, 1996 reflect adjustments as if the Acquisition and Financings
had been consummated and were effective as of the beginning of fiscal 1995. See
"Acquisition and Financings" and "Use of Proceeds."
The financial effects of the Acquisition and Financings as presented in the
Pro Forma Financial Data are not necessarily indicative of the Company's results
of its operations which would have been obtained had the Acquisition and
Financings actually occurred on the dates described above, nor are they
necessarily indicative of the results of future operations. The Pro Forma
Financial Data should be read in conjunction with the notes thereto, which are
an integral part thereof, the Consolidated Financial Statements of the Company
and the Notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED JANUARY 28, 1996
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales............................................. $718,352 -- $718,352
Cost of sales......................................... 433,817 -- 433,817
-------- -------- --------
Gross profit.......................................... 284,535 -- 284,535
Operating and administrative expenses................. 284,697 $ 1,000(1) 285,697
-------- -------- --------
Income (loss) from operations......................... (162) (1,000) (1,162)
Interest expense...................................... 14,379 15,224(2) 29,603
-------- -------- --------
Income (loss) before provision for taxes.............. (14,541) (16,224) (30,765)
Provision (benefit) for income taxes.................. (5,447) (6,059)(3) (11,506)
-------- -------- --------
Net income (loss)..................................... $ (9,094) $(10,165) $(19,259)
======== ======== ========
Other Data:
EBITDA(4)........................................... $ 16,099 -- $ 16,099
Ratio of earnings to fixed charges(5)............... -- -- --
</TABLE>
<TABLE>
<CAPTION>
FORTY-THREE WEEKS ENDED NOVEMBER 24, 1996
HISTORICAL(6) ADJUSTMENTS(6) PRO FORMA
------------- -------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales......................................... $651,959 -- $651,959
Cost of sales..................................... 382,907 -- 382,907
-------- -------- --------
Gross profit...................................... 269,052 -- 269,052
Operating and administrative expenses............. 244,752 $ 833(1) 245,585
-------- -------- --------
Income (loss) from operations..................... 24,300 (833) 23,467
Acquisition and Financings expenses............... 32,078 (32,078) --
Interest expense(8)............................... 13,154 11,918(2) 25,072
-------- -------- --------
Income (loss) before provision for taxes.......... (20,932) 19,327 (1,605)
Provision (benefit) for income taxes.............. (4,896) 7,042(3) 2,146
-------- -------- --------
Net income (loss)................................. $(16,036) $ 12,285 $ (3,751)
======== ======== ========
Other Data:
EBITDA(4)....................................... $ 40,408 -- $ 40,408
Ratio of net debt to EBITDA(4)(7)............... -- -- 5.1x
Ratio of EBITDA to interest expense(4)(8)....... -- -- 1.6x
Ratio of earnings to fixed charges(5)........... -- -- --
</TABLE>
See accompanying notes to the unaudited pro forma condensed statements of
operations.
27
<PAGE> 29
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(1) Represents amortization of management fees to be incurred under the
Management Agreement (as defined herein). See "Certain Transactions."
(2) The interest expense adjustment is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR FORTY-THREE
ENDED WEEKS ENDED
JANUARY 28, NOVEMBER 24,
1996 1996
----------- ------------
<S> <C> <C>
Historical interest on Prior Credit Agreement............... $(8,884) $(7,104)
Amortization of deferred financing fees recorded as bank
interest.................................................. (737) (950)
Interest expense on the Senior Credit Facility and the
Notes:
Interest expense on the Senior Credit Facility assuming a
composite interest rate of 9.0%........................ 9,291 7,174
Interest expense on the Notes at an interest rate of
11%.................................................... 13,750 11,306
Amortization of deferred financing fees for the Senior
Credit Facility and Notes................................. 1,804 1,492
------- -------
Total interest expense adjustment................. $15,224 $11,918
======= =======
</TABLE>
(3) Represents the tax effect of the foregoing adjustments.
(4) EBITDA represents income before net interest expense, provision for income
taxes, depreciation and amortization expense and extraordinary items. While
EBITDA is not intended to represent cash flow from operations as defined by
GAAP and should not be considered as an indicator of operating performance
or an alternative to cash flow (as measured by GAAP), it is included herein
to provide additional information with respect to the ability of the Company
to meet its future debt service, capital expenditures and working capital
requirements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(5) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" represents income before provision for income taxes and fixed
charges. "Fixed charges" consist of interest expense, amortization of debt
financing costs, and one third of lease expense, which management believes
is representative of the interest component of lease expense. During fiscal
1995, earnings were insufficient to cover fixed charges by $14.5 million. On
a pro forma basis, during fiscal 1995 and the forty-three weeks ended
November 24, 1996, earnings were insufficient to cover fixed charges by
$29.8 million and $0.8 million, respectively. Accordingly, such ratios have
not been presented.
(6) Amounts hereunder reflect certain non-recurring charges which were incurred
in October 1996 when the Acquisition and Financings were consummated,
including the following: (i) amounts paid to members of management pursuant
to an existing employee incentive plan of $19.9 million, and (ii) expenses
incurred in connection with the Acquisition and Financings of $12.2 million.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Effect of Acquisition and Financings" and
"Management -- Equity Participation Agreements."
(7) Represents ratio of (i) pro forma net debt to (ii) annualized EBITDA in the
forty-three weeks ended November 24, 1996. Historical EBITDA in the
forty-three weeks ended November 26, 1995 and November 27, 1994 represented
approximately 90.8% and 88.4%, respectively, of the respective fiscal year's
total EBITDA. Net debt represents total debt less cash and cash equivalents.
In connection with the Acquisition and Financings, the Company incurred
certain non-recurring charges in October 1996 when the Acquisition and
Financings were consummated. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(8) Interest expense includes amortization of deferred financing fees.
28
<PAGE> 30
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 forty-three
weeks ended November 26, 1995 and November 24, 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 forty-three weeks ended November 24, 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 and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
FORTY-THREE
FISCAL YEAR ENDED(1) WEEKS ENDED
----------------------------------------------------- -------------------
FEB. 2, JAN. 31, JAN. 30, JAN. 29, JAN. 28, NOV. 26, NOV. 24,
1992(2) 1993 1994 1995(3) 1996(4) 1995 1996(5)
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT 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 $599,160 $651,959
Cost of sales........................... 318,431 363,514 397,565 410,358 433,817 362,155 382,907
Operating and administrative expenses... 240,703 212,496 237,311 258,600 284,697 235,915 244,752
-------- -------- -------- -------- -------- -------- --------
Operating profit (loss)................. (35,679) 12,974 10,550 19,177 (162) 1,090 24,300
Acquisition and Financings expenses..... -- -- -- -- -- -- 32,078
Interest expense........................ 22,004 12,362 11,731 10,343 14,379 11,762 13,154
-------- -------- -------- -------- -------- -------- --------
Income (loss) before taxes and
extraordinary gain.................... (57,683) 612 (1,181) 8,834 (14,541) (10,672) (20,932)
Income tax (benefit) expense............ -- -- (531) 796 (5,447) (4,002) (4,896)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
gain.................................. (57,683) 612 (650) 8,038 (9,094) (6,670) (16,036)
Extraordinary gain...................... -- -- -- 97,186 -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....................... $(57,683) $ 612 $ (650) $105,224 $ (9,094) $ (6,670) $(16,036)
-------- -------- -------- -------- -------- -------- --------
OTHER DATA:
EBITDA(6)............................... $ 19,400(2) $ 25,962 $ 22,726 $ 32,282 $ 16,099 $ 14,616 $ 40,408
Occupancy expense....................... 27,965 27,902 29,286 32,232 35,357 28,885 31,941
Capital expenditures.................... 2,041 5,031 14,910 14,597 11,640 10,615 4,125
Commercial sales(7)..................... 2,170 7,531 18,602 32,630 60,840 49,463 73,164
Warehouse and distribution expense (as a
percentage of net sales)(8)........... 4.6% 4.1% 4.0% 4.3% 4.9% 4.8% 3.7%
Store labor expense (as a percentage of
net sales)(9)......................... 11.3% 10.8% 11.0% 12.0% 12.7% 12.7% 12.2%
Ratio of earnings to fixed
charges(10)........................... -- 1.0x -- 1.3x -- -- --
SELECTED ADDITIONAL OPERATING DATA:
Total store square footage (at period
end) (000s)(11)....................... 2,906 2,789 2,992 3,097 3,329 3,301 3,529
Average net sales per store(11)......... $ 946 $ 1,098 $ 1,215 $ 1,272 $ 1,294 $ 1,082 $ 1,141
Average net sales per store square
foot(11).............................. 182 207 223 226 224 187 190
Percentage increase (decrease) in
comparable store net sales(12)........ (9.2%) 14.3% 9.9% 5.2% 2.1% 2.0% 6.3%
Stores open at end of period............ 549 524 538 544 566 564 577
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
---------------------------------------------------- -------------------
FEB. 2, JAN. 31, JAN. 30, JAN. 29, JAN. 28, NOV. 26, NOV. 24,
1992 1993 1994 1995 1996 1995 1996
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Net working capital...................... $ 72,282 $ 77,528 $ 78,003 $ 77,627 $ 81,048 $ 71,353 $ 90,272
Total assets............................. 264,721 275,782 294,806 350,830 391,319 389,280 422,635
Current liabilities...................... 114,135 124,688 140,115 174,924 203,754 210,571 215,249
Total debt (including current
maturities)............................ 181,430 186,377 187,807 105,601 122,003 115,372 251,781
Stockholder's equity (deficit)........... (45,240) (44,626) (41,576) 64,376 59,997 57,705 (47,625)
</TABLE>
29
<PAGE> 31
- ---------------
(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. The interim
periods presented are both 43 weeks.
(2) Results of operations in fiscal 1991 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. Both of these items have been
excluded from the calculation of EBITDA in fiscal 1991.
(3) Net income in fiscal 1994 includes an extraordinary gain of $97.2 million
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) Results of operations in fiscal 1995 include the following non-recurring
items: (i) cost of sales includes preopening expenses of $1.6 million
associated with the opening of the new distribution center in Phoenix,
Arizona, and (ii) operating and administrative expenses include $5.3
million of non-recurring software development costs associated with the new
store-level information systems installed by the Company during fiscal
1995. In addition, the Company believes that its operations and operating
results were adversely impacted during fiscal 1995 as a result of the
implementation and installation of many new initiatives. The Company
believes that the success of these initiatives has been a key factor in its
improved profitability during the forty-three weeks ended November 24,
1996. See "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(5) Amounts hereunder reflect certain non-recurring charges which were incurred
in October 1996 when the Acquisition and Financings were consummated,
including the following: (i) amounts paid to members of management pursuant
to an existing employee incentive plan of $19.9 million, of which one half
was paid in October 1996 (the remaining balance will be paid in October
1997), and (ii) expenses incurred in connection with the Acquisition and
Financings of $12.2 million. These amounts do not include a charge which is
expected to be approximately $12.5 million for store relocations which will
be recorded in January 1997. See "Management -- Equity Participation
Agreements," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 11 to Consolidated Financial
Statements.
(6) EBITDA represents income before net interest expense, provision for income
taxes, depreciation and amortization expense and extraordinary items. While
EBITDA is not intended to represent cash flow from operations as defined by
GAAP (and should not be considered as an indicator of operating performance
or an alternative to cash flow (as measured by GAAP)), as a measure of
liquidity, it is included herein to provide additional information with
respect to the ability of the Company to meet its future debt service,
capital expenditure and working capital requirements. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(7) Represents sales to commercial customers, including sales from the
Company's Commercial Sales Centers.
(8) Warehouse and distribution expense is included in cost of sales.
(9) Store labor expense is included in operating and administrative expenses.
(10) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" represents income before provision for income taxes and fixed
charges. "Fixed charges" consist of interest expense, amortization of debt
financing costs, and one-third of lease expense, which management believes
is representative of the interest component of lease expense. During fiscal
years 1991, 1993 and 1995 and the forty-three weeks ended November 26, 1995
and November 24, 1996, earnings were insufficient to cover fixed charges by
$57.7 million, $1.2 million, $14.5 million, $10.7 million, and $20.0
million, respectively. Accordingly, such ratios have not been presented.
(11) 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.
(12) Comparable store net sales data is calculated based on the change in net
sales commencing after the time a new store has been opened twelve months.
The first twelve months a new store is open are not included in the
comparable store calculation. Relocations are included in comparable store
net sales from the date of opening.
30
<PAGE> 32
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. Certain statements under this caption
constitute "forward-looking statements" under the Reform Act which involve risks
and uncertainties. The Company's actual results may differ significantly from
the results discussed in such forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed under
the caption "Risk Factors." 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 November 24, 1996, the Company operated 577 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 were combined
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 (the percentage of weekly store orders
filled by the Company's warehouses that week) 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 Prior Credit Agreement. During fiscal 1991 and 1992, the Company opened or
relocated 20 stores and closed 40 stores. See Note 4 to Consolidated Financial
Statements.
Beginning in fiscal 1994, the Company initiated a strategic review of its
operations in order to improve profitability, enhance customer service, improve
the efficiency of its operations and prepare the Company for accelerated growth.
In connection with this program, the Company designed and implemented a
sophisticated, centralized infrastructure, installed various store-level
information systems, initiated its Commercial Sales Program and accelerated its
store expansion and repositioning programs to increase the penetration of its
existing markets. Implementation of these initiatives involved large
expenditures, including approximately $51.3 million of capital and operating
expenditures, and caused certain operating inefficiencies, which adversely
impacted operating results during fiscal 1995. However, the Company believes
these initiatives have provided significant momentum to the Company's operations
and have enabled the Company to significantly improve its operating results
during fiscal 1996. During the forty-three weeks ended November 24, 1996, the
Company's sales increased to $652.0 million from $599.2 million and its EBITDA
increased to $40.4 million from $14.6 million in the comparable period during
fiscal 1995.
EFFECT OF THE ACQUISITION AND FINANCINGS
As a result of the Acquisition and Financings, the Company has incurred
approximately $12.2 million in fees and expenses which were expensed in the
fourth quarter of 1996 when the Acquisition and Financings
31
<PAGE> 33
were consummated. Such expenses were comprised of advisory and financing fees
and expenses of approximately $11.2 million and an accrual for fees for past
financings to Transatlantic, an affiliate of Carmel, of $1.0 million, which will
be paid in March of 1998.
In addition, the Company became obligated to certain members of its
management group in the amount of approximately $19.9 million under its existing
equity participation program. The Company expensed this full amount during the
fourth fiscal quarter of 1996 when the Acquisition and Financings were
consummated and paid $9.9 million (50% of the total obligation) with proceeds
from the Financings. The Company will pay the remaining $10.0 million
approximately one year from the closing of the Acquisition and Financings, and
Carmel will reimburse the Company for 60% (the estimated after-tax cost to the
Company) of the amount of such remaining payment. The Company will not recognize
any additional expense (other than interest expense) related to the equity
participation payment after the initial charge incurred in the fourth fiscal
quarter of 1996.
In order to recognize Carmel's commitment to fund the second payment, the
Company has recorded a $6.0 million capital contribution and corresponding
receivable from stockholder. The Company has also recognized a liability of
$10.0 million for such amount.
There was no change to the Company's historical carrying value of assets
and liabilities as a result of the Acquisition and Financings, as purchase
accounting was not applicable to the Acquisition. See "Acquisition and
Financings."
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>
FORTY-THREE
FISCAL YEAR ENDED WEEKS ENDED
--------------------------------------- ---------------------------
JANUARY 30, JANUARY 29, JANUARY 28, NOVEMBER 26, NOVEMBER 24,
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 60.4 58.7
----- ----- ----- ----- -----
Gross profit............................ 38.4 40.4 39.6 39.6 41.3
Operating and administrative expenses... 36.8 37.6 39.6 39.4 37.5
----- ----- ----- ----- -----
Operating profit........................ 1.6 2.8 0.0 0.2 3.8
Acquisition Fees........................ 5.0
Interest expense........................ 1.8 1.5 2.0 2.0 2.0
Income tax expense (benefit)............ (0.1) 0.1 (0.7) (0.7) (0.7)
----- ----- ----- ----- -----
Income (loss) before extraordinary
gain.................................. (0.1) 1.2 (1.3) (1.1) (2.5)
Extraordinary gain...................... -- 14.1 -- -- --
----- ----- ----- ----- -----
Net income (loss)....................... (0.1)% 15.3% (1.3) (1.1) (2.5)%
===== ===== ===== ===== =====
</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.
32
<PAGE> 34
Forty-Three Weeks Ended November 24, 1996 Compared to Forty-Three Weeks Ended
November 26, 1995
Net sales for the forty-three weeks ended November 24, 1996 increased by
$52.8 million, or 8.8%, over net sales for the comparable period in fiscal 1995.
This increase was due to an increase in comparable store sales of 6.3%, or $37.5
million, and an increase in net sales from new stores of $15.3 million. The
Company believes its comparable store sales have benefitted from the
installation of its new store-level information systems, implementation of its
Commercial Sales Program, its store relocation program and its expanded Priority
Parts operations. Sales to commercial customers increased to $73.2 million for
the forty-three weeks ended November 24, 1996 from $49.5 million for the
forty-three weeks ended November 26, 1995. During the forty-three weeks ended
November 24, 1996, the Company opened 14 new stores, relocated 26 stores to
larger facilities and expanded four stores at existing locations.
Gross profit for the forty-three weeks ended November 24, 1996 was $269.1
million, or 41.3% of net sales, compared with $237.0 million, or 39.6% of net
sales, during the forty-three weeks ended November 26, 1995. The increase in
gross profit percentage resulted from an increase in the sales of automotive
hard parts which result in a higher gross profit percentage than other product
categories. Gross profit was also favorably impacted due to efficiencies gained
from the Company's new warehouse and distribution systems which became fully
operational in the fourth quarter of fiscal 1995 (see "Business -- Warehouse and
Distribution"). Warehouse and distribution costs declined as a percentage of
sales from 4.8% for the forty-three weeks ended November 26, 1995 to 3.7% for
the forty-three weeks ended November 24, 1996. The Company also believes that it
has been able to obtain better pricing from its vendors as a result of its
improved financial performance during the first forty-three weeks of fiscal
1996. These trends have been slightly offset by the lower gross margins on
commercial sales as compared to retail sales.
Operating and administrative expenses for the forty-three weeks ended
November 24, 1996 increased by $8.8 million over such expenses during the
forty-three weeks ended November 26, 1995 and, as a percentage of net sales,
decreased from 39.4% to 37.5%. The decrease in percentage reflects the Company's
ability to leverage its overhead and fixed expenses with higher sales volume
despite an increase of $2.6 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 forty-three
weeks ended November 26, 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 168 stores at November 26, 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 12.7% during the forty-three weeks ended
November 24, 1996 as compared to the forty-three weeks ended November 26, 1995.
As a result of the above factors, operating profit for the forty-three
weeks ended November 24, 1996 was $24.3 million, as compared to $1.1 million for
the forty-three weeks ended November 26, 1995.
Interest expense for the forty-three weeks ended November 24, 1996 was
$13.2 million compared to $11.8 million for the forty-three weeks ended November
26, 1995. The increase in interest expense was the result of higher average
effective interest rates under the Prior Credit Agreement.
The Company's effective tax rate for the forty-three weeks ended November
24, 1996 was 23.4%. The Company recorded an income tax benefit of $4.0 million
for the forty-three weeks ended November 26, 1995.
As a result of the above factors, and the non-recurring charges resulting
from the Acquisition and Financings, a net loss of $16.0 million was recorded
for the forty-three weeks ended November 24, 1996 as compared to a net loss of
$6.7 million for the forty-three weeks ended November 26, 1995.
In January 1997, the Company updated its strategic plan relating to the
relocation of certain stores. As a result of the Acquisition and Financings, the
Company has greater access to capital resources and availability of a
sale-leaseback facility for new stores, ensuring the Company's ability to
implement such relocations. While management believes that there will be
long-term operating benefits from this strategy, the Company will incur costs
for early lease terminations or negative sub-lease rentals for stores vacated
under this plan and, accordingly, a charge to earnings which is expected to be
approximately $12.5 million will be recorded in January 1997. The charge is not
reflected in the accompanying financial statements for the 43 weeks ended
November 24, 1996.
33
<PAGE> 35
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 ($16.1 million) and an increase in comparable store sales of 2.1%
($14.1 million). Comparable stores sales growth was lower than in previous years
primarily because of difficulties relating to hardware and software installed
during 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 weak economic conditions in
the Company's California markets. Comparable store sales growth was positively
impacted by an increase in the number of relocated stores in fiscal 1995.
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. Fill-rates by year end had improved to
approximately 90%.
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 $6.8 million of
which $5.3 million represents non-recurring software development costs and $1.5
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 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. This expansion caused store labor costs to increase as a
percentage of net sales due to the increased store labor costs required to
service commercial customers and the lower level of sales generated by new
Commercial Sales Centers during their start-up phase. 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.
34
<PAGE> 36
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% ($33.5 million), and also an increase in net
sales from new stores of $9.2 million. The increase in fiscal 1994 comparable
store net sales, which the Company believes was in line with industry levels,
was affected by difficult comparisons to prior fiscal years. The greater
increases in comparable store net sales in fiscal 1992 (14.3%) and 1993 (9.9%)
resulted in part from the poor operating performance in fiscal 1991 when vendor
restrictions during the year caused fill-rates to fall to as low as 50%. 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% as a result of
the elimination of the deferred tax asset valuation allowance of $2.2 million.
The Company recorded an income tax benefit of $0.5 million in fiscal 1993. See
Note 9 to Consolidated Financial Statements.
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. The debt, which was recorded at a face value of $178.2 million, was
restructured into an $81.0 million facility resulting in the gain. 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 automation and fixturing
of its distribution centers, the development and roll-out of its store-based
information systems, the expansion of its Commercial Sales Program and the
increase in the number of hard parts SKUs in its stores. Prior to the
Acquisition and Financings, the Company had financed its growth and
infrastructure investments primarily through internally generated funds, funds
borrowed under its previous and current credit agreements, funds obtained from
an affiliate of Carmel in connection with sale-leaseback and other transactions
and lease arrangements with third parties.
The Company believes it has sufficient liquidity to fund its debt service
obligations and implement its growth strategy. In addition to its operating cash
flow, the Company has access to a $50.0 million off-balance sheet revolving
lease facility provided by Transatlantic Finance, Ltd. ("Transatlantic"), an
affiliate of Carmel, to support the Company's new store expansion and store
relocation program. Pursuant to this facility, Transatlantic, or one or more of
its affiliates (each, a "Funding Company" and, collectively, the "Funding
35
<PAGE> 37
Companies") will acquire and develop the land and buildings for sites selected
by the Company. Such Funding Company will then lease the facilities to the
Company on an operating lease basis, with rents beginning to be paid at the
earlier of the opening of the new store or six months after acquisition of the
property (the "Base Term Commencement Date") (the Company has typically opened
stores within three months of acquisition of a property). The Funding Company
intends to sell the assets and associated leases to third parties, thereby
replenishing the Company's availability under the facility. The Company's
initial basic annual rent with respect to a property will be based upon (i) the
applicable treasury rate at the earlier of the Base Term Commencement Date or
the date that the Funding Company resells the lease, plus 400 basis points, and
(ii) the Funding Company's cost to acquire and develop such property (including,
without limitation, real estate taxes and operating costs incurred during
construction, together with interest thereon at The Chase Manhattan Bank, N.A.'s
prime rate plus 200 basis points). If the Funding Company is unable to resell
the lease prior to the Base Term Commencement Date, it can adjust the rate by up
to 200 basis points if requested by the third party purchaser in order to
conform the terms of such lease to the then-current market terms. Historically,
the Company has generally been able to lease stores under similar arrangements
based upon the applicable treasury rate plus 400 basis points or less. The
Company believes that this facility will provide the capital necessary to meet
its store growth and relocation plans for the forseeable future. The terms of
the facility were set in arm's-length negotiations, and the Company believes
such terms to be at least as favorable to it as could be obtained from
unaffiliated third parties. The facility may be terminated at the option of the
Company or Carmel upon, among other things, the occurrence of any initial public
offering of any class of the Company's equity securities or upon the making of a
material beneficial modification to the Senior Credit Facility. See "Certain
Transactions."
In addition, in connection with the Acquisition and Financings, the Company
entered into the Senior Credit Facility which provides for (i) a $100.0 million
term loan, which was drawn down at the closing of the Acquisition and Financings
and (ii) a revolver with maximum borrowings of approximately $100.0 million,
none of which was drawn down in connection with the Acquisition and Financings.
The loans under the Senior Credit Facility are collateralized by a first
priority security interest in substantially all the personal property of the
Company. Holdings also issued a guarantee of the loans under the Senior Credit
Facility, which guarantee is collateralized by a pledge by Holdings of all
issued and outstanding capital stock of the Company. Each of the U.S.
subsidiaries of the Company also issued a guarantee under the Senior Credit
Facility which is collateralized by a first priority security interest in
substantially all personal property of such subsidiary, and the Company pledged
the issued and outstanding capital stock of each such subsidiary owned by the
Company to collateralize indebtedness under the Senior Credit Facility. Amounts
available to the Company under the revolver are subject to a borrowing base
formula which is based upon certain percentages of the Company's receivables and
inventories. The Company intends to use borrowings under the revolver for
working capital purposes, including potentially to reduce its accounts payable
on a selected basis, only if it is able to obtain substantially better pricing
and terms from its vendors in connection with such paydowns. The Company
believes that it can obtain significantly lower pricing from its vendors by
reducing its accounts payable, including (i) negotiating discounts on amounts
currently owed; (ii) capitalizing on cash discounts currently available in its
existing vendor agreements; and (iii) negotiating lower prices in return for
quicker payment in the future.
Historically, the Company has negotiated extended payment terms from
suppliers to finance much of its inventory growth, and the Company believes that
it will be able to continue financing much of its inventory growth through such
extended payment terms. The Company anticipates that inventory levels will
continue to increase primarily as a result of new store openings.
In fiscal 1994, net cash provided by operating activities was $15.1
million. Of this amount, $8.0 million was provided by income before
extraordinary gain. Depreciation, amortization and deferred interest contributed
an additional $15.1 million of funds, while $8.0 million of funds were used for
working capital purposes. Net cash used for investing activities was $19.0
million and was comprised primarily of $4.3 million of funds used to purchase
assets held for sale and $14.6 million of funds used for capital expenditures.
Net cash used in financing activities was $5.4 million and was comprised
primarily of debt repayments of $2.4 million and capital lease payments of $3.0
million.
36
<PAGE> 38
In fiscal 1995, net cash used in operating activities was $3.4 million. Of
this amount, $9.1 million was due to a net loss, while depreciation and
amortization contributed $17.0 million of funds and $11.3 million of funds were
used for working capital purposes. Net cash used for investing activities was
$7.9 million and was comprised primarily of $4.1 million of funds provided by
the sale of assets held for sale and $11.6 million of funds used for capital
expenditures. Net cash provided by financing activities was $12.7 million and
was comprised primarily of net borrowings of $13.9 million under the Prior
Credit Agreement, capital lease payments of $5.0 million and a capital
contribution of $4.7 million from Holdings. See "Certain Transactions."
In the forty-three weeks ended November 24, 1996, net cash used by
operating activities was $14.2 million. Included in the $14.2 million of net
cash used by operating activities is $32.1 million of non-recurring charges, a
$16.0 million net loss, a $4.9 million increase in deferred taxes, depreciation
and amortization of $17.1 million and $10.4 million used for working capital.
Net cash used for investing activities was $7.7 million and was comprised of
$4.1 million of funds used for capital expenditures and $3.6 million used to
purchase assets held for sale. Net cash provided by financing activities was
$20.7 million and was comprised primarily of the issuance of $125.0 million of
the Old Notes, a dividend paid to an affiliate of $137.6 million, deferred bond
and finance costs of $14.8 million, issuance of preferred stock of $46.0
million, net borrowings of $6.9 million, and payments on capital lease
obligations and other expenses of $5.5 million.
Capital expenditures were $14.6 million in fiscal 1994, $11.6 million in
fiscal 1995 and $4.1 million for the forty-three weeks ended November 24, 1996.
The Company opened, relocated or expanded 27 stores during fiscal 1994, 63
stores during fiscal 1995 and 44 stores during the forty-three weeks ended
November 24, 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. The
Company opened, relocated or expanded 64 stores during fiscal 1996 and plans to
open, relocate or expand an additional approximately 75 to 100 stores during
fiscal 1997. In addition to the 44 stores opened, relocated or expanded during
the first forty-three weeks of fiscal 1996, at November 24, 1996, the Company
has executed purchase contracts or leases for 52 stores and is in varying stages
of negotiation for 74 more sites. The Company expects that total capital
expenditures for fiscal 1996 will be approximately $7.1 million, principally for
store development activities. Additional budgeted capital expenditures include
amounts for store remodels and maintenance, as well as for improvements in
distribution and information systems. The Company anticipates that the majority
of its new and relocated stores during fiscal 1996 and 1997 will be financed by
sale-leaseback or similar arrangements structured as operating leases that
require no net capital expenditures by the Company except for fixtures and store
equipment. For the remainder of its planned new and relocated stores, the
Company expects to spend approximately $120,000 per store for leasehold
improvements.
The sale-leaseback and similar arrangements will allow the Company to open,
relocate and expand more stores than it would otherwise be able to without the
availability of such financing. For the most part, the Company plans to use the
off-balance sheet facility provided by Transatlantic described above. With
respect to this facility, the Funding Companies will acquire and develop the
land and buildings for sites selected by the Company and then lease the
facilities to the Company. The Company may also enter into sale-leaseback
arrangements not provided pursuant to the Transatlantic facility, pursuant to
which it will purchase land, build a store and sell the store to a third party
lessor. During the period the Company owns the land and builds the store, the
assets will be regarded as assets held for sale. While the Company believes that
the off-balance sheet facility provided by Transatlantic described above will
provide the capital necessary to meet its store growth and relocation plan for
the foreseeable future, if necessary, the Company may access the Senior Credit
Facility, secure other alternative means of financing and/or utilize cash flow
from operations to the extent available.
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 are expected
to be financed through vendor payables. Pre-opening 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.
37
<PAGE> 39
In February 1995, the Company entered into the Prior Credit Agreement with
a group of lending institutions (the "Previous Lenders"). Under the Prior 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. During fiscal 1995, the Company defaulted in its
compliance with certain then existing financial covenants related to earnings
and balance sheet ratios in the Prior Credit Agreement, which defaults the
Previous Lenders subsequently waived in connection with their agreement to
modify such covenants in a manner which resulted in compliance by the Company
for the periods completed and facilitated continued compliance in subsequent
periods.
On October 30, 1996, the Company repaid all amounts outstanding under the
Prior Credit Agreement, terminated the Prior Credit Agreement and entered into
the Senior Credit Agreement. At November 24, 1996, $103.0 million was drawn
under the Senior Credit Agreement and the Company had $97.0 million of existing
availability thereunder, subject to borrowing base restrictions which would have
permitted $81.5 million of such amount to be borrowed. The outstanding principal
amount under the term loan bears interest at LIBOR plus 3.0%. The amount
outstanding under the revolving credit portion bears interest at LIBOR plus
2.5%. At November 24, 1996, the average interest rate under the Senior Credit
Agreement was 8.52%.
During fiscal 1995 and the forty-three weeks ended November 24, 1996,
certain affiliates of Carmel made available to the Company an aggregate of $39.3
million of funding. The funding consisted of: (i) the purchases from certain
Company vendors of payables owed by the Company (of which approximately $12.4
million remained due to the affiliate as of November 24, 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 and store
fixtures 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. The Company has replaced certain of these sale-leasebacks with similar
arrangements with unrelated third parties where the proceeds of the replacement
transactions received by the Company's affiliate were used to enter into
additional sale-leaseback transactions with the Company on substantially similar
terms as the original sale-leasebacks. The terms of the replacement transactions
were set in arms-length negotiations, although generally not as favorable to the
Company as the original sale-leasebacks entered into with affiliates of Carmel.
The Company intends to continue to replace such sale-leasebacks. See "Certain
Transactions" and Note 2 to Consolidated Financial Statements.
QUARTERLY RESULTS AND 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. For the past two fiscal years,
the Company's revenues and EBITDA during the first forty-three weeks of the
fiscal year have averaged approximately 83.7% and 89.6% of the full fiscal
years' results. 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.
38
<PAGE> 40
The following table sets forth certain quarterly unaudited operating data
of the Company for fiscal 1994 and 1995, for the first three quarters of fiscal
1996. The unaudited quarterly information includes all adjustments which
management considers necessary for a fair presentation of the information shown.
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 and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
FISCAL 1994
--------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Net sales....................................... $164,622 $175,498 $180,522 $167,493
Gross profit.................................... 65,044 70,200 73,541 68,992
Operating income................................ 4,369 5,424 6,621 2,763
Income before extraordinary gain................ 796 2,024 2,944 2,274
Net income(1)(2)................................ 796 92,641 2,944 8,843
EBITDA.......................................... 7,622 8,651 9,793 6,216
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1995
--------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Net sales....................................... $172,301 $186,073 $186,054 $173,924
Gross profit.................................... 68,589 71,416 74,236 70,294
Operating income (loss)......................... 390 578 1,145 (2,275)
Net loss........................................ (1,798) (1,914) (1,645) (3,737)
EBITDA.......................................... 3,799 4,367 5,473 2,460
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1996
--------------------------------
FIRST SECOND THIRD
QUARTER QUARTER QUARTER
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net sales....................................... $189,185 $200,895 $202,335
Gross profit.................................... 75,476 82,500 84,773
Operating income................................ 6,026 7,046 11,450
Net income...................................... 1,499 2,113 2,831
EBITDA.......................................... 10,910 11,959 13,198
</TABLE>
- ---------------
(1) The Company recorded extraordinary gains of $90.6 million in the second
quarter and $6.6 million in the fourth quarter of fiscal 1994. The
extraordinary gains represent gains resulting from cancellation of a portion
of the Company's long-term debt.
(2) The Company eliminated the deferred tax asset valuation allowance of $2.2
million during the fourth quarter of fiscal 1994. See Note 9 to Consolidated
Financial Statements.
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.
39
<PAGE> 41
BUSINESS
In addition to the historical information contained herein, certain
statements under this caption constitute "forward-looking statements" under the
Reform Act which involve risks and uncertainties. The Company's actual results
may differ significantly from those discussed herein. Factors that might cause
such a difference include, but are not limited to, those discussed under the
captions "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" as well as those discussed elsewhere in
this Prospectus.
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 November 24, 1996, the Company operated 577 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. Each chain has a long operating history,
established name recognition and a loyal customer base in its respective
markets. 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. 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.
Beginning in fiscal 1994, the Company initiated a strategic review of its
operations in order to improve profitability, enhance customer service, improve
the efficiency of its operations and prepare the Company for accelerated growth.
In connection with this program, the Company designed and implemented a
sophisticated, centralized infrastructure, installed various store-level
information systems, initiated its Commercial Sales Program and accelerated its
store expansion and repositioning programs to increase the penetration of its
existing markets. Implementation of these initiatives involved large
expenditures, including approximately $51.3 million of capital and operating
expenditures, and caused certain operating inefficiencies, which adversely
impacted operating results during fiscal 1995. However, the Company believes
these initiatives have provided significant momentum to the Company's operations
and have enabled the Company to significantly improve its operating results
during fiscal 1996. During the forty-three weeks ended November 24, 1996, the
Company's sales increased to $652.0 million from $599.2 million and its EBITDA
increased to $40.4 million from $14.6 million in the comparable period during
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 168 at November 26, 1995 and to 276 at
November 24, 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 $73.2 million for the forty-three weeks
ended November 24, 1996 from $49.5 million in the comparable period in
fiscal 1995. The Company's Commercial Sales Program became profitable in
the first quarter of fiscal 1996.
40
<PAGE> 42
Based on the success of this Program, the Company is evaluating
opportunities to add Commercial Sales Centers to its existing and new
stores.
- 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 significantly 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. For the forty-three weeks ended November 24, 1996, the Company's
warehouse and distribution expense as a percentage of sales declined to
3.7% from 4.8% during the comparable period of fiscal 1995.
- Store-Level Information Systems -- The Company has installed several
store-level systems which have improved store labor productivity and
enabled the Company to provide enhanced customer service. These
initiatives have included installing a new POS system, integrating the
POS with the EPC, implementing its Retail Paperless Management System and
installing a store-wide satellite communications network. For the
forty-three weeks ended November 24, 1996, the Company's store labor
expense as a percentage of sales declined to 12.2% from 12.7% during the
comparable period in fiscal 1995, partially as a result of these
programs.
- Customer Service Initiatives -- In order to better develop its employees'
technical expertise and customer service skills, 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. The
Company believes these programs have resulted in an increased level of
customer service and store-level efficiency.
- Expanded Product Selection -- The Company expanded its Priority Parts
operation by improving its delivery system and adding eight 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.
- Centralized 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 November 24, 1996, over 200 of the Company's stores had
access to the Call Center.
- 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 nine stores. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The Company's strategy is to continue to increase its revenue and cash flow
by capitalizing on the systems and programs which it has implemented and also to
substantially grow its store count. The Company believes that key components of
its expected profitability improvements will be: (i) the continued maturation of
its existing Commercial Sales Centers, combined with expansion of its Commercial
Sales Program to additional stores; (ii) increased operating margins as a result
of efficiencies in its warehouse and distribution system and its significant
investments in store-level systems which improve store labor productivity; and
(iii) accelerating the Company's new store and relocation program.
41
<PAGE> 43
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 opened, relocated
or expanded 64 stores in fiscal 1996 and 63 stores in fiscal 1995 and plans to
open, relocate or expand approximately 75 to 100 stores in fiscal 1997. The
Company opened, relocated or expanded 44 stores during the first forty-three
weeks of fiscal 1996. As of February 2, 1997, the Company has executed purchase
contracts or leases for 51 additional stores and is in various stages of
negotiation for 78 more sites. The Company has also identified numerous
potential additional sites for future expansion. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" for a discussion of the anticipated capital expenditures and
sources of financing for the Company's expansion plans.
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.
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, Inc. 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 1,200 associates
have passed the ASEP2 (a nationally recognized diploma for parts technicians)
after completing the Company's automotive system training. Much of the
42
<PAGE> 44
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.
In order to satisfy its customers, the Company has adopted several service
initiatives, including 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's significant investments in store associate training and
store-level systems have enabled its in-store personnel to devote more time to
attending to their customers' automotive needs.
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.
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 12,000 and 19,000 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 an
additional 200,000 SKUs on a same-day delivery basis and 500,000 SKUs on a
next-day delivery basis; 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. An
additional 400,000 SKUs 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 commenced 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
is being implemented and will be completed for over 45 hard part categories in
fiscal 1996. The Company expects to fully implement this program for all
remaining categories by the end of fiscal 1997.
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<PAGE> 45
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.
Proprietary Credit Card
The Company has initiated the use of a private label credit card which will
facilitate its customers' purchases of certain more expensive products such as
engine, transmissions and carburetors, provide customer convenience, and further
develop customer loyalty. The credit risk of the new program is being absorbed
by the third-party administrator of the credit card.
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
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<PAGE> 46
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.
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.
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<PAGE> 47
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 November 24, 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................................. -- 1 255 256
Washington................................. 73 -- -- 73
Arizona.................................... -- 67 -- 67
Colorado................................... -- 50 -- 50
Idaho...................................... 13 3 -- 16
Oregon..................................... 23 -- -- 23
Utah....................................... -- 24 -- 24
New Mexico................................. -- 17 -- 17
Texas...................................... -- 19 -- 19
Nevada..................................... -- 13 4 17
Montana.................................... -- 8 -- 8
Iowa....................................... -- 1 -- 1
Nebraska................................... -- 3 -- 3
Wyoming.................................... -- 3 -- 3
--- --- --- ---
109 209 259 577
=== === === ===
</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 12,000 and
19,000 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 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 November 24, 1996:
<TABLE>
<CAPTION>
NUMBER OF
STORE SIZE STORES
---------- ---------
<S> <C>
10,000 sq. ft. or greater................................... 36
8,000-9,999 sq. ft.......................................... 59
6,000-7,999 sq. ft.......................................... 128
5,000-5,999 sq. ft.......................................... 194
Less than 5,000 sq. ft...................................... 160
</TABLE>
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<PAGE> 48
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. 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>
FORTY-THREE
FISCAL YEAR ENDED WEEKS ENDED
--------------------------------------------------- -----------
FEB. 2, JAN. 31, JAN. 30, JAN. 29, JAN. 28, NOV. 24,
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 14
Relocated stores............... 7 7 25 12 30 26
Closed stores (including
relocated stores)............ (21) (33) (26) (16) (32) (29)
--- --- --- --- --- ---
Ending stores................ 549 524 538 544 566 577
--- --- --- --- --- ---
Expanded stores................ 5 2 13 5 9 4
Total new, relocated and
expanded stores.............. 17 10 53 27 63 44
--- --- --- --- --- ---
</TABLE>
During fiscal 1995, the Company opened 24 new stores, relocated 30 older
stores and expanded nine stores. Store expansion expenditures totaled
approximately $18.9 million, of which $15.5 million was funded through
sale-leasebacks, and $3.4 million was funded with internally generated funds.
During the forty-three weeks ended November 24, 1996, the Company opened 14
new stores, relocated 26 stores and expanded four stores at a total cost of
approximately $25.8 million, of which $24.2 million was funded through
sale-leasebacks and $1.6 million was funded with internally generated funds.
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.
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 opened, relocated or expanded 64 stores in fiscal 1996, of
which approximately 65% were relocations or expansions, and plans to open,
relocate or expand approximately 75 to 100 stores in fiscal 1997, primarily in
its existing markets. During the forty-three weeks ended November 24, 1996, the
Company
47
<PAGE> 49
opened, relocated or expanded 44 stores. As of February 2, 1997, the Company has
executed purchase contracts or leases for an additional 51 stores and is in
varying stages of negotiations for 78 more sites for relocations or additional
stores and has identified numerous potential additional sites for future
expansion. New stores generally become profitable during the first year of
operation.
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
November 24, 1996, it operated Commercial Sales Centers in 276 of its stores.
Commercial sales increased to $60.8 million in fiscal 1995 from $32.6 million in
fiscal 1994 and to $73.2 million for the forty-three weeks ended November 24,
1996 from $49.5 million during the same period in 1995. Based on the initial
success of this program, which became profitable in the first quarter of fiscal
1996, the Company intends to add its Commercial Sales Centers to approximately
50% of all new stores opened in future years.
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 being 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 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 its improved financial performance and its expected increase
in order amounts as it continues to increase its store count, the Company
anticipates that it will broaden its vendor base and achieve improved pricing
and terms from its existing vendors.
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<PAGE> 50
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 significantly 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 during the majority of
fiscal 1995 as a result of 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
4.8% for the forty-three weeks ended November 26, 1995 to 3.7% for the
forty-three weeks ended November 24, 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
November 24, 1996:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
DISTRIBUTION SIZE STORES FULL-TIME
CENTER AREA SERVED (SQ. FT.) SERVED ASSOCIATES
- ------------ ----------- --------- --------- ----------
<S> <C> <C> <C> <C>
Phoenix, AZ Arizona, Colorado, Idaho, Nevada, New Mexico,
California, Texas, Utah........................ 273,520 260 231
Dixon, CA California, Nevada, Washington, Oregon, Idaho,
Montana, Wyoming............................... 325,500 317 296
------- --- ---
599,020 577 527
======= === ===
</TABLE>
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.
49
<PAGE> 51
EMPLOYEES
As of November 24, 1996, the Company employed approximately 5,800 full-time
employees and 2,775 part-time employees. Approximately 84% of these personnel
are employed in store level operations, 9% 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 544 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 is represented by a labor union.
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 (1)
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 26,244 Leased
Priority Parts depot............................. Seattle, WA 12,000 Leased
Priority Parts depot............................. Union City, CA 16,906 Leased
Priority Parts depot............................. San Diego, CA 16,120 Leased
Priority Parts depot............................. El Paso, TX 11,800 Leased
Priority Parts depot............................. Salt Lake, UT 15,123 Leased
Priority Parts depot............................. Rialto, CA 20,252 Leased
Priority Parts depot............................. Sacramento, CA 15,000 Leased (2)
Priority Parts depot............................. Fresno, CA 13,500 Leased
</TABLE>
- ---------------
(1) This facility is owned by Missouri Falls Partners, an affiliate of Carmel.
See "Certain Transactions."
(2) This facility is owned by Transatlantic Realty, Inc. ("Realty") an affiliate
of Carmel. See "Certain Transactions."
At November 24, 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(1)
- ----- ---------
<S> <C>
1996-2000................................................... 45
2001-2005................................................... 61
2006-2010................................................... 71
2011-2020................................................... 266
2021-2030................................................... 97
2031-thereafter............................................. 37
</TABLE>
- ---------------
(1) Of these stores, 12 are owned by Realty. See "Certain Transactions."
50
<PAGE> 52
COMPETITION
The Company competes principally in the DIY segment of the automotive
aftermarket. Although the number of competitors and the level of competition
vary 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.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local laws and
governmental regulations relating to the operation of its business, including
those governing recycling of batteries and used lubricants, and regarding
ownership and operation of real property. The Company handles hazardous
materials during its operations, and its customers may also bring or use
hazardous materials or used oil onto the Company's properties. Additionally,
while the Company does not service automobiles, it does sublease pre-existing
service bays at a small number of 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. The Company also 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 by Company employees, deposited into vendor-supplied
containers/pallets and then disposed of by the third-party vendors. The
Company's agreements with such vendors are designed to limit its potential
liability under applicable environmental regulations for any harm caused by the
batteries and lubricants to off-site properties or even on-site when such
failure is the fault of the vendor. Many of the agreements provide for
indemnification of the Company against liability that it may incur in connection
with the disposal of such items.
Under environmental laws, a current or previous owner or operator of real
property may be liable for the cost of removal or remediation of hazardous or
toxic substances on, under, or in such property. Such laws often impose joint
and several liability and may be imposed without regard to whether the owner or
operator knew of, or was responsible for, the release of such hazardous or toxic
substances. The Company does not believe that compliance with such laws and
regulations has had a material impact on its operations to date, but there
51
<PAGE> 53
can be no assurance that future compliance with such laws and regulations will
not have a material adverse effect on the Company or its operations.
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 receive any award in the action. The number of current and former employees
eligible for the class was 2,513; however only 203 persons have been determined
to be eligible to receive any award in the action. 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. Plaintiffs also contend that
senior assistant managers are not exempt for other reasons. Plaintiffs are
seeking a judgment of over $5.7 million based upon claims that they worked more
hours than they reported on Company records and that they are entitled to
overtime payments over a longer period than the Company believes the FLSA
mandates. The Company maintains that the claimed hours worked, the regular rate
of pay sought and the computation of overtime rate are all grossly inflated.
Moreover, the Company contends that it has complied with the "window of
correction" defense provided for by the FLSA regulations that required the
Company both cease the practice and reimburse the suspended individuals to avoid
liability. The Company asserts that a recent Supreme Court ruling supports its
contention that it complied with the "window of correction" defense. Therefore,
the Company believes that plaintiffs should ultimately not have any recovery.
Although the lower Court has ruled against the Company on the issue of
liability, the "window of correction" issue and on other issues in connection
with a motion for summary judgment, the Court is reviewing its "window of
correction" decision in light of the recent Supreme Court decision and has asked
the parties to prepare new briefs on this issue. The Company intends to appeal
any adverse decision at the appropriate time. A trial took place in September
1996 and the Court has not yet rendered a decision. If the Court awards back pay
to some or all of the Plaintiffs, the amounts awarded will be based upon the
proof of actual hours worked over 40 hours each work week during the relevant
period, which this court has determined commences three years before the date
each plaintiff opted into the lawsuit. As discussed above, the Company intends
to appeal any adverse judgment.
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.
52
<PAGE> 54
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers are as set forth in the
table below:
<TABLE>
<CAPTION>
NAME AGE POSITION AT THE COMPANY
---- --- -----------------------
<S> <C> <C>
Maynard Jenkins........... 54 Chairman of the Board and Chief Executive Officer*
James Bazlen.............. 46 President, Chief Operating Officer, Chief
Financial Officer and Director
Arthur Hicks.............. 62 Executive Vice President -- Store Operations
Dennis Anderson........... 49 Vice President -- Priority Parts
Michael Eldridge.......... 46 Vice President -- Regional Manager
Larry Ellis............... 41 Vice President -- Distribution and Transportation
Martin Fraser............. 41 Vice President -- Distribution and Replenishment
Mary Howard............... 41 Vice President -- Information Systems Applications
Development
Jack Morefield............ 42 Vice President -- Human Resources
Lon Novatt................ 36 Vice President -- Legal, General Counsel and
Secretary
Mark Padellford........... 42 Vice President -- Commercial Sales
Monty Reese............... 46 Vice President -- Advertising
John Saar................. 46 Vice President -- Operations Support
Robert Shortt............. 35 Vice President -- Marketing and Merchandising
Cliff Sipes............... 36 Vice President -- Construction, Planogram and
Pricing
Henry Torres.............. 33 Vice President -- Information Systems and Re-
Engineering
Don Watson................ 41 Vice President -- Finance, Controller and
Treasurer
Kevin Waycaster........... 34 Vice President -- Replenishment
Gary Windell.............. 48 Vice President -- Regional Manager
Jon P. Hedley............. 36 Director
Christopher J. O'Brien.... 38 Director
Charles J. Philippin...... 46 Director
Robert Smith.............. 58 Director
Christopher J. Stadler.... 32 Director
Jules Trump............... 53 Director**
Eddie Trump............... 50 Director
Savio W. Tung............. 45 Director
</TABLE>
- ---------------
* Mr. Jenkins assumed these positions on January 27, 1997.
** Until January 27, 1997, Mr. Trump also served as the Company's Chairman of
the Board and Chief Executive Officer.
Election of directors is subject to the provisions of a stockholders'
agreement (see "Certain Transactions -- Stockholders' Agreement").
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. During fiscal 1995, the Board of Directors held no
formal board meetings but acted by unanimous written consent on five occasions.
Maynard Jenkins has been the Chairman of the Board and Chief Executive
Officer of the Company since January 1997. Prior to joining the Company, Mr.
Jenkins served as President and Chief Executive
53
<PAGE> 55
Officer of Orchard Supply Hardware from December 1986 to January 1997. Prior
thereto Mr. Jenkins held various executive positions with Gemco.
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.
Larry Ellis has been Vice President -- Distribution and Transportation of
the Company since October 1996. Mr. Ellis was Director of Distribution and
Transportation from June 1989 through September 1996. Prior thereto, Mr. Ellis
served as Warehouse Manager of the Company since August 1975.
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.
Jack Morefield has been Vice President -- Human Resources of the Company
since September 1996. From August 1993 to September 1996, Mr. Morefield was
Director of Training. Prior thereto, Mr. Morefield held several positions in
Store Operations for the Company.
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.
54
<PAGE> 56
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 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.
Cliff Sipes has been Vice President -- Construction, Planogram and Pricing
of the Company since October 1996. From March 1996 to September 1996, Mr. Sipes
served as Director of Planogram and Construction. Prior thereto, Mr. Sipes was a
Regional Manager of the Company from February 1993 to February 1996.
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.
Kevin Waycaster has been Vice President -- Replenishment since October
1996. From November 1995 to October 1996, he served as the Company's Director of
Replenishment. Prior thereto, Mr. Waycaster was the Company's Director of
Priority Parts from April 1992 to October 1996.
Gary Windell has been Vice President -- Regional Manager of the Company
since October 1996. From 1987 to September 1996, Mr. Windell served as Regional
Manager of the Company. Prior thereto, Mr. Windell was a District Manager for
the Company.
Jon P. Hedley became a director of the Company on October 30, 1996. He has
been an executive of Investcorp, its predecessor or one or more of its
wholly-owned subsidiaries since April 1990. Mr. Hedley is a director of Saks
Holdings, Inc., Simmons Holdings, Inc. and Prime Service, Inc.
Christopher J. O'Brien became a director of the Company on October 30,
1996. He has been an executive of Investcorp, its predecessor or one or more of
its wholly-owned subsidiaries since December 1993. Prior to joining Investcorp,
Mr. O'Brien was a Managing Director of Mancuso & Company for four years. Mr.
O'Brien is a director of Simmons Holdings, Inc., Star Markets Holdings, Inc.,
Prime Service, Inc. and The William Carter Company.
Charles J. Philippin became a director of the Company on October 30, 1996.
He has been an executive of Investcorp, its predecessor or one or more of its
wholly-owned subsidiaries since July 1994. Prior to joining Investcorp, Mr.
Philippin was a partner of Coopers & Lybrand L.L.P. Mr. Philippin is a director
of Saks Holdings, Inc., Simmons Holdings, Inc., Prime Service, Inc. and The
William Carter Company.
Robert Smith became a director of the Company on October 30, 1996. Mr.
Smith is 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 a director of
Rogers Cantel Mobile Communications Inc. and Petersburg Long Distance Inc.
Christopher J. Stadler became a director of the Company on October 30,
1996. He has been an executive of Investcorp, its predecessor or one or more of
its wholly-owned subsidiaries since April 1, 1996. Prior to joining Investcorp,
Mr. Stadler was a Director with CS First Boston Corporation. Mr. Stadler is a
director of Prime Service, Inc. and The William Carter Company.
Jules Trump was the Chairman of the Board of the Company from December 1986
until January 27, 1997, its Chief Executive Officer from March 1990 until
January 27, 1997, and a director of the Company
55
<PAGE> 57
since December 1986. Mr. Trump has also served as Chairman or Co-Chairman of The
Trump Group, a private investment group, since February 1982.
Eddie Trump has been a director of the Company 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 or Co-Chairman of
The Trump Group.
Savio W. Tung became a director of the Company on October 30, 1996. He has
been an executive of Investcorp, its predecessor or one or more of its
wholly-owned subsidiaries since September 1984. Mr. Tung is a director of Saks
Holdings, Inc., Star Markets Holdings, Inc. and Simmons Holdings, Inc.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a compensation committee during fiscal 1995. Jules
Trump and Eddie Trump each participated in deliberations concerning executive
officer compensation. No executive officer of the Company serves as a member of
the board of directors or compensation committee of any entity that has one or
more executive officers serving as a member of the Company's Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
or accrued by the Company for services rendered during fiscal 1996 (which is a
53 week year) 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
------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION SALARY COMPENSATION
--------------------------- -------- ------------
<S> <C> <C>
Maynard Jenkins............................................. $ 10,100 $ 72(1)
Chairman of the Board and Chief Executive Officer, from
January 27, 1997
Jules Trump................................................. 392,700 35,672(2)
Chairman of the Board and Chief Executive Officer, until
January 27, 1997
James Bazlen................................................ 376,000 6,460,594(3)
President, Chief Operating Officer and Chief Financial
Officer
Arthur Hicks................................................ 228,500 1,627,665(4)
Executive Vice President-Store Operations
William Stapleton........................................... 190,400 1,080,599(5)
Former Senior Vice President-Information Systems
Martin Fraser............................................... 148,500 349,587(6)
Vice President-Distribution and Replenishment
</TABLE>
- ---------------
(1) Represents insurance premiums paid by the Company with respect to term life
insurance covering Mr. Jenkins.
(2) 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.
(3) Represents insurance premiums paid by the Company with respect to term life
insurance covering Mr. Bazlen, contributions made by the Company to its
Retirement Program based upon Mr. Bazlen's contributions and payments
pursuant to an equity participation agreement.
(4) Represents insurance premiums paid by the Company with respect to term life
insurance covering Mr. Hicks, contributions made by the Company to its
Retirement Program based upon Mr. Hicks' contributions and payments pursuant
to an equity participation agreement.
(5) Represents insurance premiums paid by the Company with respect to term life
insurance covering Mr. Stapleton, contributions made by the Company to its
Retirement Program based upon Mr. Stapleton's contributions and payments
pursuant to an equity participation agreement.
56
<PAGE> 58
(6) Represents reimbursement of medical expenses in excess of insurance coverage
provided by the Company, insurance premiums with respect to term life
insurance covering Mr. Fraser, contributions made by the Company to its
Retirement Program based upon Mr. Fraser's contributions and payments
pursuant to an equity participation agreement.
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Jenkins,
Bazlen and Hicks pursuant to which they are earning annual base salaries of
$525,000, $400,000 and $220,000, respectively. Pursuant to their agreements,
Messrs. Jenkins and Bazlen are also eligible for performance based bonuses. 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. 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. Mr.
Jenkins' agreement provides that if he is terminated without cause or if he
terminates his employment for Good Reason (as defined therein), he will continue
to receive his base salary and performance bonus for a period of 24 months. Mr.
Jenkins' agreement also provides for a loan of $550,000 from the Company.
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
administered by the Chief Executive Officer of the Company. It was in effect
during the Company's 1996 fiscal year. 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
established by the Chief Executive Officer. The financial goal is based upon a
measure of earnings before taking into account interest, taxes, depreciation and
amortization. Depending on the percentage of the financial goal which is met, a
percentage of each eligible employee's base salary will be paid as a bonus.
Bonus awards are determined by multiplying an eligible employee's base salary by
a pre-determined, corresponding percentage which is based on the amount of the
financial goal achieved by the Company. Bonus payments are made semi-annually
and are pro-rated if an employee has not been employed continuously by the
Company during the fiscal year.
EQUITY PARTICIPATION AGREEMENTS
The Company has, over time, entered into equity participation agreements
with certain of its executives as a form of incentive compensation. Pursuant to
the agreements, Messrs. Bazlen, Hicks and Stapleton, as well as four other
current executive officers who are not Named Executive Officers, became entitled
to certain payments in connection with the Acquisition based upon an aggregate
6.4% participation interest in the Company. In satisfaction of all Company
obligations under the agreements, upon closing of the Acquisition and
Financings, such individuals received payments in the aggregate amount of $9.9
million, of which Mr. Bazlen received $6.5 million, Mr. Hicks received $1.6
million and Mr. Stapleton received $1.1 million. A
57
<PAGE> 59
second payment of equal amount will become due one year from the closing of the
Acquisition to each such individual unless such individual terminates his
employment with the Company during such period, and Carmel will reimburse the
Company for 60% (the estimated after-tax cost to the Company) of the amount of
such latter payments made one year from the closing of the Acquisition and
Financings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Effect of the Acquisition and Financings."
1996 ASSOCIATE AND EXECUTIVE STOCK OPTION PLANS
On February 10, 1997, Holdings adopted an Associate Stock Option Plan (the
"Associate Plan") and an Executive Stock Option Plan (the "Executive Plan" and
together with the Associate Plan, the "Plans") in order to provide incentives to
employees of the Company by granting them options to purchase shares of Class B
Stock of Holdings. The plans are administered by a committee of the Board of
Directors of Holdings, which has broad authority in administering and
interpreting the Plans. Options to purchase up to an aggregate of 37,000 and
21,000 shares of Class B Stock may be granted under the Associate Plan and the
Executive Plan, respectively. Options granted under the Plans may be options
intended to qualify as incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended, or options not intended to so qualify. In the
event that an optionee's employment with the Company is terminated, depending on
the timing and reasons for such termination, the Option may terminate, remain
exercisable for a short period or be replaced by a right to receive certain
payments upon completion of an initial public offering of Holdings' securities.
In the event of a sale of more than 80% of the outstanding shares of capital
stock of Holdings or 80% of its assets, the vested portion of an option and,
under circumstances, the unvested portion, will be purchased by Holdings.
Holdings has granted options to purchase 34,771 shares under the Associate
Plan and 12,871 shares under the Executive Plan. The exercise price applicable
to these options is $205.88 per share, the fair market value at the date of
grant. All options expire on the seventh anniversary of the date of grant (or,
under certain circumstances, 30 days later).
Each option granted under the Plans will be subject to vesting provisions
and, whether or not then vested, will not become exercisable until the earlier
of the occurrence of an initial public offering of Holdings' securities and the
seventh anniversary of the date of grant. Options granted under the Associate
Plan will vest in three equal installments on the second, third and fourth
anniversaries of the date of their grant, assuming the associate's employment
continues during this period ("Four Year Vesting"). Options granted under the
Executive Plan will be subject to the Four Year Vesting as to 84% of such
options and performance vesting (over the same four years) as to the remaining
16%. The performance vesting criteria will be based on a target applicable to
each executive optionee as set forth in the Company's Management Business Plan
(the "Business Plan Criteria") and will be capable of satisfaction on an annual
basis or on a cumulative basis. Partial vesting of options subject to
performance vesting will occur if the Company achieves less than 95% of the
Business Plan Criteria. Any portion of options granted under the Executive Plan
which are subject to performance vesting and which do not vest during the four
years will automatically vest 90 days prior to the end of the option's term. If
the Business Plan Criteria are exceeded for any year by at least 10%, the
executive will receive options for up to an additional 5% (20% on a cumulative
basis) of his or her original option grant.
Holdings intends to provide a separate option program for the Company's
Chief Executive Officer and Chief Operating Officer, who are not covered by
either of the option plans described above. The terms and amounts of these
options have not yet been finalized.
58
<PAGE> 60
CERTAIN TRANSACTIONS
In October 1989, the Company entered into a nine year lease (the "Initial
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 approximately $1.4 million 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 (the "Subsequent 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. In connection with the Acquisition, both the Initial Lease and the
Subsequent Lease were extended through October 2006 and, at its originally
scheduled termination in April 1998, rent under the Subsequent Lease was
increased to the same per square foot rent as is charged under the Initial
Lease. Additionally, the Company rents approximately 5,190 square feet of
additional space at these premises on a month-to-month basis for an annual
rental of $64,875.
An obligation of the Company incurred in connection with the purchase of
product from two of its vendors was subsequently transferred to Transatlantic,
an affiliate of Carmel. At the time of such transfers, the Company owed the sum
of approximately $16.8 million (less anticipated discounts of approximately $0.8
million) to the vendors. As of September 29, 1996, the obligation had been paid
in full.
The sum of approximately $15.5 million was paid to Transatlantic as of
December 27, 1996 pursuant to the Company's promissory note dated July 24, 1996.
The promissory note was issued to evidence a loan to the Company, in the amount
of $15.0 million, the proceeds of which were used for the payment of vendors.
The Company has agreed to pay to Transatlantic, in March of 1998, the sum
of $1.0 million on account of fees for past financings.
Transatlantic Realty, Inc. ("Realty"), another affiliate of Carmel, has
entered into a series of sale-leaseback transactions with the Company with
respect to various real property and fixtures since October 1995. The total
funding provided by Realty in these transactions through February 26, 1997 was
approximately $32.6 million, which represented the cost of such assets to the
Company. The real property leases (approximately $13.8 million) 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 fixture
leases (approximately $1.9 million) provide for a term of five years at a 10%
rate with an estimated residual of 10% at the end of the lease. The Company has
replaced approximately $13.0 million of the real property sale-leasebacks and
$3.9 million of the fixture sale-leasebacks with similar arrangements with
unrelated third parties where the proceeds of the replacement transactions
received by Realty were used to enter into additional sale-leaseback
transactions with the Company on substantially similar terms as the original
sale-leasebacks. The terms of the replacement transactions were set in
arm's-length negotiations although generally not as favorable to the Company as
the original sale-leasebacks entered into with Realty. The Company intends to
continue to replace such sale-leasebacks and has agreed to use its best efforts
to do so (including, in certain cases, increasing rent payable under such
leases). See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and Note 2 to
Consolidated Financial Statements.
Pursuant to an Agreement (the "Real Estate Agreement") entered into at the
closing of the Acquisition and Financings, Funding Companies will acquire and
develop properties and lease them to the Company. At the closing of each land
purchase, a Funding Company, as landlord, and the Company, as tenant, will enter
into a triple net lease with respect to such land, and the buildings and
improvements erected or to be erected thereon. The obligation of the Funding
Companies to acquire and develop additional properties will cease when the cost
of all such acquisitions (including construction costs) would exceed $50.0
million, provided that as leased properties are disposed of by the Funding
Companies, funds available to purchase additional properties will be
replenished. The term of the commitment for the investment in such land
purchases and leases commenced on October 30, 1996 and will end on the earliest
of (i) April 30, 2004, and (ii) a termination of the Real Estate Agreement by
Carmel or the Company, at their respective options, upon the occurrence of
certain events specified in the Agreement. The terms of the Real Estate
Agreement were set in
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arm's-length negotiations and the Company believes such terms to be at least as
favorable to it as could be obtained from unaffiliated third parties. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
During November 1993, a former affiliate of the Company was sold by
Holdings to an independent third party. Prior to such sale during fiscal 1993,
the Company received approximately $1.3 million for management services provided
to such affiliate. 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 Holdings. The Company and/or certain subsidiaries may also be included
in certain state income tax returns filed by Holdings (or its affiliates). Each
member of the Company Group and Holdings (collectively, the "Consolidated
Group") have entered into a Tax Sharing Agreement (the "Tax Sharing Agreement")
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
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 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.
In connection with the Acquisition and Financings, $40.0 million of
Holdings Notes were acquired by a designee of the Initial Investcorp Group,
Southwest Finance Limited ("Southwest Finance"), a company in which an affiliate
of Investcorp holds a minority interest. In connection with the purchase of the
Holdings Notes, Southwest Finance received a fee of $4.0 million. In addition,
in connection with the Acquisition, Invifin S.A., an affiliate of Investcorp
("Invifin"), received a fee of $1.575 million for providing a standby commitment
to fund the amount of the Senior Credit Facility and the Company paid Investcorp
International Inc. ("International") advisory fees of $1.275 million. The
Company also paid $3.15 million to International for arranging the Senior Credit
Facility.
In addition, in connection with the Acquisition, the Company entered into a
five year agreement for management advisory and consulting services (the
"Management Agreement") with International pursuant to which the Company paid
International at the closing of the Acquisition $5.0 million for the entire term
of the Management Agreement in accordance with its terms.
STOCKHOLDERS' AGREEMENT
Upon the closing of the Acquisition and Financings (the "Closing"), each of
the stockholders of Holdings (the "Stockholders"), Holdings and the Company
entered into a stockholders' agreement (the "Stockholders' Agreement") which
imposes certain restrictions on, and rights with respect to, the transfer of
shares of capital stock of Holdings held by the Stockholders ("Shares") and
entitles the Stockholders to certain rights regarding corporate governance.
Other than permitted transfers to affiliates and certain family members
("Permitted Transferees"), any proposed sales or other transfers of Shares by
any Stockholder will be subject to the first right of the Company and each of
the other Stockholders to purchase such offered Shares on the same terms and
conditions of the proposed third-party sale. In addition, at any time following
the second anniversary of the date of the Closing, any Stockholder wishing to
sell any of its Shares, whether or not it has received a third-party offer, may
offer to sell such Shares to Holdings and the other Stockholders on terms and
conditions established by the selling Stockholder. In the event that Holdings
and/or the other Stockholders fail to exercise their right to purchase, the
selling Stockholder may sell such offered Shares to third parties on such terms
and conditions specified in the Stockholders' Agreement.
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Under certain circumstances, if, following the first anniversary of the
Closing, members of the Original Investcorp Group or the Original Carmel Group
(each as defined below) desire to sell all of their Shares in an unaffiliated
third-party sale pursuant to an offer by such third party to acquire all of the
outstanding Shares of Holdings, then the selling Stockholders will have the
right to require each of the other Stockholders to sell all of their Shares in
the same transaction and upon the same terms and conditions as received by the
selling Stockholders; provided that the other Stockholders will have the right
to purchase, and/or have Holdings purchase, from the selling Stockholders all of
the Shares held by the selling Stockholders upon the terms and conditions such
Shares were proposed to be sold by the selling Stockholders. For purposes of
this section, the "Original Investcorp Group" shall mean the members of the
Initial Investcorp Group and each of their Permitted Transferees; the "Original
Carmel Group" shall mean Carmel and each of its Permitted Transferees; the
"Investcorp Group" shall mean the members of the Initial Investcorp Group and
each of their respective transferees and subsequent transferees; and the "Carmel
Group" shall mean Carmel and each of its transferees and subsequent transferees.
Notwithstanding the foregoing, during the first year following the Closing,
Carmel has the right to require the Investcorp Group to sell all of the Shares
held by it for $210 million in a transaction pursuant to which all of the Shares
held by all of the Stockholders will be purchased by a third party and all
Holdings Notes will be redeemed.
The Stockholders' Agreement also provides that, in the event any
Stockholder (the "Proposed Transferor") proposes to transfer any Shares (other
than to permitted transferees, pursuant to a registered public offering or under
Rule 144) to any person (the "Proposed Purchaser"), each of the other
Stockholders will have the right to require the Proposed Purchaser to purchase a
corresponding percentage of its Shares with a corresponding reduction in the
number of Shares to be purchased from the Proposed Transferor. Each Stockholder
will also have preemptive rights under certain circumstances to acquire a
portion of any additional Shares offered at any time by Holdings, other than in
connection with a public offering and certain non-cash issuances, in order to
enable such Stockholder to maintain its percentage equity ownership in Holdings.
The Stockholders' Agreement also provides the Stockholders with various
registration rights commencing upon the earlier of an initial public offering of
the Company's securities or the fifth anniversary of the Closing.
Under certain circumstances, members of the Investcorp Group or the Carmel
Group will have the right to offer all of their Shares for sale to the other
Stockholders who are members of the other group (the "Offeree Stockholders") at
a price established by the offering Stockholders. If Holdings and/or the Offeree
Stockholders do not purchase the offered Shares, the offering Stockholders must
then purchase all of the Shares held by the members of the other group at the
price first offered by the offering Stockholders.
The Stockholders' Agreement provides that the Investcorp Group will have
the right to nominate a majority of the members of the Boards of Directors of
Holdings, the Company and their respective subsidiaries so long as it holds a
greater number of Shares than the Carmel Group, and the Carmel Group will have
the right to nominate a majority of the members of such Boards of Directors
during any period in which the Carmel Group holds a greater number of Shares.
Pursuant to the Stockholders' Agreement, each of the Stockholders agrees to vote
all of its shares in favor of each of the persons nominated to such Boards by
each group.
In addition, at least one member of the Boards of Directors nominated by
each group must approve certain fundamental corporate actions proposed to be
taken by Holdings or the Company, including, without limitation, (i) the making
of any assignment for the benefit of its creditors or the commencement of any
bankruptcy or similar proceedings, (ii) the addition of certain new unrelated
lines of business, (iii) certain sales of its assets, (iv) certain significant
mergers, consolidations and acquisitions, (v) the incurrence of certain
significant indebtedness, (vi) certain transactions with affiliates, (vii) any
amendment to its certificate of incorporation or by-laws, (viii) the execution,
amendment, modification or termination of certain significant agreements, (ix)
the termination or significant change in duties of certain officers of Holdings,
and (x) certain issuances of Shares by Holdings.
The Stockholders' Agreement will terminate, other than with respect to the
registration rights provided for therein, at such time as either the Investcorp
Group or the Carmel Group holds Shares representing less than the lesser of (i)
5% of the then current voting power or (ii) 10% of the number of Shares having
voting
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power held by such group at the time of the Closing. Notwithstanding the
foregoing, the provisions of the Stockholders' Agreement requiring the consent
of at least one director nominated by each group shall terminate at such earlier
time as either (a) the Investcorp Group and the Carmel Group fail to hold in the
aggregate Shares representing more than 50% of the then current voting power or
(b) either the Original Investcorp Group or the Original Carmel Group holds less
than 50% of the number of Shares having voting power held by such group at the
time of the Closing.
PRINCIPAL STOCKHOLDERS
All of the Company's issued and outstanding capital stock is owned by
Holdings. The Class D Stock, par value $.01 per share and the Class E Stock, par
value $.01 per share, are the only classes of Holdings' stock that, after giving
effect to the Acquisition and Financings, currently will have the power to vote.
The Class D Stock possesses the right to 102 votes per share. The Class E Stock
possesses the right to 1 vote per share. After the Acquisition and the
Financings there will be 5,000 shares of Class D Stock outstanding, and 490,000
shares of Class E Stock outstanding.
The following table sets forth certain information concerning beneficial
ownership of Holdings voting stock as of September 30, 1996, as adjusted to give
effect to the Acquisition and Financings by (i) each person which is a
beneficial owner of more than 5% of the outstanding voting 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>
SHARES BENEFICIALLY
OWNED
AFTER ACQUISITION AND
FINANCINGS(1)
NAME AND ADDRESS OF ----------------------
BENEFICIAL OWNER NUMBER PERCENT
------------------- --------- ---------
<S> <C> <C>
CLASS D VOTING STOCK
INVESTCORP S.A.(2)(3)....................................... 5,000 51%
37 Rue Notre-Dame, Luxembourg
SIPCO Limited(3)(4)......................................... 5,000 51%
P.O. Box 1111
West Wind Building
George Town, Grand Cayman
Cayman Islands
CIP Limited(3)(5)........................................... 4,600 47%
P.O. Box 1111
West Wind Building
George Town, Grand Cayman
Cayman Islands
CLASS E VOTING STOCK
Carmel Trust(3)............................................. 490,000(6) 49%
c/o Sonnenschein Nath & Rosenthal
Suite 8000, Sears Tower
233 S. Wacker Drive
Chicago, Illinois 60606
Jules Trump................................................. --(6) --
c/o CSK Auto, Inc.
645 E. Missouri Avenue
Phoenix, Arizona 85012
</TABLE>
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<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
AFTER ACQUISITION AND
FINANCINGS(1)
NAME AND ADDRESS OF ----------------------
BENEFICIAL OWNER NUMBER PERCENT
------------------- --------- ---------
<S> <C> <C>
Eddie Trump................................................. --(6) --
c/o CSK Auto, Inc.
645 E. Missouri Avenue
Phoenix, Arizona 85012
Robert Smith................................................ --(6) --
c/o Sonnenschein Nath & Rosenthal
Suite 8000, Sears Tower
233 S. Wacker Drive
Chicago, Illinois 60606
CLASS D VOTING STOCK AND CLASS E VOTING STOCK
All directors and executive officers as a group (21
persons).................................................. --(6) --
</TABLE>
- ---------------
(1) As used in this table, beneficial ownership means the sole or shared power
to vote, or to direct the voting of a security, or the sole or shared power
to dispose, or to direct the disposition of, a security.
(2) Investcorp does not own any stock in Holdings. The number of shares shown as
owned by Investcorp includes all of the shares owned by Investcorp
Investment Equity Limited, a Cayman Islands corporation, and a wholly-owned
subsidiary of Investcorp. Investcorp owns no stock in Ballet Limited, Denary
Limited, Gleam Limited, Highlands Limited, Noble Limited, Outrigger Limited,
Quill Limited, Radial Limited, Shoreline Limited, Zinnia Limited, or the
beneficial owners of these entities. Ballet Limited, Denary Limited, Gleam
Limited, Highlands Limited, Noble Limited, Outrigger Limited, Quill Limited,
Radial Limited, Shoreline Limited and Zinnia Limited each is a Cayman
Islands corporation. Investcorp may be deemed to share beneficial ownership
of the shares of voting stock held by these entities because the entities
have entered into revocable management services or similar agreements with
an affiliate of Investcorp pursuant to which each of such entities has
granted such affiliate the authority to direct the voting and disposition of
the Holdings voting stock owned by such entity for so long as such agreement
is in effect. Investcorp is a Luxembourg corporation.
(3) The stockholders of Holdings, Holdings and the Company have entered into a
stockholders' agreement with respect to the voting, and in certain
circumstances the disposition, of the shares of capital stock of Holdings.
See "Certain Transactions -- Stockholders' Agreement."
(4) SIPCO Limited may be deemed to control Investcorp through its ownership of a
majority of a company's stock that indirectly owns a majority of
Investcorp's shares.
(5) CIP Limited ("CIP") owns no stock in Holdings. CIP indirectly owns less than
0.1% of the stock in each of Ballet Limited, Denary Limited, Gleam Limited,
Highlands Limited, Noble Limited, Outrigger Limited, Quill Limited, Radial
Limited, Shoreline Limited and Zinnia Limited. CIP may be deemed to share
beneficial ownership of the shares of voting stock of Holdings held by such
entities because CIP acts as a director of such entities and the ultimate
beneficial shareholders of each of those entities have granted to CIP
revocable proxies in companies that own those entities' stock. None of the
ultimate beneficial owners of such entities beneficially owns individually
more than 5% of Holdings voting stock.
(6) The Trustee of Carmel 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 (a director of the Company) and
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Eddie Trump (a director 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.
CREDIT AGREEMENT
GENERAL
The Credit Agreement (the "Senior Credit Facility"), dated October 30,
1996, entered into among the Company, the several lenders from time to time
parties thereto (collectively the "Lenders"), The Chase Manhattan Bank, as the
administrative agent for the Lenders (the "Administrative Agent"), provides for
a $200.0 million term and revolving loan credit facility (collectively, the
"Loans").
The Loans are collateralized by a first priority security interest in
substantially all the personal property of the Company. Holdings has also issued
a guarantee of the Loans, which guarantee is secured by a pledge by Holdings of
all issued and outstanding capital stock of the Company. Each of the current
U.S. subsidiaries of the Company has also issued a guarantee of the Loans, which
is collateralized by a first priority security interest in substantially all
personal property of such subsidiary. The Company has pledged the issued and
outstanding capital stock of each such subsidiary to collateralize indebtedness
under the Senior Credit Facility. Any future U.S. subsidiaries of the Company
will also be required to issue a guarantee of the Loans which will be similarly
collateralized and the Company is required to pledge the issued and outstanding
capital stock of such subsidiary as well.
TERM LOANS
The Senior Credit Facility includes a $100.0 million term loan facility. As
of November 24, 1996, $100.0 million was outstanding under the term loan
facility. The term loan has a final maturity date of the seventh anniversary of
the closing date of the Senior Credit Facility. The principal amount of the term
loan will be repaid in installments over the seven years totaling $1.0 million
in fiscal year 1997, $1.0 million in fiscal year 1998, $1.0 million in fiscal
year 1999, $1.0 million in fiscal year 2000, $26.0 million in fiscal year 2001,
$35.0 million in fiscal year 2002 and $35.0 million in fiscal year 2003.
REVOLVING CREDIT FACILITY
The Senior Credit Facility includes a $100.0 million revolving credit
facility. The Company is entitled to draw amounts under the revolving credit
portion of the Senior Credit Facility, subject to availability pursuant to a
borrowing base requirement, in order to meet the Company's working capital
requirements, including issuing letters of credit. The borrowing base is based
upon the sum of certain percentages of Eligible Inventory (as defined in the
Senior Credit Facility) of the Company and its subsidiaries located in
distribution centers, regional depots and stores. As of November 24, 1996, $3.0
million was outstanding under the revolving credit portion and the Company had
$97.0 million of existing availability thereunder, subject to borrowing base
restrictions which would have permitted $81.5 million of such amount to be
borrowed. The revolving credit portion has a final maturity date of October 30,
2001.
INTEREST RATES
The Senior Credit Facility accrues interest at either the Alternate Base
Rate (the "Alternate Base Rate") or an adjusted Eurodollar Rate (the "Eurodollar
Rate"), at the option of the Company, plus the applicable interest margin. The
Alternate Base Rate at any time is determined to be the highest of (i) the
Federal Funds Rate plus 1/2 of 1% per annum, (ii) the Base CD Rate (as defined
below) plus 1% per annum and (iii) The Chase Manhattan Bank's prime rate. The
applicable interest margin with respect to loans made under the revolving credit
facility is 1.50% per annum with respect to loans that accrue interest at the
Alternate Base Rate and 2.50% per annum with respect to loans that accrue
interest at the Eurodollar Rate.
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<PAGE> 66
The applicable interest margin is 2.00% with respect to any portion of the term
loan that accrues interest at the Alternate Base Rate and 3.00% per annum with
respect to any portion of the term loan that accrues interest at the Eurodollar
Rate. As used herein, "Base CD Rate" means the secondary market rate for
three-month certificates of deposit of money center banks, adjusted for reserves
and assessments.
MANDATORY AND OPTIONAL PREPAYMENTS
The Senior Credit Facility requires that upon an offering by the Company,
Holdings or any subsidiary of the Company of its common or other voting stock to
any person other than a current stockholder or an affiliate thereof, 50% of the
net proceeds from such offering, or upon the receipt of proceeds from certain
assets sales and exchanges, or upon the incurrence of any additional
indebtedness (other than indebtedness permitted under the Senior Credit
Facility), 100% of the net proceeds from such incurrence, sale or exchange, will
be applied toward the prepayment of indebtedness under the Senior Credit
Facility. Such payments are required to be applied first to the prepayment of
the term loan and, second, to reduce permanently the revolving credit
commitments. In addition, the Senior Credit Facility requires that 75% of the
Company's Excess Cash Flow (as defined in the Senior Credit Facility) will be
applied toward the prepayment of the term loan under the Senior Credit Facility.
Subject to certain conditions, the Company may, from time to time, make optional
prepayments of Loans without premium or penalty.
COVENANTS
The Senior Credit Facility imposes certain covenants and other requirements
on the Company and its subsidiaries. In general, the affirmative covenants
provide for mandatory reporting by the Company of financial and other
information to the Lenders and notice by the Company to the Lenders upon the
occurrence of certain events. The affirmative covenants also include standard
covenants requiring the Company to operate its business in an orderly manner and
consistent with past practices.
The Senior Credit Facility contains certain negative covenants and
restrictions on actions by the Company and its subsidiaries that, among other
things, restrict: (i) the incurrence and existence of indebtedness; (ii)
consolidations, mergers and sales of assets; (iii) the incurrence and existence
of liens or other encumbrances; (iv) the incurrence and existence of contingent
obligations; (v) the payment of dividends and repurchases of common stock; (vi)
prepayments and amendments of certain subordinated debt instruments; (vii)
investments, loans and advances; (viii) capital expenditures; (ix) changes in
fiscal year; (x) certain transactions with affiliates; and (xi) changes in lines
of business. In addition, the Senior Credit Facility requires that the Company
comply with specified financial ratios and tests, including minimum cash flow, a
maximum ratio of indebtedness to cash flow and a minimum interest coverage
ratio.
EVENTS OF DEFAULT
The Senior Credit Facility specifies certain customary events of default
including non-payment of principal, interest or fees, violation of covenants,
inaccuracy of representations and warranties in any material respect, cross
default to certain other indebtedness and agreements, bankruptcy and insolvency
events, material judgments and liabilities, change of control, and
unenforceability of certain documents under the Senior Credit Facility.
FEES AND EXPENSES
The Company is required to pay to the Administrative Agent, for the account
of each Lender, 1/2 of 1% per annum of the average daily amount of the available
revolving credit commitment of each Lender. The Company is also required to pay
to the Administrative Agent an agent's fee in an amount agreed between the
Company and the Administrative Agent.
The description of the Senior Credit Facility set forth above does not
purport to be complete and is qualified in its entirety by reference to the
Senior Credit Facility and related guarantees and pledge agreements, copies of
which are available from the Company upon request.
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<PAGE> 67
DESCRIPTION OF NOTES
The terms of the Notes are identical in all material respects to the Old
Notes, except for certain transfer restrictions and registration rights relating
to the Old Notes. The description of the Notes contained herein assumes that all
Old Notes are exchanged for Notes in the Exchange Offer. To the extent that Old
Notes remain outstanding after the consummation of the Exchange Offer, Old Notes
and Notes will be repurchased pro rata pursuant to the repurchase provisions
contained herein.
GENERAL
The Notes will be issued pursuant to the Indenture, dated as of October 30,
1996 (the "Indenture"), among the Company, Kragen Auto Supply Co. and Schuck's
Distribution Co., as Subsidiary Guarantors, and Wells Fargo Bank, N.A., as
trustee (the "Trustee"). The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (the "Trust Indenture Act"). The Notes are subject to all
such terms, and Holders of Notes are referred to the Indenture and the Trust
Indenture Act for a statement thereof. The following summary of certain
provisions of the Indenture does not purport to be complete and is qualified in
its entirety by reference to the Indenture, including the definitions therein of
certain terms used below. A copy if the Indenture is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The definitions of
certain terms used in the following summary are set forth below under
"-- Certain Definitions."
As of date of the issuance of the notes (the "Issue Date") none of the
Company's Subsidiaries will be Unrestricted Subsidiaries. However, under certain
circumstances, the Company will be able to designate current or future
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be
subject to many of the restrictive covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $125.0 million
and will mature on November 1, 2006. Interest on the Notes will accrue at the
rate of 11% per annum and will be payable semi-annually in arrears on May 1 and
November 1, commencing on May 1, 1997, to Holders of record on the immediately
preceding April 15 and October 15. Interest on the Notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the date of original issuance. Additionally, interest on the Notes
will accrue from the last interest payment date on which interest was paid on
the Old Notes surrendered in exchange therefore, or if no interest has been paid
on the Old Notes, from the date of the original issuance of the Old Notes.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months. Principal of, premium, if any, and interest on the Notes will be
payable at the office or agency of the Company maintained for such purpose
within the City and State of New York or, at the option of the Company, payment
of interest may be made by check mailed to the Holders of the Notes at their
respective addresses set forth in the register of Holders of Notes; provided
that all payments with respect to the Global Note and Certificated Notes (each
as defined herein) the Holders of whom, in the case of Certificated Notes, have
given wire transfer instructions to the Company will be required to be made by
wire transfer of immediately available funds to the accounts specified by the
Holders thereof. Until otherwise designated by the Company, the Company's office
or agency in New York will be the office of the Trustee maintained for such
purpose. The Notes will be issued in denominations of $1,000 and integral
multiples thereof.
SUBORDINATION
The payment of principal of, premium, if any, interest on, the Notes will
be subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full of all Senior Indebtedness, whether outstanding on the Issue
Date or thereafter incurred. In addition, as set forth in "-- Subsidiary
Guarantees" below, the Subsidiary Guarantees will be general unsecured
obligations of the Subsidiary Guarantors, subordinated in right of payment to
the prior payment in full of all Guarantor Senior Indebtedness.
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Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders of Senior Indebtedness will be entitled to
receive payment in full of all such Senior Indebtedness (including interest
after the commencement of any such proceeding at the rate specified in the
applicable Senior Indebtedness whether or not such interest is an allowed claim
enforceable against the debtor in a bankruptcy case under Title 11 of the United
States Code and including, in the case of all Designated Senior Indebtedness,
all Obligations with respect thereto) before the Holders of Notes will be
entitled to receive any payment with respect to the Notes, and until all amounts
with respect to Senior Indebtedness are paid in full, any distribution to which
the Holders of Notes would be entitled shall be made to the holders of Senior
Indebtedness (except payments made from the trust described under "-- Legal
Defeasance and Covenant Defeasance" and except that Holders of the Notes may
receive securities so long as (i) the Notes are not treated in any case or
proceeding or other event described above as part of the same class of claims as
the Senior Indebtedness or any class of claim on a parity with or senior to the
Senior Indebtedness for any payment or distribution, (ii) such securities are
subordinated at least to the same extent as the Notes to Senior Indebtedness of
the Company and any securities issued in exchange for such Senior Indebtedness
and (iii) such securities are authorized by an order or decree of a court of
competent jurisdiction in a reorganization proceeding under any applicable
bankruptcy, insolvency or similar law which gives effect to the subordination of
the Notes to Senior Indebtedness in a manner and with an effect which would be
required if this parenthetical clause were not included in this paragraph;
provided that the Senior Indebtedness is assumed by the new corporation, if any,
resulting from any such reorganization or readjustment and issuing such
securities).
The Company also may not make any payment upon or in respect of the Notes
(except in such subordinated securities as described above or from the trust
described under "-- Legal Defeasance and Covenant Defeasance") if (i) a default
in the payment of the principal of, premium, if any, or interest on Designated
Senior Indebtedness occurs and is continuing beyond any applicable period of
grace or (ii) any other default occurs and is continuing with respect to
Designated Senior Indebtedness that permits holders of the Designated Senior
Indebtedness as to which such default relates to accelerate its maturity and the
Trustee receives a notice of such default (a "Payment Blockage Notice") from the
Company or the representative of the holders of any Designated Senior
Indebtedness. Payments on the Notes may and will be resumed (a) in the case of a
payment default, upon the date on which such default is cured or waived and (b)
in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received, unless the maturity of any
Designated Senior Indebtedness has been accelerated. No new period of payment
blockage may be commenced unless and until 360 days have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice. No nonpayment
default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the trustee will be, or be made, the basis for a subsequent
Payment Blockage Notice.
The Indenture further requires that the Company promptly notify holders of
Senior Indebtedness if payment of the Notes is accelerated because of an Event
of Default.
As a result of the subordination provisions described above, in the event
of a liquidation, insolvency or similar proceeding, Holders of Notes may recover
less ratably than creditors of the Company who are holders of Senior
Indebtedness. See "Risk Factors -- Subordination." As of November 24, 1996, on a
pro forma basis after giving effect to the Acquisition and the Financings, the
Company and its Subsidiaries would have had outstanding an aggregate principal
amount of approximately $124.2 million of Senior Indebtedness and Guarantor
Senior Indebtedness (without duplication), which would rank senior in right of
payment to the Notes and the Subsidiary Guarantees, respectively. The Indenture
limits, subject to certain financial tests, the amount of additional
Indebtedness, including Senior Indebtedness and Guarantor Senior Indebtedness,
that the Company and its Subsidiaries, respectively, can incur. See "Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock."
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<PAGE> 69
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes will be guaranteed
pursuant to the Subsidiary Guarantees in effect on the Issue Date and any future
Subsidiary Guarantees on a senior subordinated basis by the initial Subsidiary
Guarantors and any Subsidiaries that become Subsidiary Guarantors after the
Closing Date. The Subsidiary Guarantees of the Subsidiary Guarantors will be
subordinated to the prior payment in full of all Guarantor Senior Indebtedness.
As of November 24, 1996, on a pro forma basis after giving effect to the
Acquisition and the Financings, the Company and its Subsidiaries would have had
outstanding an aggregate principal amount of approximately $124.2 million of
Senior Indebtedness and Guarantor Senior Indebtedness (without duplication),
which would rank senior in right of payment to the Notes and the Subsidiary
Guarantees, respectively.
The obligations of each Subsidiary Guarantor under its Subsidiary Guarantee
will be limited so as not to constitute a fraudulent conveyance under applicable
law.
The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person), another corporation, Person or entity whether or not affiliated with
such Subsidiary Guarantor unless, subject to the provisions of the immediately
following paragraph, (i) the Person formed by or surviving any such
consolidation or merger (if other than such Subsidiary Guarantor) assumes all
the obligations of such Subsidiary Guarantor under its respective Subsidiary
Guarantee pursuant to a supplemental indenture in form and substance reasonably
satisfactory to the Trustee under the Indenture, (ii) immediately after giving
effect to such transaction, no Default or Event of Default exists, and (iii)
such Subsidiary Guarantor, or any Person formed by or surviving any such
consolidation or merger, (A) would have Consolidated Net Worth (immediately
after giving effect to such transaction) equal to or greater than the
Consolidated Net Worth of such Subsidiary Guarantor immediately preceding the
transaction and (B) would be permitted by virtue of the Company's pro forma
Fixed Charge Coverage Ratio to incur, immediately after giving effect to such
transaction, at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the covenant described in "-- Incurrence
of Indebtedness and Issuance of Preferred Stock"; provided that the foregoing
will not apply to the merger of two or more Subsidiary Guarantors with and into
each other or with or into the Company.
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Subsidiary Guarantor, by way of merger, consolidation
or otherwise, or a sale or other disposition of all of the Capital Stock of any
Subsidiary Guarantor, by way of merger, consolidation or otherwise, then such
Subsidiary Guarantor (in the event of a sale or other disposition of all of the
Capital Stock of such Subsidiary Guarantor) or the corporation acquiring the
property (in the event of a sale or other disposition of all of the assets of
such Subsidiary Guarantor) will be released and relieved of any obligations
under its Subsidiary Guarantee; provided that the Net Proceeds of such sale or
other disposition are applied in accordance with the applicable provisions of
the Indenture. See "-- Repurchase at the Option of Holders -- Asset Sales."
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to November
1, 2001 except as described below, with the proceeds of an equity offering.
Thereafter, the Notes will be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest thereon, if any, to the
applicable redemption date, if redeemed during the twelve-month period beginning
on November 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2001........................................................ 105.500%
2002........................................................ 103.667
2003........................................................ 101.833
2004 and thereafter......................................... 100.000
</TABLE>
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<PAGE> 70
In addition, at any time on or prior to November 1, 1999, the Company may
(but will not have the obligation to) redeem up to 35% of the original aggregate
principal amount of the Notes at a redemption price of 110% of the principal
amount thereof, in each case plus accrued and unpaid interest thereon, if any,
to the redemption date, with the net proceeds of an Equity Offering; provided
that at least 65% of the original aggregate principal amount of Notes remain
outstanding immediately after the occurrence of such redemption; and provided,
further that such redemption will occur within 60 days of the date of the
closing of such Equity Offering.
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee on a pro rata basis, by lot or
by such method as the Trustee will deem fair and appropriate; provided that no
Notes of $1,000 or less will be redeemed in part. Notices of redemption will be
mailed by first class mail at least 30 but not more than 60 days before the
redemption date to each Holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note will state the portion of the principal amount thereof
to be redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. On and after the redemption date, interest ceases to accrue
on Notes or portions of them called for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
The Indenture provides that upon the occurrence of a Change of Control,
each Holder of Notes will have the right to require the Company to repurchase
all or any part (equal to $1,000 or an integral multiple thereof) of such
Holder's Notes pursuant to the offer described below (the "Change of Control
Offer") at an offer price in cash equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest thereon, if any, to the date of
purchase (the "Change of Control Payment"). Within 30 days following any Change
of Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Notes pursuant to the procedures required by the Indenture and
further described below. The Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations to
the extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control. To the extent that
the provisions of any securities laws or regulations conflict with the Change of
Control provisions in the Indenture, the Company shall comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under the Change of Control provisions in the Indenture
by virtue thereof.
The Change of Control Offer will remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Change of Control Offer
Period"). No later than five Business Days after the termination of the Change
of Control Offer Period (the "Change of Control Purchase Date"), the Company
will purchase all Notes tendered in response to the Change of Control Offer.
Payment for any Notes so purchased will be made in the same manner as interest
payments are made.
If the Change of Control Purchase Date is on or after an interest record
date and on or before the related interest payment date, any accrued and unpaid
interest will be paid to the Person in whose name a Note is registered at the
close of business on such record date, and no additional interest will be
payable to Holders who tender Notes pursuant to the Change of Control Offer.
Upon the commencement of a Change of Control Offer, the Company will send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee. The notice will contain all
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<PAGE> 71
instructions and materials necessary to enable such Holders to tender Notes
pursuant to the Change of Control Offer. The Change of Control Offer will be
made to all Holders. The notice, which will govern the terms of the Change of
Control Offer, will state:
(a) that the Change of Control Offer is being made pursuant to this
covenant and the length of time the Change of Control offer will remain
open;
(b) the purchase price and the Change of Control Purchase Date;
(c) that any Note not tendered or accepted for payment will continue
to accrue interest;
(d) that, unless the Company defaults in making such payment, any Note
accepted for payment pursuant to the Change of Control Offer will cease to
accrue interest after the Change of Control Purchase Date;
(e) that Holders may tender all or any portion of the Notes registered
in the name of such Holder and that any portion of a Note tendered must be
tendered in a principal amount of $1,000 or an integral multiple thereof;
(f) that Holders electing to have a Note purchased pursuant to any
Change of Control Offer will be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Note completed, or transfer by book-entry transfer, to the Company, a
Depositary, if appointed by the Company, or a Paying Agent at the address
specified in the notice at least three days before the Change of Control
Purchase Date; and
(g) that Holders will be entitled to withdraw their election if the
Company, the Depositary or the Paying Agent, as the case may be, receives,
not later than the expiration of the Change of Control Offer Period, a
telegram, telex, facsimile transmission or letter setting forth the name of
the Holder, the principal amount of the Note the Holder delivered for
purchase and a statement that such Holder is withdrawing his election to
have such Note purchased.
On the Change of Control Purchase Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee, the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being purchased by
the Company. The Paying Agent will promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof.
Prior to complying with the provisions of this covenant, but in any event
within 30 days following a Change of Control, the Company will either repay all
outstanding Senior Indebtedness or obtain the requisite consents, if any, under
all agreements governing outstanding Senior Indebtedness to permit the
repurchase of Notes required by this covenant. The Company will publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, engage in an Asset Sale unless (i) the Company (or the
Subsidiary, as the case may be) receives consideration (including by way of
relief from, or by any other Person assuming sole responsibility for, any
liabilities, contingent or otherwise) at the time of such Asset Sale at least
equal to the fair market value, and in the case of a lease of assets, a lease
providing for rent and other conditions which are no less favorable to the
Company (or the Subsidiary, as the case may be) in any material respect than the
then prevailing market conditions (evidenced in each case by a resolution of the
Board of Directors of such entity set forth in an Officers'
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Certificate delivered to the Trustee) of the assets or Equity Interests sold or
otherwise disposed of, and (ii) at least 80% (100% in the case of lease
payments) of the consideration therefor (excluding contingent liabilities
assumed by the transferee of any such assets) received by the Company or such
Subsidiary is in the form of cash or Cash Equivalents paid at the closing
thereof; provided that the amount of (A) any liabilities (as shown on the
Company's or such Subsidiary's most recent balance sheet or in the notes
thereto, excluding contingent liabilities), of the Company or any Subsidiary
that are assumed by the transferee of any such assets and (B) any notes,
securities or other obligations received by the Company or any such Subsidiary
from such transferee that are promptly, but in no event more than 30 days after
receipt, converted by the Company or such Subsidiary into cash (to the extent of
the cash received), will be deemed to be cash for purposes of this provision.
The Company or any of its Subsidiaries may apply the Net Proceeds from such
Asset Sale, at its option, (i) to permanently reduce Senior Term Debt within 12
months from the later of the date of such Asset Sale or the receipt of such Net
Proceeds, (ii) to permanently reduce Senior Revolving Debt (and to
correspondingly reduce commitments with respect thereto) within 12 months from
the later of the date of such Asset Sale or the receipt of such Net Proceeds,
(iii) to permanently prepay, repay or purchase Senior Indebtedness or Guarantor
Senior Indebtedness of the Company or a Subsidiary Guarantor (other than Senior
Term Debt or Senior Revolving Debt) or Indebtedness (other than preferred stock)
of the Company or a Subsidiary Guarantor (that, in the case of Indebtedness
other than Senior Indebtedness or Guarantor Senior Indebtedness, is required by
its terms to be prepaid, repaid or repurchased as a result of such Asset Sale)
(and to correspondingly reduce any applicable commitments with respect thereto)
within 12 months from the later of the date of such Asset Sale or the receipt of
such Net Proceeds or (iv) to reinvest in Additional Assets (including by means
of an Investment in Additional Assets by a Subsidiary with Net Proceeds received
by the Company or another Subsidiary) within 12 months from the later of the
date of such Asset Sale or the receipt of such Net Proceeds. Pending the final
application of any such Net Proceeds, the Company may temporarily reduce Senior
Revolving Debt or otherwise invest such Net Proceeds in any manner that is not
prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph will be
deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $5 million, the Company will be required to make an offer to
all Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal
amount of Notes that may be purchased out of the Excess Proceeds, at an offer
price in cash in an amount equal to 100% of the principal amount thereof plus
accrued and unpaid interest thereon, if any, to the date of purchase, in
accordance with the procedures set forth in the Indenture and as described
below. If the aggregate principal amount of Notes surrendered by Holders thereof
exceeds the amount of Excess Proceeds, the Trustee will select the Notes to be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds will be reset at zero. The Company will comply with
the requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations to the extent such laws and regulations are applicable in
connection with such a repurchase of the Notes. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sale
provisions in the Indenture, the Company shall comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Asset Sale provisions in the Indenture by virtue thereof.
Notwithstanding the foregoing, if an Asset Sale Offer is commenced and
securities of the Company ranking pari passu in right of payment with the Notes
are outstanding at the date of commencement thereof, the terms of which provide
that a substantially similar offer must be made with respect thereto, then the
Asset Sale Offer shall be made concurrently with such offer, and securities of
each issue which the holders of securities of such issue elect to have purchased
will be accepted pro rata in proportion to the aggregate principal amount
thereof.
The Asset Sale Offer will remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Asset Sale Offer Period"). No later
than five Business Days after the termination of the Offer Period (the "Asset
Sale Purchase Date"), the Company will purchase the principal amount of Notes
required to be purchased pursuant to this covenant (the "Asset Sale Offer
Amount") or, if less than the Asset Sale Offer Amount has
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<PAGE> 73
been tendered, all Notes tendered in response to the Asset Sale Offer. Payment
for any Notes so purchased will be made in the same manner as interest payments
are made.
If the Asset Sale Purchase Date is on or after an interest record date and
on or before the related interest payment date, any accrued and unpaid interest
will be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest will be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company will send, by
first class mail, a notice to the Trustee and each of the Holders, with a copy
to the Trustee. The notice will contain all instructions and materials necessary
to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The
Asset Sale Offer will be made to all Holders. The notice, which will govern the
terms of the Asset Sale Offer, will state:
(a) that the Asset Sale Offer is being made pursuant to this covenant
and the length of time the Asset Sale Offer will remain open;
(b) the Asset Sale Offer Amount, the purchase price and the Asset Sale
Purchase Date;
(c) that any Note not tendered or accepted for payment will continue
to accrue interest;
(d) that, unless the Company defaults in making such payment, any Note
accepted for payment pursuant to the Asset Sale Offer will cease to accrue
interest after the Asset Sale Purchase Date;
(e) that Holders may tender all or any portion of the Notes registered
in the name of such Holder and that any portion of a Note tendered must be
tendered in a principal amount of $1,000 or an integral multiple thereof;
(f) that Holders electing to have a Note purchased pursuant to any
Asset Sale Offer will be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, or transfer by book-entry transfer, to the Company, a
Depositary, if appointed by the Company, or a Paying Agent at the address
specified in the notice at least three days before the Asset Sale Purchase
Date;
(g) that Holders will be entitled to withdraw their election if the
Company, the Depositary or the Paying Agent, as the case may be, receives,
not later than the expiration of the Offer Period, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Note the Holder delivered for purchase and a
statement that such Holder is withdrawing his election to have such Note
purchased;
(h) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Asset Sale Offer Amount, the Company will select the
Notes to be purchased on a pro rata basis (with such adjustments as may be
deemed appropriate by the Company so that only Notes in denominations of
$1,000, or integral multiples thereof, will be purchased); and
(i) that Holders whose Notes were purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered (or transferred by book-entry transfer).
On or before the Asset Sale Purchase Date, the Company will, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Asset Sale Offer Amount of Notes or portions thereof pursuant to the Asset Sale
Offer, or if less than the Asset Sale Offer Amount has been tendered, all Notes
tendered, and will deliver to the Trustee an Officers' Certificate stating that
such Notes or portions thereof were accepted for payment by the Company in
accordance with the terms of this covenant. The Company, the Depositary or the
Paying Agent, as the case may be, will promptly (but in any case not later than
five days after the Asset Sale Purchase Date) mail or deliver to each tendering
Holder an amount equal to the purchase price of the Notes tendered by such
Holder and accepted by the Company for purchase, and the Company will promptly
issue a new Note, and the Trustee, upon written request from the Company will
authenticate and mail or deliver such new Note to such Holder, in a principal
amount equal to any unpurchased portion of the Note surrendered.
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Any Note not so accepted will be promptly mailed or delivered by the Company to
the Holder thereof. The Company will publicly announce the results of the Asset
Sale Offer on the Asset Sale Purchase Date.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that Company will not, and will not permit any of
its Subsidiaries to directly or indirectly: (i) declare or pay any dividend or
make any distribution on account of the Company's or any of its Subsidiaries'
Equity Interests (including, without limitation, any payment in connection with
any merger or consolidation involving the Company) (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of the
Company or dividends or distributions payable to the Company or any Subsidiary
of the Company (and, if such Subsidiary is not a Wholly Owned Subsidiary, to its
other shareholders on a pro rata basis)), (ii) purchase, redeem or otherwise
acquire or retire for value any Equity Interests of the Company or any
Subsidiary of the Company (other than any such Equity Interests owned by the
Company or any Wholly Owned Subsidiary of the Company that is a Subsidiary
Guarantor), (iii) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is subordinated to
the Notes, prior to scheduled maturity, or applicable scheduled repayment or
scheduled sinking fund payment date with respect thereto and in the applicable
amounts so required (other than any of the foregoing with respect to such
Indebtedness in anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case, due within one year of the date of
such transaction and in the applicable amounts so required), other than through
the purchase or acquisition by the Company of Indebtedness through the issuance
in exchange therefor of Equity Interests (other than Disqualified Stock) or (iv)
make any Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
(a) no Default or Event of Default will have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described under "-- Incurrence of Indebtedness and Issuance of
Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after the
Closing Date (excluding Restricted Payments permitted by any of clauses
(ii), (iii), (iv), (v), (vi) and (vii) (B) of the next succeeding
paragraph), is less than the sum of (i) 50% of the Consolidated Net Income
of the Company for the period (taken as one accounting period) from the
beginning of the fiscal quarter in which the Closing Date occurred to the
end of the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted Payment
(or, if such Consolidated Net Income for such period is a deficit, less
100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds
received by the Company from the issue or sale since the Closing Date of
Equity Interests of the Company and 100% of the amount by which
Indebtedness of the Company or its Subsidiaries is reduced on the Company's
balance sheet upon the conversion or exchange thereof subsequent to the
Closing Date into such Equity Interests (other than Equity Interests (or
convertible debt securities) sold to a Subsidiary or an Unrestricted
Subsidiary of the Company and other than Disqualified Stock or debt
securities that have been converted into Disqualified Stock), plus (iii)
100% of any dividends received by the Company or a Wholly Owned Subsidiary
that is a Subsidiary Guarantor after the Closing Date from an Unrestricted
Subsidiary of the Company, plus (iv) 100% of the cash proceeds realized
upon the sale of any Unrestricted Subsidiary (less the amount of any
reserve established for purchase price adjustments and less the maximum
amount of any indemnification or similar contingent obligation for the
benefit of the purchaser, any of its Affiliates or any other third party in
such sale, in each case as adjusted for any permanent reduction in any such
amount on or
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after the date of such sale, other than by virtue of a payment made to such
Person) following the Closing Date, plus (v) to the extent not otherwise
included in (iv) above, to the extent that any Restricted Investment that
was made after the Closing Date is sold for cash or otherwise liquidated or
repaid for cash, the amount of cash proceeds received with respect to such
Restricted Investment, plus (vi) $10 million.
The foregoing provision will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the Indenture;
(ii) the making of any Restricted Investment in exchange for, or out
of the proceeds of the substantially concurrent sale (other than to a
Subsidiary of the Company) of Equity Interests of the Company (other than
Disqualified Stock); provided that any net cash proceeds that are utilized
for such Restricted Investment, and any Net Income resulting therefrom,
will be excluded from clauses (c)(i) and (c)(ii) of the preceding
paragraph;
(iii) the redemption, repurchase, retirement or other acquisition of
any Equity Interest of the Company in exchange for, or out of the proceeds
of, the substantially concurrent sale (other than to a Subsidiary of the
Company) of other Equity Interests of the Company (other than any
Disqualified Stock); provided that any net cash proceeds that are utilized
for any such redemption, repurchase, retirement or other acquisition, and
any Net Income resulting therefrom, will be excluded from clauses (c)(i)
and (c)(ii) of the preceding paragraph;
(iv) the defeasance, redemption or repurchase of Indebtedness that is
subordinated to the Notes with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness which was incurred to refinance such
subordinated Indebtedness or the substantially concurrent sale (other than
to a Subsidiary of the Company) of Equity Interests of the Company (other
than Disqualified Stock); provided that any net cash proceeds that are
utilized for any such defeasance, redemption or repurchase, and any Net
Income resulting therefrom, will be excluded from clauses (c)(i) and
(c)(ii) of the preceding paragraph;
(v) the repurchase, redemption or other acquisition or retirement for
value of any subordinated Indebtedness from Net Proceeds to the extent
permitted by the covenant described under "-- Asset Sales;" providedthat
any Net Proceeds that are utilized for any such defeasance, redemption or
repurchase and any Net Income resulting therefrom will be excluded from
clauses (c)(i) and (c)(ii) of the preceding paragraph;
(vi) the payment by the Company of (A) certain standby commitment fees
to Invifin S.A. in connection with the Senior Credit Facility in an
aggregate amount not to exceed $1,575,000, (B) certain advisory fees to
Investcorp International Inc. ("International") in connection with the
Acquisition in an aggregate amount not to exceed $1,275,000, (C) certain
management advisory and consulting fees to International pursuant to a
management agreement entered into in connection with the Acquisition
between International and the Company (x) in an aggregate amount not to
exceed $5,000,000 for the first five years after the Closing Date and (y)
in an aggregate amount not to exceed $1,000,000 in any fiscal year
thereafter, (D) certain arrangement fees to International in connection
with the Senior Credit Facility in an aggregate amount not to exceed
$3,150,000 and (E) certain fees to Transatlantic in connection with a loan
made to the Company prior to the Acquisition in an aggregate amount not to
exceed $1,000,000;
(vii) the payment of dividends, other distributions or other amounts
by the Company to Holdings (A) in amounts equal to the amounts required for
Holdings to pay franchise taxes and other fees required to maintain its
corporate existence and provide for other operating costs; provided that
the aggregate amount of such payments, dividends and distributions pursuant
to this (vii)(A) shall not exceed $250,000 in any fiscal year, (B) in
amounts equal to amounts required for Holdings to pay federal, state and
local income taxes to the extent such income taxes are attributable to the
income of the Company and its Subsidiaries (and, to the extent of amounts
actually received from its Unrestricted Subsidiaries, in
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amounts required to pay such taxes to the extent attributable to the income
of such Unrestricted Subsidiaries), (C) in amounts equal to amounts
expended by Holdings to redeem, or otherwise acquire or retire for value
any Equity Interest of Holdings held by any member of Holdings' or the
Company's management pursuant to any management agreement or stock option
agreement and amounts loaned or advanced by Holdings to any member of
Holdings' or the Company's management to enable such person to purchase any
Equity Interests of Holdings; provided that the aggregate amounts
distributed to Holdings pursuant to this clause (vii)(C) will not exceed
$8,000,000 in the aggregate (net of cash proceeds received by Holdings from
subsequent reissuances of Equity Interests to new members of management,
except to the extent such proceeds are contributed by Holdings to the
Company), (D) representing a portion of the proceeds of any Equity Offering
that occurs pursuant to the sale by the Company of its Equity Interests
other than Disqualified Stock; provided that the aggregate amount of such
dividend may not exceed the amount expended by Holdings to redeem the
Holdings Notes, (E) in an aggregate amount not to exceed $4,000,000 to
enable Holdings to pay certain fees to Southwest Finance Limited in
connection with the issuance of the Holdings Notes and (F) to reimburse
Holdings for costs, fees and expenses incident to a registration of any of
the Capital Stock of Holdings for a primary offering under the Securities
Act, so long as (x) the net proceeds of such offering (if it is completed)
are contributed to, or otherwise used for the benefit of, the Company and
(y) the costs, fees and expenses are allocated among Holdings and any
selling shareholders in such proportion as is required by an applicable
shareholders agreement or, to the extent no applicable shareholders
agreement exists, as is appropriate to reflect the relative proceeds
received by Holdings and such selling shareholders; and
(viii) the payment by the Company to members of management of the
Company in connection with the termination of an equity participation
program as a result of the Acquisition, provided that such payments do not
exceed $19,900,000 in the aggregate, of which the last $5,966,000 may be
paid by the Company under this clause (viii) only to the extent payment of
such amount is received by the Company from the Carmel Trust or an
Affiliate thereof;
provided that in the case of clauses (iv), (v), (vi), (vii)(E) and (vii)(F) of
this paragraph, no Default or Event of Default shall have occurred and be
continuing and, in the case of clauses (vii)(C), (vii)(D) and (viii) of this
paragraph, no Default referred to in clauses (i) or (ii) under "Events of
Default and Remedies" shall have occurred and be continuing, at the time of such
Restricted Payment or would occur as a consequence thereof.
The Board of Directors may designate any Subsidiary to be an Unrestricted
Subsidiary if no Default or Event of Default would be in existence following
such designation. For purposes of making such determination, all outstanding
Investments by the Company and its Subsidiaries (except to the extent repaid in
cash) in the Subsidiary so designated will be deemed to be Restricted Payments
at the time of such designation and will reduce the amount available for
Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the fair market value of such Investments at the time of such
designation. Such designation will only be permitted if such Restricted Payment
would be permitted at such time and if such Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) will be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) on the date of the Restricted
Payment of the asset(s) proposed to be transferred by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later
than the date of making any Restricted Payment, the Company will deliver to the
Trustee an Officer's Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
this covenant were computed, which calculations may be based upon the Company's
latest available financial statements.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries and Unrestricted Subsidiaries to, directly or indirectly,
create, incur, issue, assume, guaranty or otherwise become
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directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Indebtedness) and
that the Company will not issue any Disqualified Stock and will not permit any
of its Subsidiaries and Unrestricted Subsidiaries to issue any shares of
preferred stock; provided that the Company may incur Indebtedness (including
Acquired Indebtedness) or issue shares of Disqualified Stock and the Company's
Subsidiaries that are Subsidiary Guarantors may incur Indebtedness and issue
preferred stock if: (i) the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have been
(A) at least 2 to 1 if the date on which such additional Indebtedness is
incurred, such Disqualified Stock is issued or, in the case of any Subsidiary
Guarantor, such preferred stock is issued occurs prior to October 30, 1998, or
(B) at least 2.25 to 1 if such date occurs thereafter, in each case determined
on a pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, or, in the case of any Subsidiary Guarantor,
such preferred stock had been issued, as the case may be, at the beginning of
such four-quarter period and (ii) no Default or Event of Default will have
occurred and be continuing or would occur as a consequence thereof; provided
that no Guarantee may be incurred pursuant to this paragraph, unless the
guaranteed Indebtedness is incurred by the Company or a Subsidiary pursuant to
this paragraph.
The foregoing provisions will not apply to:
(i) the incurrence by the Company of Senior Term Debt and Senior
Revolving Debt and letters of credit (and Guarantees thereof by
Subsidiaries that are Subsidiary Guarantors) in an aggregate principal
amount at any time outstanding (with letters of credit being deemed to have
a principal amount equal to the maximum potential liability of the Company
and its Subsidiaries thereunder) not to exceed an amount equal to $200
million, less the aggregate amount of all Net Proceeds of Asset Sales
applied to permanently reduce the outstanding amount of the commitments
with respect to such Indebtedness pursuant to the covenant described under
"-- Asset Sales;"
(ii) the incurrence by the Company and its Subsidiaries of the
Existing Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by the
Notes and by the Subsidiaries of Indebtedness represented by the Subsidiary
Guarantees;
(iv) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or Purchase Money Obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property used in the business of the Company or such
Subsidiary, in an aggregate principal amount not to exceed $25 million at
any time outstanding;
(v) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund
Indebtedness that was incurred in compliance with the covenant described
under the first paragraph of the "Incurrence of Indebtedness and Issuance
of Preferred Stock" or under clauses (ii) and (iii) of this paragraph;
(vi) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Wholly Owned Subsidiaries or between or among any Wholly Owned
Subsidiaries; provided that (A) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by a
Person other than a Wholly Owned Subsidiary and (B) any sale or other
transfer of any such Indebtedness to a Person that is not either the
Company or a Wholly Owned Subsidiary will be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such
Subsidiary, as the case may be;
(vii) the incurrence by the Company or any of its Subsidiaries that
are Subsidiary Guarantors of Hedging Obligations that are incurred for the
purpose of fixing or hedging interest rate risk with respect to any
floating rate Indebtedness that is permitted by the Indenture to be
incurred;
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(viii) the incurrence by the Company or any of its Subsidiaries that
are Subsidiary Guarantors of Indebtedness (in addition to Indebtedness
permitted by any other clause of this paragraph) in an aggregate principal
amount at any time not to exceed $30 million at any time outstanding (which
may include additional Indebtedness incurred pursuant to the Senior Credit
Facility);
(ix) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt; provided that if any such Indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary, such event will be deemed
to constitute an incurrence of Indebtedness by a Subsidiary of the Company;
and
(x) Indebtedness incurred by the Company or any of its Subsidiaries
that is a Subsidiary Guarantor arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or
from guarantees or letters of credit, surety bonds or performance bonds
securing the performance of the Company or any of its Subsidiaries in
connection with the disposition of a portion of the business or assets of a
Subsidiary of the Company in a principal amount not to exceed 25% of the
gross proceeds (with proceeds other than cash or Cash Equivalents being
valued at the fair market value thereof as determined by the Board of
Directors of the Company in good faith) actually received by the Company or
any of its Subsidiaries in connection with such disposition.
Notwithstanding any other provision of this covenant, a Guarantee of
Indebtedness permitted by the terms of the Indenture at the time such
Indebtedness was incurred will not constitute a separate incurrence of
Indebtedness.
Liens
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer
to exist any Lien on any asset now owned or hereafter acquired, or any income or
profits therefrom or assign or convey any right to receive income therefrom,
except Permitted Liens, unless the Obligations due under the Indenture and the
Notes are secured, on an equal and ratable basis (or on a senior basis, in the
case of Indebtedness subordinated in right of payment to the Notes), with the
Obligations so secured.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (i)(A) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (1) on its Capital Stock
or (2) with respect to any other interest or participation in, or measured by,
its profits, or (B) pay any Indebtedness owed to the Company or any of its
Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries or (iii) transfer any of its properties or assets to the Company or
any of its Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (A) Existing Indebtedness, (B) the Senior Credit Facility
as in effect as of the Closing Date, and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof; provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings are no less favorable to the Holders of the Notes with respect to
such dividend and other payment restrictions than those contained in the Senior
Credit Facility as in effect on the Closing Date, (C) the Indenture and the
Notes, (D) applicable law, (E) any instrument governing Acquired Indebtedness or
Capital Stock of a Person acquired by the Company or any of its Subsidiaries as
in effect at the time of such acquisition (except to the extent such Acquired
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property and assets of the Person, so acquired; provided that the Consolidated
EBITDA of such Person is not taken into account in determining whether such
acquisition was permitted by the terms of the Indenture, (F) by reason of
customary provisions restricting assignments, subletting or other transfers
contained in leases, licenses and similar agreements entered into in the
ordinary course of business, (G) Purchase Money Obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in
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clause (iii) above on the property so acquired, (H) agreements relating to the
financing of the acquisition of real or tangible personal property acquired
after the Closing Date; provided that such encumbrance or restriction relates
only to the property which is acquired and in the case of any encumbrance or
restriction that constitutes a Lien, such Lien constitutes a Permitted Lien as
set forth in clause (xi) of the definition of "Permitted Lien,"(I) contracts
entered into in connection with any sale of assets permitted by the Indenture in
respect of the assets being sold pursuant to such contract, (J) Senior
Indebtedness permitted to be incurred under the Indenture and incurred after the
Closing Date; provided that such encumbrances or restrictions in such
Indebtedness are no less favorable to the Holders of the Notes than the
restrictions contained in the Senior Credit Facility on the Closing Date, (K)
Indebtedness of Subsidiaries that are not Subsidiary Guarantors incurred under
clause (x) of the covenant described under "-- Incurrence of Indebtedness and
Issuance of Preferred Stock", (L) Permitted Refinancing Indebtedness; provided
that the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no less favorable to the Holders of the Notes than
those contained in the agreements governing the Indebtedness being refinanced or
(M) an agreement in effect on the Closing Date and any amendment thereto;
provided that the restrictions contained in any such amendment are no less
favorable to the Holders of the Notes than the restrictions contained in such
agreements on the Closing Date.
Limitation on Layering Debt
The Indenture provides that the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Indebtedness and senior
in any respect in right of payment to the Notes. No Subsidiary Guarantor will
incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to the Guarantor
Senior Indebtedness and senior in any respect in right of payment to the
Subsidiary Guarantees.
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make any contract, agreement, understanding, loan, advance or guarantee with,
or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such Subsidiary
with an unrelated Person, (ii) the Company delivers to the Trustee (A) with
respect to any Affiliate Transaction entered into after the Closing Date
involving aggregate consideration in excess of $500,000, a resolution of the
Board of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such Affiliate
Transaction has been approved by a majority of the disinterested members of the
Board of Directors and (B) with respect to any Affiliate Transaction involving
aggregate consideration in excess of $3 million, an opinion as to the fairness
to the Company or such Subsidiary of such Affiliate Transaction from a financial
point of view issued by an investment banking firm of national standing;
provided that this clause (ii) shall not apply to transactions under the
agreement dated on or before the Closing Date (the "Real Estate Agreement")
among one or more Affiliates of the Carmel Trust and the Company in accordance
with the terms of such Real Estate Agreement as in effect on the Closing Date
and any amendments, modifications, restatements, renewals or supplements
thereto; provided that any such amendment, modification, restatement, renewal or
supplement to the Real Estate Agreement contains provisions that are no less
favorable to the Holders of the Notes than those contained in the Real Estate
Agreement as in effect on the Closing Date and has been approved by a majority
of the disinterested members of the Board of Directors as evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee. In addition, the following will not be deemed to be
Affiliate Transactions: (1) the provision of administrative or management
services by the Company or any of its officers to any of its Subsidiaries in the
ordinary course of business, (2) any employment agreement, collective bargaining
agreement, employee benefit plan or any similar arrangement heretofore or
hereafter entered into by the Company or any of its Subsidiaries in the ordinary
course of business of the Company or such Subsidiary, (3) transactions between
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or among the Company and/or its Wholly Owned Subsidiaries, (4) transactions
permitted by the covenant described in "-- Restricted Payments," (5) payment of
reasonable and customary compensation to employees, officers, directors or
consultants in the ordinary course of business and (6) maintenance in the
ordinary course of business of benefit programs, or arrangements for employees,
officers or directors, including vacation plans, health and life insurance
plans, deferred compensation plans, and retirement or savings plans and similar
plans.
Additional Subsidiary Guarantees
The Indenture provides that all Subsidiaries of the Company substantially
all of whose assets are located in the United States or that conduct
substantially all of their business in the United States will be Subsidiary
Guarantors. In addition, the Indenture will provide that the Company will not,
and will not permit any of the Subsidiary Guarantors to, make any Investment in
any Subsidiary that is not a Subsidiary Guarantor unless either (i) such
Investment is permitted by the covenant described under "-- Restricted
Payments," or (ii) such Subsidiary executes a Subsidiary Guarantee and delivers
an opinion of counsel in accordance with the provisions of the Indenture.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
will furnish to the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports. In addition, whether or
not required by the rules and regulations of the Commission, at any time after
the Company files a registration statement with respect to the Exchange Offer,
the Company will file a copy of all such information and reports with the
Commission for public availability (unless the Commission will not accept such a
filing) and make such information available to securities analysts and
prospective investors upon request. In addition, the Company and the Subsidiary
Guarantors have agreed that, for so long as any Notes remain outstanding, they
will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not, in a single transaction or
series of related transactions, consolidate or merge with or into (whether or
not the Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another corporation, Person or
entity unless (i) the Company is the surviving corporation or the entity or the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale, assignment, transfer, lease, conveyance or
other disposition will have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia, (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
will have been made assumes all the obligations of the Company under the Notes
and the Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee, (iii) immediately after such transaction no Default
or Event of Default exists and (iv) the Company or the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company), or
to which such sale, assignment, transfer, lease, conveyance or other disposition
will have been made (A) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (B) will, at the time of such
transaction and after giving pro forma effect thereto as if such transaction had
occurred at the beginning
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of the applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
"-- Incurrence of Indebtedness and Issuance of Preferred Stock."
Events of Default and Remedies
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on the
Notes (whether or not prohibited by the subordination provisions of the
Indenture), (ii) default in payment when due of the principal of or premium, if
any, on the Notes (whether or not prohibited by the subordination provisions of
the Indenture) including, without limitation, payments of any required Change of
Control Payment or as a result of any Asset Sale Offer, (iii) failure by the
Company to comply for 30 days after notice with its other obligations described
under the captions "-- Change of Control" or "-- Asset Sales," or its
obligations under "-- Restricted Payments" or "-- Incurrence of Indebtedness and
Issuance of Preferred Stock", (iv) failure by the Company for 60 days after
notice to comply with any of its other agreements in the Indenture or the Notes,
(v) default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Significant Subsidiaries (or the payment
of which is Guaranteed by the Company or any of its Significant Subsidiaries)
whether such Indebtedness or Guarantee now exists, or is created after the
Closing Date, which default (A) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness after giving effect to any
grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (B) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $10 million or more, (vi) failure by the Company or
any of its Significant Subsidiaries to pay final judgments aggregating in excess
of $10 million, which judgments are not paid, discharged or stayed for a period
of 60 days, (vii) except as permitted by the Indenture, any Subsidiary Guarantee
by a Significant Subsidiary will be held in any judicial proceeding to be
unenforceable or invalid or will cease for any reason to be in full force and
effect or any Subsidiary Guarantor, or any Person acting on behalf of any
Subsidiary Guarantor, will deny or disaffirm its obligations under its
Subsidiary Guarantee if such Default continues for 10 days and (viii) certain
events of bankruptcy or insolvency with respect to the Company or any of its
Significant Subsidiaries. A default under clauses (iii) and (iv) hereof will not
constitute an Event of Default until the Trustee or Holders of 25% in aggregate
principal amount of the then outstanding Notes notify the Company of the default
and the Company does not cure such default within the time specified in clauses
(iii) and (iv) hereof after receipt of such notice.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare the principal of, premium, if any, and accrued interest on the Notes to
be due and payable immediately. If any Senior Indebtedness is outstanding
pursuant to the Senior Credit Facility, upon a declaration of such acceleration,
such principal, premium, if any, and accrued interest on the Notes shall be due
and payable upon the earlier of (i) the day that is five Business Days after the
provision to the Company and the agent under the Senior Credit Facility of such
written notice, unless such Event of Default is cured or waived prior to such
date, and (ii) the date of acceleration of any Senior Indebtedness under the
Senior Credit Facility. Under certain circumstances, Holders of a majority in
aggregate principal amount of the then outstanding Notes may rescind any such
acceleration with respect to the Notes and its consequences. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Company or any Significant
Subsidiary, all outstanding Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
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The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee quarterly a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or direct or indirect
stockholder or Affiliate of the Company or any Subsidiary Guarantor (other than
the Company and any Subsidiary Guarantor), as such, will have any liability for
any obligations of the Company or any Subsidiary Guarantor under the Notes, the
Subsidiary Guarantees, the Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such Notes when such payments are due from the trust referred to below, (ii)
the Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations will not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including nonpayment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the outstanding Notes
on the stated maturity or on the applicable redemption date, as the case may be,
and the Company must specify whether the Notes are being defeased to maturity or
to a particular redemption date, (ii) in the case of Legal Defeasance, the
Company will have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the Closing Date, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel will confirm that, the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred, (iii) in the case of Covenant
Defeasance, the Company will have delivered to the Trustee an opinion of counsel
in the United States reasonably acceptable to the Trustee confirming that the
Holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner at the
same times as would
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have been the case if such Covenant Defeasance had not occurred, (iv) no Default
or Event of Default will have occurred and be continuing on the date of such
deposit (other than a Default or Event of Default resulting from the borrowing
of funds to be applied to such deposit) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period ending
on the 91st day after the date of deposit, (v) such Legal Defeasance or Covenant
Defeasance will not result in a breach or violation of, or constitute a Default
under any material agreement or instrument (other than the Indenture) to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries is bound, (vi) the Company must have delivered to the
Trustee an opinion of counsel to the effect that after the 91st day following
the deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally, (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Notes over the other creditors of the Company with
the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent relating to the Legal Defeasance or the Covenant Defeasance
have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for
Notes), and any existing Default or Event of Default or compliance with any
provision of the Indenture or the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange offer
for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the caption
"-- Repurchase at the Option of Holders"), (iii) reduce the rate of or change
the time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any Note payable
in money other than that stated in the Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of Holders of Notes to receive payments of principal of or premium, if any, or
interest on the Notes, (vii) waive a redemption payment with respect to any Note
(other than a payment required by one of the covenants described above under the
caption "-- Repurchase at the Option of Holders") or (viii) make any change in
the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's or the Subsidiary Guarantors' obligations to Holders
of Notes in the case of a
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merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default will
occur (which will not be cured), the Trustee will be required, in the exercise
of its power, to use the degree of care of a prudent man in the conduct of his
own affairs. Subject to such provisions, the Trustee will be under no obligation
to exercise any of its rights or powers under the Indenture at the request of
any Holder of Notes, unless such Holder will have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to CSK Auto, Inc., 645 E. Missouri Avenue, Phoenix,
Arizona 85012, Attention: Secretary.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the certificates representing the Notes will
initially be issued in the form of one or more permanent global Notes in
definitive, fully registered form without interest coupons (each a "Global
Note"). Upon issuance, each Global Note will be deposited with the Trustee as
custodian for, and registered in the name of, a nominee of The Depository Trust
Company ("DTC").
If a Holder tendering Old Notes so requests, such Holder's Notes will be
issued as described below under "-- Certificated Notes" in registered form
without coupons (the "Certificated Notes").
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants).
So long as DTC, or its nominee, is the registered owner or Holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or Holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. No beneficial owner of an interest
in a Global Note will be able to transfer that interest except in accordance
with DTC's applicable procedures, in addition to those provided for under the
Indenture.
Payments of the principal of, premium, if any, and interest on a Global
Note will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. Neither the Company, the Trustee nor any Paying Agent will have
any responsibility or liability for any aspects of the records relating to or
payments made on account of beneficial ownership interests in a Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, and interest in respect of a Global Note, will
credit participants' accounts with payments in amounts
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proportionate to their respective beneficial interests in the principal amount
of such Global Note as shown on the records of DTC or its nominee. The Company
also expects that payments by participants to owners of beneficial interests in
such Global Note held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
The Company expects that DTC will take any action permitted to be taken by
a Holder of a Note only at the direction of one or more participants to whose
account the DTC interests in a Global Note is credited and only in respect of
such portion of the aggregate principal amount of a Note as to which such
participant or participants has or have given direction. However, if there is an
Event of Default under the Notes, DTC will exchange the applicable Global Note
for Certificated Notes, which it will distribute to its participants.
DTC has advised the Company that it is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
and to facilitate the clearance and settlement of securities transactions
between participants through electronic book-entry changes in accounts of its
participants. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in a Global Note among participants of DTC, it
is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company nor the
Trustee will have any responsibility for the performance by DTC or its
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
Certificated Notes
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depository and the Company is unable to locate a
qualified successor within 90 days or (ii) the Company, at its option, notifies
the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture, then, upon surrender by DTC of its Global
Note, Certificated Notes will be issued to each person that DTC identifies as
the beneficial owner of the Notes represented by the Global Note. In addition,
any person having a beneficial interest in a Global Note or any holder of Old
Notes whose Old Notes have been accepted for exchange may, upon request to the
Trustee or the Exchange Agent, as the case may be, exchange such beneficial
interest or Old Notes for Certificated Notes. Upon any such issuance, the
Trustee is required to register such Certificated Notes in the name of such
person or persons (or the nominee of any thereof), and cause the same to be
delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any participant or indirect participant in identifying the beneficial owners of
the related Notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Notes to be issued).
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified
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Person, including, without limitation, Indebtedness incurred in connection with,
or in contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person and existing at the time
such asset is acquired.
"Additional Assets" means (i) any property or assets to be used by the
Company or a Subsidiary in a Related Business, (ii) the Capital Stock of a
Person that becomes a Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Subsidiary or (iii) Capital Stock constituting a
minority of interest in any Person that at such time is a Subsidiary; provided
that, in the case of clauses (ii) and (iii), such Subsidiary is engaged in a
Related Business.
"Affiliate" of any specified Person means (i) any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person and (ii) any Person who is a director or
officer (A) of such Person, (B) of any Subsidiary of such Person or (C) of any
Person described in clause (i) above. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition
that does not constitute a Restricted Payment or an Investment by such Person of
any of its non-cash assets (including, without limitation, by way of a sale and
leaseback and including the issuance, sale or other transfer of any of the
Capital Stock of any Subsidiary of such Person (other than directors' qualifying
shares)) other than to the Company or to any of its Wholly Owned Subsidiaries
that is a Subsidiary Guarantor and (ii) the issuance of Equity Interests in any
Subsidiary or the sale of any Equity Interests of any Subsidiary (other than
directors' qualifying shares), in each case, in one or a series of related
transactions of or with respect to assets or Equity Interests that have a fair
market value of $1.5 million or more. Notwithstanding the foregoing, the term
"Asset Sale" shall not include: (A) the sale, lease, conveyance, disposition or
other transfer of all or substantially all of the assets of the Company, as
permitted pursuant to the covenant described under "Merger, Consolidation or
Sale of Assets," (B) the sale or lease of equipment, inventory, accounts
receivable or other assets in the ordinary course of business, (C) a transfer of
assets by the Company to a Wholly Owned Subsidiary that is a Subsidiary
Guarantor or by a Wholly Owned Subsidiary to the Company or to another Wholly
Owned Subsidiary that is a Subsidiary Guarantor or by a Wholly Owned Subsidiary
that is not a Subsidiary Guarantor to another Wholly Owned Subsidiary that is
not a Subsidiary Guarantor, (D) an issuance of Equity Interests by a Wholly
Owned Subsidiary to the Company or to another Wholly Owned Subsidiary that is a
Subsidiary Guarantor, or by a Wholly Owned Subsidiary that is not a Subsidiary
Guarantor to another Wholly Owned Subsidiary that is not a Subsidiary Guarantor,
(E) the surrender or waiver of contract rights or the settlement, release or
surrender of contract, tort or other claims of any kind, (F) the grant in the
ordinary course of business of any non-exclusive license of patents, trademarks,
registrations therefor and other similar intellectual property or (G) Permitted
Investments.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person, or any authorized committee of the Board of Directors
of such Person.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and
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losses of, or distributions of assets of, the issuing Person, but in each case
excluding any debt securities convertible into such stock, interests or other
equivalents.
"Carmel Trust" means The Carmel Trust, a trust governed by the laws of
Canada, so long as the beneficiaries of such Trust are the named beneficiaries
of the Trust on the Closing Date or the beneficiaries that may be designated as
such pursuant to the terms of the agreement pursuant to which the Trust was
established, as such agreement is in effect as of the Closing Date.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States or any agency or instrumentality
thereof (provided that the full faith and credit of the United States is pledged
in support thereof) having maturities not more than twelve months from the date
of acquisition, (ii) U.S. dollar denominated (or foreign currency fully hedged)
time deposits, certificates of deposit, Eurodollar time deposits or Eurodollar
certificates of deposit of (A) any domestic commercial bank of recognized
standing having capital and surplus in excess of $500 million or (B) any bank
whose short-term commercial paper rating from S&P is at least A-1 or the
equivalent thereof or from Moody's is at least P-1 or the equivalent thereof
(any such bank being an "Approved Lender"), in each case with maturities of not
more than twelve months from the date of acquisition, (iii) commercial paper and
variable or fixed rate notes issued by any Approved Lender (or by the parent
company thereof) or any variable rate notes issued by, or guaranteed by, any
domestic corporation rated A-2 (or the equivalent thereof) or better by S&P or
P-2 (or the equivalent thereof) or better by Moody's and maturing within twelve
months of the date of acquisition, (iv) repurchase agreements with a bank or
trust company or recognized securities dealer having capital and surplus in
excess of $500 million for direct obligations issued by or fully guaranteed by
the United States on which the Company shall have a perfected first priority
security interest (subject to no other Liens) and having, on the date of
purchase thereof, a fair market value of at least 100% of the amount of
repurchase obligations and (v) interests in money market mutual funds which
invest solely in assets or securities of the type described in subparagraphs
(i), (ii), (iii) or (iv) hereof.
"Change of Control" means such time as (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act), other than the Initial
Control Group, is or becomes the "beneficial owner" (as defined in Rules 13d-3
and 13d-5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 35% of the total voting power of
the voting Capital Stock of the Company or Holdings, as the case may be;
provided that the Initial Control Group "beneficially owns" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act), directly or indirectly, in the
aggregate a lesser percentage of the total voting power of the voting Capital
Stock of the Company or Holdings, as the case may be, than such other person and
does not have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the board of directors of the
Company or Holdings, as the case may be (for purposes of this definition, such
other person shall be deemed to beneficially own any voting Capital Stock of a
specified corporation held by a parent corporation, if such other person
"beneficially owns" (as defined in this definition), directly or indirectly,
more than 35% of the voting power of the voting Capital Stock of such parent
corporation and the Initial Control Group "beneficially owns" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, in the
aggregate a lesser percentage of the voting power of the voting Capital Stock of
such parent corporation and does not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the board
of directors of such parent corporation) or (ii) any Person (other than the
Initial Control Group) (A) nominates one or more individuals for election to the
board of directors of the Company or Holdings, as the case may be, (B) solicits
proxies, authorizations or consents in connection therewith and (C) such number
of nominees of such Person elected to serve on the board of directors in such
election and all previous elections after the Closing Date and which are still
serving on such board of directors represents a majority of the board of
directors of the Company or Holdings, as the case may be, following such
election.
"Closing Date" means the date on which the Notes are originally issued
under the Indenture.
"Consolidated EBITDA" means, for any period, the sum, without duplication,
of (i) Consolidated Net Income of the Company for such period, plus (ii) Fixed
Charges of the Company for such period, plus
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(iii) provision for taxes based on income or profits for such period (to the
extent such income or profits were included in computing such Consolidated Net
Income for such period), plus (iv) consolidated depreciation, amortization and
other non-cash charges of the Company and its Subsidiaries required to be
reflected as expenses on the books and records of the Company, plus (v) to the
extent deducted in determining such Consolidated Net Income for such period,
expenses during such period consisting of internal software development costs
that are expensed by the Company but that could have been capitalized during
such period in accordance with GAAP and minus (vi) cash payments with respect to
any non-recurring, non-cash charges previously added back pursuant to clause
(iv); provided that Consolidated Net Income shall exclude the impact of foreign
currency translations. Notwithstanding the foregoing, the provision for taxes
based on the income or profits of, and the depreciation and amortization and
other non-cash charges of, a Subsidiary of a Person shall be added to
Consolidated Net Income to compute Consolidated EBITDA only to the extent (and
in the same proportion) that the Net Income of such Subsidiary was included in
calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Subsidiary without prior approval (that has
not been obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockbrokers.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or
that is accounted for by the equity method of accounting shall be included only
to the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Wholly Owned Subsidiary thereof, (ii) Net Income of any
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental approval
(which has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (iv) the cumulative effect of a change in accounting principles
(effected either through cumulative effect adjustment or a retroactive
application) shall be excluded, (v) the Net Income of, or any dividends or other
distributions from, any Unrestricted Subsidiary, to the extent otherwise
included, shall be excluded, except to the extent actually distributed to the
Company or one of its Subsidiaries, (vi) all other extraordinary gains and
extraordinary losses shall be excluded and (vii) any payments (net of tax
benefits related thereto) made by the Company under clauses (vii) (A) through
(F) of the second paragraph of clause (c) of the covenant described under
"Certain Covenants -- Restricted Payments," to the extent that such payments are
for items which are accounted for as expenses by Holdings (including, without
limitation, all payments of federal, state and local income taxes), shall be
included.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (A) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of going concern business made within 12 months after the acquisition of
such business) subsequent to the Closing Date in the book value of any asset
owned by such Person or a consolidated Subsidiary of such Person, (B) all
investment as of such date in unconsolidated Subsidiaries and in Persons that
are not Subsidiaries (except, in each case, Permitted Investments), and (C) all
unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
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"Depositary" means, with respect to the Notes issuable or issued in whole
or in part in global form, the Person specified in the Indenture as the
Depositary with respect to the Notes, until a successor shall have been
appointed and become such Depositary pursuant to the applicable provision of the
Indenture, and, thereafter, "Depositary" shall mean or include such successor.
"Designated Senior Indebtedness" means (i) so long as the Senior Bank Debt
is outstanding, the Senior Bank Debt and (ii) thereafter, any other Senior
Indebtedness permitted under the Indenture the principal amount of which is $10
million or more and that has been designated by the Company in the instrument
governing such Senior Indebtedness as "Designated Senior Indebtedness."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
on which the Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means an underwritten public offering of Equity Interests
of the Company other than Disqualified Stock pursuant to a registration
statement filed with the SEC in accordance with the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indebtedness" means the Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Senior Credit Facility) in
existence on the Closing Date, until such amounts are repaid.
"Existing Preferred Stock" means the 12% preferred stock of the Company
issued and outstanding on the Closing Date, and any extensions, refinancings,
renewals or replacements thereof (the "Refinancing Preferred Stock"); provided
that (i) the aggregate liquidation preference of such Refinancing Preferred
Stock does not exceed the aggregate liquidation preference of the Existing
Preferred Stock and (ii) the dividend rate per annum of such Refinancing
Preferred Stock does not exceed the dividend rate per annum of the Existing
Preferred Stock.
"Fixed Charges" means, for any period, the sum, without duplication, of (i)
the consolidated interest expense of the Company and its Subsidiaries for such
period, whether paid or accrued (including, without limitation, amortization or
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financing, and net payments (if any) pursuant to Hedging Obligations (but
excluding commitment fees and other periodic bank charges)), (ii) the
consolidated interest expense of the Company and its Subsidiaries that was
capitalized during such period, (iii) the interest expense on Indebtedness of
another Person that is Guaranteed by the Company or one of its Subsidiaries or
secured by a Lien on assets of the Company or one of its Subsidiaries (whether
or not such Guarantee or Lien is called upon) and (iv) the product of (A) all
cash dividend payments (and non-cash dividend payments in the case of a Person
that is a Subsidiary) on any series of preferred stock (other than the Existing
Preferred Stock) of such Person payable to a party other than the Company or a
Wholly Owned Subsidiary, times (B) a fraction, the numerator of which is one and
the denominator of which is one minus the then current combined federal, state
and local statutory tax rate of such Person, expressed as a decimal, on a
consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means, for any period, the ratio of (i)
Consolidated EBITDA to (ii) Fixed Charges, each determined for such period. In
the event that the Company or any of its Subsidiaries incurs, assumes,
Guarantees or redeems any Indebtedness (other than revolving credit borrowings)
or issues preferred stock subsequent to the commencement of the four-quarter
reference period for which the Fixed Charge Coverage Ratio is being calculated
but prior to the date on which the event for which the calculation
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of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), which
Indebtedness or preferred stock remains outstanding on the Calculation Date,
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, and to the discharge of any other
Indebtedness or preferred stock repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness or preferred stock, as if
the same had occurred at the beginning of the applicable four-quarter reference
period. For purposes of making the computation referred to above, (A)
acquisitions that have been made by the Company or any of its Subsidiaries,
including through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period, (B) the
Consolidated EBITDA attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded and (C) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or business disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the Company or any of its Subsidiaries following the
Calculation Date.
"GAAP" means generally accepted accounting principles, as in effect from
time to time, set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as have been approved by a
significant segment of the accounting profession. All ratios and computations
based on GAAP contained in the Indenture shall be computed in conformity with
GAAP as in effect on the Closing Date.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States of America is
pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor Senior Indebtedness" means (i) any Guarantees by the Subsidiary
Guarantors of the Senior Bank Debt and (ii) any other Indebtedness permitted to
be incurred by the Subsidiary Guarantors under the terms of the Indenture,
unless the instrument under which such Indebtedness is incurred expressly
provides that it is on a parity with or subordinated in right of payment to the
Subsidiary Guarantees. Notwithstanding anything to the contrary in the
foregoing, Guarantor Senior Indebtedness will not include (A) any liability for
federal, state, local, or other taxes owed or owing by the Subsidiary
Guarantors, (B) any Indebtedness of the Subsidiary Guarantors to any of their
Subsidiaries or other Affiliates, (C) any trade payables or (D) any Indebtedness
that is incurred in violation of the Indenture.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Holder" means a Person in whose name a Note is registered on the
Registrar's books.
"Holdings Notes" means the 12% senior subordinated notes of Holdings due
2008, issued pursuant to (i) an indenture dated on or about the Closing Date,
between Holdings and AIBC Services, N.V., as trustee, and (ii) an indenture
dated on or about the Closing Date, between Holdings and Transatlantic Finance,
Ltd., as trustee, as the same may be refinanced, extended or renewed from time
to time without increasing the principal amount thereof or interest rate with
respect thereto.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or
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representing any Hedging Obligations, except any such balance that constitutes
an accrued expense or trade payable, if and to the extent any of the foregoing
indebtedness (other than letters of credit and Hedging Obligations) would appear
as a liability upon a balance sheet of such Person prepared in accordance with
GAAP, as well as all indebtedness of others secured by a Lien on any asset of
such Person (whether or not such indebtedness is assumed by such Person) and, to
the extent not otherwise included, the Guarantee by such Person of any
indebtedness of any other Person.
"Initial Control Group" means (i) Investcorp, (ii) members of the
Management Group, (iii) any Person to the extent acting in the capacity of an
underwriter in connection with a public or private offering of the Company's or
Holding's Capital Stock and (iv) any Affiliate of Investcorp.
"Investcorp" means INVESTCORP S.A., a Luxembourg corporation.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of direct or indirect
loans including Guarantees and other Indebtedness, advances or capital
contributions (excluding commission, payroll, travel, loans and similar advances
to officers and employees, accounts receivable and bank demand deposits, in each
case made or arising in the ordinary course of business), transfers of assets
outside the ordinary course of business (other than Asset Sales), purchases,
redemptions or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities issued by any other Person (including, without
limitation, any Indebtedness, Equity Interest or other securities of the direct
or indirect parent of the Company or other Affiliate of the Company) and all
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP; provided that an acquisition of assets, Equity
Interests or other securities by the Company for consideration consisting of
common equity securities of the Company shall not be deemed to be an Investment.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Management Group" means any Officer of the Company or Holdings.
"Net Income" means for any period with respect to any Person, the net
income (loss) of such Person for such period, determined in accordance with GAAP
and before any reduction in respect of preferred stock dividends, plus, in each
case, to the extent deducted in determining net income for such period, any
expenses incurred in connection with the Acquisition and any payments made under
the equity participation program resulting from the Acquisition, excluding,
however, (i) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with (A) any Asset
Sale (including, without limitation, dispositions pursuant to sale and leaseback
transactions) or (B) the disposition of any securities by such Person or any of
its Subsidiaries or the extinguishment of any Indebtedness of such Person or any
of its Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not
loss), together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale and any cash payments received by way
of deferred payment of principal pursuant to a note or installment receivable or
otherwise, but only as and when received, and excluding any other consideration
received in the form of assumption by the acquiring person of Indebtedness or
other obligations relating to the assets that are the subject of such Asset Sale
or received in any other non-cash form), net of the direct costs relating to
such Asset Sale (including, without limitation,
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legal, accounting and investment banking fees, title and recording tax expenses
and other fees and expenses incurred and sales commissions) and any relocation
expenses incurred as a result thereof, all Federal, state, local and foreign
taxes paid or payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements), all
payments made on any Indebtedness that is secured by any assets subject to such
Asset Sale, in accordance with the terms of any Lien upon such assets, or that
must by its terms, or in order to obtain a necessary consent to such Asset Sale,
or by application of law be repaid out of the proceeds from such Asset Sale, all
distributions and other payments required to be made to minority interest
holders in Subsidiaries or joint ventures as a result of such Asset Sale and any
reserve for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Subsidiaries (A) provides credit support of any kind (including
any undertaking, agreement or instrument that would constitute Indebtedness),
(B) is directly or indirectly liable (as a guarantor or otherwise), or (C)
constitutes the lender, (ii) no default with respect to which (including any
rights that the holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any
holder of any other Indebtedness of the Company or any of its Subsidiaries to
declare a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity, and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of the Company or any of its Subsidiaries.
"Obligations" means, with respect to any Indebtedness, any principal,
interest, penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing such Indebtedness.
"Officer" means, with respect to any Person, the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary or any Vice-President of such Person.
"Permitted Investments" means (i) any Investments in the Company or in a
Subsidiary of the Company that is a Subsidiary Guarantor and that is engaged in
a Related Business, (ii) any Investment in Cash Equivalents, (iii) Investments
by the Company or any Subsidiary of the Company in a Person if as a result of
such Investment (A) such Person becomes a Subsidiary of the Company that is
engaged in a Related Business or (B) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Subsidiary of the Company
that is a Subsidiary Guarantor and that is engaged in a Related Business, (iv)
Investments made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the covenant
described under "-- Asset Sales", (v) Investments outstanding as of the Closing
Date, (vi) Investments in the form of promissory notes of members of the
Company's or Holdings' management in consideration of the purchase by such
members of Equity Interests (other than Disqualified Stock) in the Company or
Holdings; provided that such Investments made under this clause (vi) do not
exceed $8 million at any time outstanding, (vii) Investments which constitute
Indebtedness permitted by the covenant described under "Incurrence of
Indebtedness and Issuance of Preferred Stock", (viii) stock, obligations or
securities received in settlement of debts created in the ordinary course of
business and owing to the Company or any Subsidiary or in satisfaction of
judgments and (ix) other Investments in any Person that do not exceed $5 million
at any time outstanding.
"Permitted Liens" means (i) Liens securing Senior Indebtedness in an
aggregate principal amount at any time outstanding not to exceed amounts
permitted under the covenant described under "-- Incurrence of Indebtedness and
Issuance of Preferred Stock", (ii) Liens in favor of the Company, (iii) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with the Company or any Subsidiary of the Company; provided that
such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company, (iv) Liens on property existing at
the time of acquisition thereof by the Company or any Subsidiary of the Company;
provided that such Liens were in existence prior to the contemplation of such
acquisition, (v) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance
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bonds or other obligations of a like nature incurred in the ordinary course of
business, (vi) Liens existing on the Closing Date, (vii) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded; provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor, (viii) carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other like Liens arising in the ordinary course of
business in respect of obligations that are not yet due or that are bonded or
that are being contested in good faith and by appropriate proceedings if
adequate reserves with respect thereto are maintained on the books of the
Company or such Subsidiary, as the case may be, in accordance with GAAP, (ix)
Liens incurred or deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security, (x) easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the business of the Company or any of
its Subsidiaries, (xi) Purchase Money Liens (including extensions and renewals
thereof), (xii) Liens securing reimbursement obligations with respect to letters
of credit which encumber only documents and other property relating to such
letters of credit and the products and proceeds thereof, (xiii) judgment and
attachment Liens not giving rise to an Event of Default, (xiv) Liens encumbering
deposits made to secure obligations arising from statutory, regulatory,
contractual or warranty requirements, (xv) Liens arising out of consignment or
similar arrangements for the sale of goods, (xvi) any interest or title of a
lessor in property subject to any capital lease obligation or operating lease,
(xvii) Liens arising from filing Uniform Commercial Code financing statements
regarding leases, (xviii) leases or subleases to third parties, (xix) Liens on
assets of Subsidiaries with respect to Acquired Indebtedness and (xx) any
condemnation or eminent domain proceedings affecting any real property.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries; provided that: (i) the
principal amount of such Permitted Refinancing Indebtedness does not exceed the
principal amount of the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of reasonable expenses incurred in
connection therewith), (ii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is pari passu or subordinated in right
of payment to the Notes, such Permitted Refinancing Indebtedness has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded, (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Notes, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of payment
to, the Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded and (iv) such Indebtedness
is incurred either by the Company or by the Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or agency or political subdivision
thereof (including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or business).
"Purchase Money Lien" means a Lien granted on an asset or property to
secure a Purchase Money Obligation permitted to be incurred under the Indenture
and incurred solely to finance the acquisition of such asset or property;
provided that such Lien encumbers only such asset or property and is granted
within 180 days of such acquisition.
"Purchase Money Obligations" of any Person means any obligations of such
Person to any seller or any other Person incurred or assumed to finance the
acquisition of real or personal property to be used in the business of such
Person or any of its Subsidiaries in an amount that is not more than 100% of the
cost of such property, and incurred within 180 days after the date of such
acquisition (excluding accounts payable to trade creditors incurred in the
ordinary course of business).
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"Related Business" means those businesses in which the Company or any of
its Subsidiaries are engaged on the Closing Date, any businesses incidental
thereto and any reasonable extensions or expansions thereof.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Bank Debt" means the Indebtedness outstanding under the Senior
Credit Facility as such agreement may be restated, further amended, supplemented
or otherwise modified, waived or replaced from time to time hereafter, together
with any refunding or replacement of such Indebtedness.
"Senior Credit Facility" means the Senior Credit Facility dated on or about
the Closing Date among the Company, the lenders referred to therein and The
Chase Manhattan Bank, as administrative agent, including any related notes,
Guarantees, collateral documents, instruments and agreements executed in
connection therewith and in each case as amended, modified, waived, renewed,
refunded, replaced or refinanced from time to time.
"Senior Indebtedness" means (i) the Senior Bank Debt and (ii) any other
Indebtedness permitted to be incurred by the Company under the terms of the
Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Notes. Notwithstanding anything to the contrary in the foregoing,
Senior Indebtedness shall not include (A) any liability for federal, state,
local or other taxes owed or owing by the Company, (B) any Indebtedness of the
Company to any of its Subsidiaries or other Affiliates, (C) any trade payables
or (D) any Indebtedness that is incurred in violation of the Indenture.
"Senior Revolving Debt" means revolving credit borrowings and letters of
credit under the Senior Credit Facility and/or any successor facility or
facilities.
"Senior Term Debt" means term loans under the Senior Credit Facility and/or
any successor facility or facilities.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof;
provided that "Significant Subsidiary" shall include any two or more
Subsidiaries which, if considered as a whole, would constitute a Significant
Subsidiary.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or one or more Subsidiaries
of such Person (or any combination thereof). Unrestricted Subsidiaries shall not
be included in the definition of Subsidiary for any purposes of the Indenture
(except, as the context may otherwise require, for purposes of the definition of
"Unrestricted Subsidiary").
"Subsidiary Guarantees" means each of the Guarantees of the Company's
obligations under the Notes and related obligations entered into by a Subsidiary
Guarantor.
"Subsidiary Guarantors" means each Subsidiary that executes a Subsidiary
Guarantee in accordance with the provisions of the Indenture, and their
respective successors and assigns.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution;
but only to the extent that such Subsidiary: (A) has no Indebtedness other than
Non-Recourse Debt, (B) is not party to any agreement, contract, arrangement or
understanding with the Company or any Subsidiary of the Company unless the terms
of any such agreement, contract, arrangement or understanding are no less
favorable to the Company or such Subsidiary than those
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that might be obtained at the time from Persons who are not Affiliates of the
Company, (C) is a Person with respect to which neither the Company nor any of
its Subsidiaries has any direct or indirect obligation (x) to subscribe for
additional Equity Interests or (y) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results and (D) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of the Company or any of its
Subsidiaries. Any such designation by the Board of Directors shall be evidenced
to the Trustee by filing with the Trustee a certified copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted under the Indenture. If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred
by a Subsidiary of the Company as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the Indenture, the Company shall
be in Default under the Indenture). The Board of Directors of the Company may at
any time designate any Unrestricted Subsidiary to be a Subsidiary; provided that
such designation shall be deemed to be an incurrence of Indebtedness by a
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such Indebtedness
is permitted under the Indenture, and (ii) no Default or Event of Default would
be in existence following such designation.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (A) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (B) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person. Unrestricted
Subsidiaries shall not be included in the definition of Wholly Owned Subsidiary
for any purposes of the Indenture (except, as the context may otherwise require,
for purposes of the definition of "Unrestricted Subsidiary.")
PLAN OF DISTRIBUTION
Each broker-dealer that receives Notes for its own account pursuant to the
Exchange Offer (a "Participating Broker") must acknowledge that it will deliver
a prospectus in connection with any resale of such Notes. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a Participating
Broker in connection with any resale of Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making activities or
other trading activities. The Company has agreed that for a period of one year
from the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any Participating Broker for use in connection with
any such resale. In addition, until , 1997 (90 days from the date of
this Prospectus), all dealers effecting transactions in the Notes may be
required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Notes by
broker-dealers. Notes received by any Participating Broker may be sold from time
to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such Notes.
Any Participating Broker that resells Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Notes and any commissions or concessions received by any such
persons may be deemed
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to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver, and by
delivering, a prospectus as required, a Participating Broker will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of one year from the Expiration Date, the Company will send a
reasonable number of additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker that requests such
documents in the Letter of Transmittal. The Company will pay all the expenses
incident to the Exchange Offer (which shall not include the expenses of any
Holder in connection with resales of the Notes). The Company has agreed to
indemnify Holders of the Notes, including any Participating Broker, against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Notes offered hereby and the Subsidiary Guarantees will
be passed upon for the Company by Gibson, Dunn & Crutcher LLP.
EXPERTS
The consolidated balance sheet of the Company as of January 28, 1996 and
January 29, 1995 and the related consolidated statements of operations,
stockholder's equity and cash flows 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 accounting and auditing.
CHANGE IN ACCOUNTANTS
The consolidated balance sheet of the Company as of January 28, 1996 and
January 29, 1995 and the related consolidated statements of operations,
stockholder's equity and cash flows for each of the three years in the period
ended January 28, 1996 were audited by Price Waterhouse LLP. The financial
statements for the year ended February 2, 1997 will be audited by Coopers &
Lybrand L.L.P., which was first engaged effective December 5, 1996. The change
in independent accountants from Price Waterhouse LLP to Coopers & Lybrand L.L.P.
was made upon the determination of management upon the completion of the
Acquisition and Financings and approved by the Board of Directors.
The reports of Price Waterhouse LLP with respect to the financial
statements of the Company for each of the two fiscal years in the period ended
January 28, 1996 did not contain any adverse opinion or disclaimer of opinion,
and were not qualified or modified as to uncertainty, audit scope or accounting
principles. In connection with its audits for each of the two fiscal years in
the period ended January 28, 1996 and through December 5, 1996 there were no
disagreements between the Company and Price Waterhouse LLP on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedures, which disagreements, if not resolved to the satisfaction of
Price Waterhouse LLP, would have caused it to make reference to the subject
matter thereof in connection with its reports on the financial statements for
such years.
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CSK AUTO, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<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> 98
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
CSK Auto, Inc. (a wholly-owned subsidiary of CSK Group, Ltd.)
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 Group, 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.
/s/ PRICE WATERHOUSE LLP
- --------------------------
PRICE WATERHOUSE LLP
Phoenix, AZ
May 21, 1996
F-2
<PAGE> 99
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED FORTY-THREE WEEKS ENDED
--------------------------------------- ---------------------------
JANUARY 30, JANUARY 29, JANUARY 28, NOVEMBER 26, NOVEMBER 24,
1994 1995 1996 1995 1996
----------- ----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.............................. $645,426 $688,135 $718,352 $599,160 $651,959
-------- -------- -------- -------- --------
Cost and expenses:
Cost of sales........................ 397,565 410,358 433,817 362,155 382,907
Operating and administrative......... 237,311 258,600 284,697 235,915 244,752
-------- -------- -------- -------- --------
634,876 668,958 718,514 598,070 627,659
-------- -------- -------- -------- --------
Operating profit (loss)................ 10,550 19,177 (162) 1,090 24,300
Acquisition and Financings fees........ -- -- -- -- 32,078
Interest expense....................... 11,731 10,343 14,379 11,762 13,154
-------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary gain................... (1,181) 8,834 (14,541) (10,672) (20,932)
Income tax expense (benefit)........... (531) 796 (5,447) (4,002) (4,896)
-------- -------- -------- -------- --------
Income (loss) before extraordinary
gain................................. (650) 8,038 (9,094) (6,670) (16,036)
Extraordinary gain on the elimination
of debt, net of income taxes......... -- 97,186 -- -- --
-------- -------- -------- -------- --------
Net income (loss)...................... $ (650) $105,224 $ (9,094) $ (6,670) $(16,036)
-------- -------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 100
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28, NOVEMBER 24,
1995 1996 1996
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents................................. $ 2,870 $ 4,364 $ 3,205
Receivables, net of allowances of $1,488 and $1,953,
respectively............................................ 13,676 25,448 26,601
Inventories............................................... 225,883 248,964 264,690
Assets held for sale...................................... 4,757 1,203 5,135
Prepaid expenses and other assets......................... 5,365 4,823 5,890
-------- -------- --------
Total current assets............................ 252,551 284,802 305,521
Property and equipment, net............................... 77,781 80,018 72,311
Leasehold interests, net.................................. 16,147 14,500 12,916
Deferred taxes, net....................................... 2,609 9,219 12,124
Deferred issuance costs................................... -- -- 7,077
Other assets.............................................. 1,742 2,780 12,686
-------- -------- --------
Total assets.................................... $350,830 $391,319 $422,635
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Accounts payable.......................................... $131,078 $145,248 $135,819
Outstanding checks........................................ 8,461 3,173
Accrued payroll and related expenses...................... 12,739 13,503 18,801
Accrued expenses and other current liabilities............ 22,739 21,479 36,182
Due to affiliates......................................... 5,530 12,408
Current maturities of amounts due under credit
agreement............................................... 2,200 1,000 1,000
Current maturities of capital lease obligations........... 4,285 5,488 6,813
Current portion of deferred taxes......................... 1,883 3,045 1,053
-------- -------- --------
Total current liabilities....................... 174,924 203,754 215,249
-------- -------- --------
Amounts due under credit agreement........................ 78,284 95,062 102,000
Obligations under senior notes............................ -- -- 125,000
Obligations under capital leases.......................... 20,832 20,453 16,968
Due to affiliates......................................... -- -- 1,000
Other..................................................... 12,414 12,053 10,043
-------- -------- --------
Total non-current liabilities................... 111,530 127,568 255,011
-------- -------- --------
Commitments and contingencies
Stockholder's equity (deficit)
Redeemable preferred stock, $.01 par value, 206,500
shares authorized, 50,000 shares issued and
outstanding, liquidation preference redeemable at
$1,000 per share..................................... -- -- 1
Common stock, $.01 par value, 20,000 shares authorized,
2,000 shares issued and outstanding.................. 1 1 1
Additional paid-in-capital.............................. 82,407 87,122 46,018
Stockholder receivable.................................. -- -- (5,966)
Accumulated deficit..................................... (18,032) (27,126) (87,679)
-------- -------- --------
Total stockholder's equity (deficit)............ 64,376 59,997 (47,625)
-------- -------- --------
Total liabilities and stockholder's equity...... $350,830 $391,319 $422,635
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 101
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
REDEEMABLE
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
--------------- --------------- PAID-IN ACCUMULATED STOCKHOLDER EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE (DEFICIT)
------ ------ ------ ------ ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 31,
1993................... -- $-- 2,000 $ 1 $ 77,979 $(122,606) $ -- $ (44,626)
Contribution from
Holdings............... -- -- -- -- 3,700 -- -- 3,700
Net loss................. -- -- -- -- -- (650) -- (650)
------ --- ----- --- -------- --------- ------- ---------
Balance at January 30,
1994................... -- -- 2,000 1 81,679 (123,256) -- (41,576)
Income tax benefit from
Tax Agreement.......... -- -- -- -- 728 -- -- 728
Net income............... -- -- -- -- -- 105,224 -- 105,224
------ --- ----- --- -------- --------- ------- ---------
Balance at January 28,
1995................... -- -- 2,000 1 82,407 (18,032) -- 64,376
Contribution from
Holdings............... -- -- -- -- 4,715 -- -- 4,715
Net loss................. -- -- -- -- -- (9,094) -- (9,094)
------ --- ----- --- -------- --------- ------- ---------
Balance at January 28,
1996................... -- -- 2,000 1 87,122 (27,126) -- 59,997
Redeemable preferred
shares purchased
(unaudited)............ 50,000 1 -- -- 45,999 -- -- 46,000
Stockholder receivable
(unaudited)............ -- -- -- -- 5,966 -- (5,966) --
Net loss (unaudited)..... -- -- -- -- -- (16,036) -- (16,036)
Dividend to affiliate
(unaudited)............ -- -- -- -- (93,069) (44,517) -- (137,586)
------ --- ----- --- -------- --------- ------- ---------
Balance at November 24,
1996 (unaudited)....... 50,000 $ 1 2,000 $ 1 $ 46,018 $ (87,679) $(5,966) $ (47,625)
====== === ===== === ======== ========= ======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 102
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED FORTY-THREE WEEKS ENDED
--------------------------------------- ---------------------------
JANUARY 30, JANUARY 29, JANUARY 28, NOVEMBER 26, NOVEMBER 24,
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) $ (6,670) $ (16,036)
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 12,029 14,259
Amortization and write off of leasehold
interests................................ 1,795 1,992 1,647 1,255 1,584
Amortization of deferred financing costs... 296 359 737 591 996
Amortization of other deferred charges..... 159 152 271 268 265
Deferred interest on previous credit
agreement................................ 4,621 1,662 -- -- --
Extraordinary gain on elimination of
debt..................................... -- (97,186) -- -- --
Deferred taxes............................. (531) (195) (5,448) (4,002) (4,897)
Change in assets and liabilities:
Accounts receivable........................ 1,306 (5,063) (11,772) (5,913) (1,153)
Inventories................................ (13,341) (34,010) (23,081) (21,631) (15,726)
Prepaid expenses and other current
assets................................... (1,014) 113 542 651 (1,067)
Accounts payable........................... 9,158 37,094 14,170 24,273 (9,429)
Outstanding checks......................... (2,090) (3,885) 8,461 6,238 (5,288)
Accrued payroll, accrued expenses and other
current liabilities...................... 8,926 (3,821) (496) 1,097 16,409
Due to affiliate........................... -- -- 5,530 5,530 7,878
Other...................................... (1,288) 1,723 829 (2,371) (2,028)
-------- -------- --------- --------- ---------
Net cash provided by (used in) operating
activities.................................... 17,569 15,120 (3,361) 11,345 (14,233)
-------- -------- --------- --------- ---------
Cash flows used in investing activities:
Capital expenditures....................... (14,910) (14,597) (11,640) (10,615) (4,125)
Expenditures for assets held for sale...... -- (6,038) (24,203) -- (3,520)
Proceeds from sale of property and
equipment and assets held for sale....... 580 1,758 28,257 1,189 --
Other investing activities................. (613) (106) (302) (219) (14)
-------- -------- --------- --------- ---------
Net cash used in investing activities...... (14,943) (18,983) (7,888) (9,645) (7,659)
-------- -------- --------- --------- ---------
Cash flows provided by (used in) financing
activities:
Proceeds provided from debt................ -- -- 809,663 595,966 773,209
Payments of debt........................... (622) (2,362) (795,807) (587,929) (766,271)
Note issuance.............................. -- -- -- -- 125,000
Issuance of preferred stock................ -- -- -- -- 46,000
Payments on capital lease obligations...... (2,833) (2,954) (4,976) (4,065) (4,785)
Dividends paid to affiliate................ -- -- -- -- (137,586)
Contributions from Holdings................ 3,700 -- 4,715 --
Note issuance costs........................ -- -- -- -- (7,123)
Other...................................... (18) (67) (852) (2,166) (7,711)
-------- -------- --------- --------- ---------
Net cash provided by (used in) financing
activities.................................... 227 (5,383) 12,743 1,806 20,733
-------- -------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................... 2,853 (9,246) 1,494 3,506 (1,159)
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 $ 6,376 $ 3,205
======== ======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 103
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CSK Auto, Inc., formerly known as Northern Automotive Corporation (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. The Company is a wholly-owned subsidiary of CSK Group, Ltd.
("Holdings").
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Acquisition
In connection with the Acquisition described below, the Company changed its
name from Northern Automotive Corporation to CSK Auto, Inc. and became a direct
wholly-owned subsidiary of Holdings. Following the Acquisition (as defined
below), the only capital stock of the Company outstanding will be the common
stock and preferred stock described below, all of which will be held by
Holdings. Prior to the Acquisition the Company had both common stock and
preferred stock issued and outstanding which was effectively owned by Holdings.
The preferred stock of the Company was canceled in conjunction with the
Acquisition. The accompanying financial statements have been retroactively
restated to give effect to the foregoing, as the presentation of the historical
capitalization is not considered meaningful as a result of the Acquisition.
Through a series of transactions, on October 30, 1996, certain affiliates
of INVESTCORP S.A. ("Investcorp") and certain other investors (collectively with
Investcorp, the "Initial Investcorp Group") acquired (the "Acquisition") from
the Carmel Trust ("Carmel"), a trust governed by the laws of Canada, a 51%
common equity interest in Holdings for $105.0 million. The Initial Investcorp
Group or its designee also purchased $40.0 million aggregate principal amount of
12% senior subordinated notes of Holdings (the "Holdings Notes"). Holdings in
turn purchased $40.0 million of preferred stock of the Company. The Company then
borrowed $100.0 million under its senior credit facility, which, together with
the proceeds from an offering of $125.0 million aggregate principal amount of
senior subordinated notes (the "Notes") and the $40.0 million from the Initial
Investcorp Group or its designee, was, following a dividend to Holdings by the
Company, used to redeem the stock of Holdings held by Carmel for $238.5 million.
Carmel then purchased from Holdings for $100.9 million a 49% common equity
interest in Holdings and an affiliate of Carmel purchased $10.0 million
aggregate principal amount of Holdings Notes. Holdings in turn purchased $10.0
million of preferred stock of the Company. The Company then repaid amounts
outstanding under its Prior Credit Agreement, which was terminated, paid $9.9
million to members of management pursuant to an existing employee incentive plan
and incurred additional expenses of $22.2 million related to the foregoing.
Following the transactions, the Initial Investcorp Group owns a 51% common
equity interest in Holdings, the Initial Investcorp Group or its designee owns
$40.0 million aggregate principal amount of Holdings Notes, Carmel owns a 49%
common equity interest in Holdings and an affiliate of Carmel owns $10.0 million
aggregate principal amount of Holdings Notes. Holdings owns 100% of the common
equity and $50.0 million of preferred stock of the Company. The preferred stock
of the Company held by Holdings is redeemable at the option of the Company, in
whole or part, at 101% of the liquidation preference per share. The preferred
stock has a liquidation preference of $1,000 and pays cumulative dividends at
12% per annum.
All of the Company's subsidiaries have fully and unconditionally guaranteed
the Notes. The subsidiaries do not have any significant assets or liabilities
and do not conduct any operations. Accordingly, financial information of the
Company's subsidiaries has not been presented herein.
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.
F-7
<PAGE> 104
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. The Company
recognizes vendor rebates, discounts and allowances based on the terms of the
underlying agreements. Such amounts may be recognized immediately, amortized
over the life of the applicable agreements, or recognized as inventory is sold.
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 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 and $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.
F-8
<PAGE> 105
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reserve for Closed Stores
The Company provides a reserve for estimated costs and losses to be
incurred in connection with store closures which is 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 $(1,621) $(1,221) $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 federal income tax expense as if it were a separate taxpayer,
irrespective of the provisions of the existing 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
Historical earnings per share have not been presented due to the fact that
the information is not considered meaningful as a result of the Acquisition.
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
F-9
<PAGE> 106
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 November 24, 1996 and
for the forty-three week periods ended November 26, 1995 and November 24, 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 November 24, 1996 and the consolidated results of operations and
cash flows for the periods ended November 26, 1995 and November 24, 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). During the year ended January 30, 1994 the Company received
approximately $1.3 million, which was recorded as a reduction of operating and
administrative expenses, for services provided to Auto Works. Effective 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. 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. The entire assumed balance of the receivable was
not recorded as a contribution in 1993, as it was not determinable if Holdings
would make additional funds available beyond the $3.7 million that was received
that year. Subsequently, the $4.7 million contribution was made by Holdings from
other available funds. The Company has since cancelled the balance of $3.0
million.
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. An
F-10
<PAGE> 107
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
obligation of the Company incurred in connection with the purchase of product
from two of its vendors was subsequently transferred to an affiliate. At the
time of such transfers, the Company owed the sum of approximately $16.5 million
less anticipated discounts of $0.8 million to the vendors. The obligation to the
affiliate is non-interest bearing and matures on December 31, 1996. At January
28, 1996 the amount of the obligation was approximately $5.5 million. 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).
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following (thousands of
dollars):
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28,
1995 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 amortization.............. (57,261) (63,885)
-------- --------
$ 77,781 $ 80,018
======== ========
</TABLE>
Accumulated amortization of property under capital leases totaled $18.9
million at each of January 28, 1996 and 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 $178.2 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 CSK
AUTO, INC. 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.
F-11
<PAGE> 108
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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. The implicit interest rate of capital leases varies from 7.5% to 14.5%
with an average implicit rate of approximately 10.9%.
F-12
<PAGE> 109
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
Retirement Program
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.
Equity Participation Agreements
The Company has, over time, entered into equity participation agreements
with certain of its executives as a form of incentive compensation. Pursuant to
the agreements, six current and one former executive officer are entitled to
certain payments in connection with the Acquisition based upon an aggregate 6.4%
participation interest in the Company. In satisfaction of all Company
obligations under the agreements, upon closing of the Acquisition, such
individuals received payments in the aggregate amount of $9.9 million. A second
payment of equal amount is due one year from the closing of the Acquisition to
each such individual unless such individual terminates his employment with the
Company during such period. Carmel, which owns a 49% common equity interest in
Holdings following the Acquisition, will reimburse the Company for 60% (the
estimated after-tax cost to the Company) of the amount of such latter payments
made one year from the closing of the Acquisition.
Staff Incentive Compensation Plan
The Company adopted the general and administrative staff incentive
compensation bonus plan (the "Incentive Plan") during May 1996. 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.
1996 Stock Incentive Plan
The 1996 Stock Incentive Plan (the "Plan") is designed to provide
incentives to employees by granting them awards tied to the Class B Stock of
Holdings. Options granted under the Plan may be options intended to qualify as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended, or options not intended to qualify.
At the closing of the Acquisition described in Note 1 or shortly
thereafter, Holdings will grant options to purchase 53,269 shares, and may grant
performance vesting options to purchase up to an additional 3,201 shares, of
non-voting Class B Stock to certain senior members of management and other
officers and
F-13
<PAGE> 110
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
employees of the Company. The exercise price of the options will be $205.88 per
share, the fair market value at date of grant. The options expire ten years from
the date of grant.
Each option to be granted under the Plan will be subject to vesting
provisions. Options granted to employees receiving options to purchase less than
330 shares of Class B Stock will vest in equal installments on the first four
anniversaries of the date of the closing of the Acquisition, assuming their
employment continues during this period ("four year vesting"). Options to be
granted to employees receiving options to purchase 330 or more shares of Class B
Stock will be subject to four-year vesting as to 60% of their options and
performance vesting as to the remaining 40% (over four years as to 24% and over
ten years as to the remaining 16%). The performance vesting criteria will be
based on the projections presented to the Initial Investcorp Group prior to its
agreement to participate in the Acquisition (the "Business Plan Criteria") and
will be capable of satisfaction on an annual basis or on a cumulative basis. If
the Business Plan Criteria are exceeded for each year by 20%, the employee will
receive options for an additional 5% (20% on a cumulative basis) of his or her
original option grant. Partial vesting of options subject to performance vesting
will occur if the Company achieves less than 95% of the Business Plan Criteria.
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 Holdings, 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 the Tax Agreement will utilize the tax loss carryforward
generated by the Company during the year ended January 28, 1996.
F-14
<PAGE> 111
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
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
non-taxable 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.
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.
F-15
<PAGE> 112
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
NOTE 11 -- SUBSEQUENT EVENT (UNAUDITED)
In January 1997, the Company updated its strategic plan relating to the
relocation of certain stores. As a result of the Acquisition and Financings, the
Company has greater access to capital resources and availability of a
sale-leaseback facility for new stores, ensuring the Company's ability to
implement such relocations. While management believes that there will be
long-term operating benefits from this strategy, the Company will incur costs
for early lease terminations or negative sub-lease rentals for stores vacated
under this plan and, accordingly, a charge to earnings which is expected to be
approximately $12.5 million will be recorded in January 1997. The charge is not
reflected in the accompanying financial statements for the 43 weeks ended
November 24, 1996.
F-16
<PAGE> 113
================================================================================
ALL TENDERED OLD NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS SHOULD BE DIRECTED TO THE EXCHANGE AGENT. QUESTIONS AND REQUESTS FOR
ASSISTANCE AND REQUESTS FOR ADDITIONAL COPIES OF THE PROSPECTUS, THE LETTER OF
TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE
AGENT AS FOLLOWS:
By Hand, Registered or Certified Mail
or Overnight Carrier
Wells Fargo Bank, N.A.
Corporate Trust Division
#4101-082
100 West Washington
Phoenix, Arizona 85003
By Facsimile:
(602) 440-1389
Attention: Kathleen Jakubowicz
Confirm by telephone: (602) 440-1459
(Originals of all documents submitted by facsimile should be sent promptly by
hand, overnight courier, or registered or certified mail)
NO BROKER, DEALER OR OTHER PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFER
MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES,
WHETHER OR NOT PARTICIPATING IN THIS EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER
A PROSPECTUS.
================================================================================
================================================================================
CSK AUTO, INC.
[LOGO]
OFFER FOR ALL OUTSTANDING
11% SENIOR
SUBORDINATED NOTES
DUE 2006
IN EXCHANGE FOR
11% SERIES A SENIOR
SUBORDINATED NOTES DUE 2006
------------------------------
PROSPECTUS
------------------------------
, 1997
================================================================================
<PAGE> 114
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Arizona Business Corporation Act (the "ABCA") permits corporations, at
their discretion, to indemnify present and former directors, officers,
employees, or agents of an Arizona corporation with respect to expenses,
judgments, fines, and amounts paid in settlement by such persons, whether or not
authority for such indemnification is contained in the indemnifying
corporation's articles of incorporation or bylaws ("permissive
indemnification"). Under the ABCA, in order for a corporation to provide
permissive indemnification, a majority of the corporation's disinterested
directors, independent legal counsel, or the shareholders must find that the
conduct of the individual to be indemnified was in good faith and that the
individual reasonably believed that the conduct was in the corporation's best
interests (in the case of conduct in an "official capacity" with the
corporation) or that the conduct was at least not opposed to the corporation's
best interests (in all other cases). In the case of any criminal proceeding, the
finding must be to the effect that the individual had no reasonable cause to
believe the conduct was unlawful. Indemnification is permitted with respect to
expenses, judgments, fines, and amounts paid in settlement by such individuals.
Under certain circumstances, the ABCA permits a corporation to pay a director's
expenses in advance of a final disposition of a proceeding.
In addition to permissive indemnification, in certain circumstances the
ABCA requires that a corporation provide indemnification. In the event of a
successful defense, a corporation must indemnify the successful director,
officer, employee, or agent against reasonable expenses, including attorneys'
fees, incurred in connection with the proceeding. In addition, the ABCA requires
Arizona corporations to indemnify any "outside director" (a director who is not
an officer, employee, or holder of five percent or more of any class of the
corporation's stock) against liability unless (i) the corporation's articles of
incorporation limit such indemnification, (ii) the outside director is adjudged
liable in a proceeding by or in the right of the corporation or in any other
proceeding charging improper financial benefit to the director, or (iii) a court
determines, before payment to the outside director, that the director failed to
meet the standards of conduct described in the preceding paragraph. Under
certain circumstances, the corporation may be required to pay an outside
director's expenses in advance of a final disposition of a proceeding. A court
may also order that an individual be indemnified if the court finds that the
individual is fairly and reasonably entitled to indemnification in light of all
of the relevant circumstances, whether or not the individual has met the
standards of conduct in this and the preceding paragraph.
Article Ninth of the Company's Articles of Incorporation provide that the
Company will indemnify present and former directors and officers of the Company
and its subsidiaries and other "authorized representatives" to the fullest
extent permitted under the ABCA. The inclusion of these indemnification
provisions in the Company's Articles of Incorporation is intended to enable the
Company to attract qualified persons to serve as directors and officers who
might otherwise be reluctant to do so.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
1.01 -- Purchase Agreement, dated October 23, 1996, among CSK
Group, Ltd., the Company, Kragen Auto Supply Co.
("Kragen"), Schuck's Distribution Co. ("Schuck's"),
Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") and Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill").
1.02 -- Registration Rights Agreement, dated October 30, 1996,
between the Company, Kragen, Schuck's, DLJ and Merrill.
1.03 -- Form of Letter of Transmittal.
</TABLE>
II-1
<PAGE> 115
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
2.01 -- Stock Purchase Agreement, dated September 29, 1996.
3.01 -- Amended and Restated Articles of Incorporation of the
Company.
3.02 -- Amended and Restated By-laws of the Company.
3.03 -- Articles of Incorporation of Kragen.
3.04 -- Amended and Restated Bylaws of Kragen.
3.05 -- Articles of Incorporation of Schuck's.
3.06 -- Amended and Restated Bylaws of Schuck's.
4.0l -- Indenture by and among the Company, Kragen, Schuck's and
Wells Fargo Bank, N.A., as Trustee, dated as of October
30, 1996, including form of Old Note.
4.02 -- Form of Note.
4.03 -- Registration Rights Agreement, dated October 30, 1996,
between the Company, Kragen, Schuck's, DLJ and Merrill
(filed as Exhibit 1.02).
4.04 -- Form of Letter of Transmittal (filed as Exhibit 1.03).
4.05 -- Credit Agreement, dated as of October 30, 1996, among the
Company, the several Lenders from time to time parties
thereto, The Chase Manhattan Bank, as administrative
agent for the Lenders, and Lehman Commercial Paper Inc.,
as documentation agent for the Lenders and Chase
Securities Inc., as arranger.
5.01* -- Opinion of Gibson, Dunn & Crutcher LLP.
8.01* -- Opinion of Gibson, Dunn & Crutcher LLP regarding tax
matters.
10.01 -- Employment Agreement, dated June 19, 1996, between the
Company and Jules Trump.
10.02 -- Amended and Restated Employment Agreement, dated June 19,
1996, between the Company and James Bazlen.
10.03 -- Amended and Restated Employment Agreement, dated June 19,
1996, between the Company and Arthur Hicks.
10.04* -- Amended and Restated Participation Agreement, dated June
19, 1996, between the Company and James Bazlen.
10.05 -- Amended and Restated Participation Agreement, dated June
19, 1996, between the Company and Arthur Hicks.
10.06 -- 1996 Associate Stock Option Plan.
10.07 -- 1996 Executive Stock Option Plan.
10.08 -- 1996 General and Administrative Staff Incentive
Compensation Plan.
10.09 -- Real Estate Financing Agreement, dated as of October 30,
1996, between Cantrade Trust Company Limited, in its
capacity as trustee of The Carmel Trust, and the Company.
10.10 -- Amended and Restated Lease, dated October 23, 1989 (the
"Missouri Falls Lease"), between the Company and Missouri
Falls Associates Limited Partnership.
10.11 -- First Amendment to the Missouri Falls Lease, dated
November 22, 1991, between the Company and Missouri Falls
Associates Limited Partnership.
10.12 -- Amendment to Leases, dated as of October 30, 1996, by and
between Missouri Falls Associates Limited Partnership and
the Company.
10.13 -- Financing Advisory Agreement, dated October 30, 1996,
between the Company and Investcorp International Inc.
</TABLE>
II-2
<PAGE> 116
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
10.14 -- Financial Advisory Services Letter Agreement, dated
October 30, 1996, between the Company and Investcorp
International Inc.
10.15 -- Standby Loan Commitment Letter Agreement, dated October
30, 1996, between the Company and Invifin S.A.
10.16 -- Agreement for Management Advisory, Strategic Planning and
Consulting Services, dated October 30, 1996, between the
Company and Investcorp International Inc.
10.17* -- Stockholders' Agreement, dated October 30, 1997, by and
among the Initial Investcorp Group, Cantrade Trust
Company Limited, in its capacity as trustee of The Carmel
Trust, Holdings and the Company.
10.18* -- Employment Agreement between the Company and Maynard
Jenkins.
11.01 -- Statement re: Computation of Ratio of Earnings to Fixed
Charges.
16.01 -- Letter of Price Waterhouse LLP re Change in Certifying
Accountant.
21.01 -- Subsidiaries of the Company.
23.01 -- Consent of Price Waterhouse LLP.
23.03* -- Consent of Gibson, Dunn & Crutcher LLP (included in
Exhibit 5.01).
24.01 -- Powers of Attorney (included on Signature Pages of
Registration Statement).
25.01* -- Statement of Eligibility of Trustee.
27.01 -- Financial Data Schedule.
</TABLE>
- ---------------
* to be filed by amendment
(b) Financial Statement Schedule for the three years ended January 28,
1996: Schedule II -- Valuation and Qualifying Accounts
(c) Report, Opinion or Appraisal from an Outside Party: None applicable.
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described under Item 20 or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company 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 Company 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 Securities Act and will be governed by
the final adjudication of such issue.
(b) The Company undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933, as amended; (ii) to reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement; and (iii) to include any material information
with respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
Registration Statement.
II-3
<PAGE> 117
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(c) The Company undertakes to respond to requests for information that is
incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or
13 of this form, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding to
the request.
(d) The Company undertakes to supply by means of a post-effective amendment
all information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in the Registration
Statement when it became effective.
II-4
<PAGE> 118
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Phoenix, Arizona on February 27,
1997.
CSK AUTO, INC.
By: /s/ JAMES G. BAZLEN
-----------------------------------
James G. Bazlen
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints James G. Bazlen and Don W. Watson, his true and
lawful attorneys-in-fact and agents, each acting alone, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments to this Registration
Statement, including post-effective amendments, and to file the same, with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, and hereby ratifies
and confirms all that said attorneys-in-fact and agents, each acting alone, or
their substitute or substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on February 27, 1997.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
/s/ MAYNARD JENKINS Chairman of the Board and Chief Executive
- ----------------------------------------------------- Officer (Principal Executive Officer)
Maynard Jenkins
/s/ JAMES G. BAZLEN President, Chief Operating Officer, Chief
- ----------------------------------------------------- Financial Officer, and Director
James G. Bazlen (Principal Accounting Officer and
Principal Financial Officer)
/s/ JULES TRUMP Director
- -----------------------------------------------------
Jules Trump
/s/ EDDIE TRUMP Director
- -----------------------------------------------------
Eddie Trump
/s/ SAVIO W. TUNG Director
- -----------------------------------------------------
Savio W. Tung
/s/ JON P. HEDLEY Director
- -----------------------------------------------------
Jon P. Hedley
/s/ CHRISTOPHER J. O'BRIEN Director
- -----------------------------------------------------
Christopher J. O'Brien
/s/ CHARLES J. PHILIPPIN Director
- -----------------------------------------------------
Charles J. Philippin
/s/ ROBERT SMITH Director
- -----------------------------------------------------
Robert Smith
/s/ CHRISTOPHER J. STADLER Director
- -----------------------------------------------------
Christopher J. Stadler
</TABLE>
II-5
<PAGE> 119
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Phoenix, Arizona on February 27,
1997.
KRAGEN AUTO SUPPLY CO.
By: /s/ JAMES G. BAZLEN
-------------------------------------
James G. Bazlen
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints James G. Bazlen and Don W. Watson, his true and
lawful attorneys-in-fact and agents, each acting alone, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments to this Registration
Statement, including post-effective amendments, and to file the same, with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, and hereby ratifies
and confirms all that said attorneys-in-fact and agents, each acting alone, or
their substitute or substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on February 27, 1997.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
/s/ MAYNARD JENKINS Chairman of the Board and Chief Executive
- ----------------------------------------------------- Officer (Principal Executive Officer)
Maynard Jenkins
/s/ JAMES G. BAZLEN President, Chief Operating Officer, Chief
- ----------------------------------------------------- Financial Officer, and Director
James G. Bazlen (Principal Accounting Officer and
Principal Financial Officer)
/s/ JULES TRUMP Director
- -----------------------------------------------------
Jules Trump
/s/ EDDIE TRUMP Director
- -----------------------------------------------------
Eddie Trump
/s/ SAVIO W. TUNG Director
- -----------------------------------------------------
Savio W. Tung
/s/ JON P. HEDLEY Director
- -----------------------------------------------------
Jon P. Hedley
/s/ CHRISTOPHER J. O'BRIEN Director
- -----------------------------------------------------
Christopher J. O'Brien
/s/ CHARLES J. PHILIPPIN Director
- -----------------------------------------------------
Charles J. Philippin
/s/ ROBERT SMITH Director
- -----------------------------------------------------
Robert Smith
/s/ CHRISTOPHER J. STADLER Director
- -----------------------------------------------------
Christopher J. Stadler
</TABLE>
II-6
<PAGE> 120
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Phoenix, Arizona on February 27,
1997.
SCHUCK'S DISTRIBUTION CO.
By: /s/ JAMES G. BAZLEN
-------------------------------------
James G. Bazlen
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints James G. Bazlen and Don W. Watson, his true and
lawful attorneys-in-fact and agents, each acting alone, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments to this Registration
Statement, including post-effective amendments, and to file the same, with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, and hereby ratifies
and confirms all that said attorneys-in-fact and agents, each acting alone, or
their substitute or substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on February 27, 1997.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
/s/ MAYNARD JENKINS Chairman of the Board and Chief Executive
- ----------------------------------------------------- Officer (Principal Executive Officer)
Maynard Jenkins
/s/ JAMES G. BAZLEN President, Chief Operating Officer, Chief
- ----------------------------------------------------- Financial Officer, and Director
James G. Bazlen (Principal Accounting Officer and
Principal Financial Officer)
/s/ JULES TRUMP Director
- -----------------------------------------------------
Jules Trump
/s/ EDDIE TRUMP Director
- -----------------------------------------------------
Eddie Trump
/s/ SAVIO W. TUNG Director
- -----------------------------------------------------
Savio W. Tung
/s/ JON P. HEDLEY Director
- -----------------------------------------------------
Jon P. Hedley
/s/ CHRISTOPHER J. O'BRIEN Director
- -----------------------------------------------------
Christopher J. O'Brien
/s/ CHARLES J. PHILIPPIN Director
- -----------------------------------------------------
Charles J. Philippin
/s/ ROBERT SMITH Director
- -----------------------------------------------------
Robert Smith
/s/ CHRISTOPHER J. STADLER Director
- -----------------------------------------------------
Christopher J. Stadler
</TABLE>
II-7
<PAGE> 121
SCHEDULE II
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP 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> 122
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS PAGE
------- ----------------------- ----
<C> <S> <C>
1.01 -- Purchase Agreement, dated October 23, 1996, among CSK
Group, Ltd., the Company, Kragen Auto Supply Co.
("Kragen"), Schuck's Distribution Co. ("Schuck's"),
Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") and Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill").
1.02 -- Registration Rights Agreement, dated October 30, 1996,
between the Company, Kragen, Schuck's, DLJ and Merrill.
1.03 -- Form of Letter of Transmittal.
2.01 -- Stock Purchase Agreement, dated September 29, 1996.
3.01 -- Amended and Restated Articles of Incorporation of the
Company.
3.02 -- Amended and Restated By-laws of the Company.
3.03 -- Articles of Incorporation of Kragen.
3.04 -- Amended and Restated Bylaws of Kragen.
3.05 -- Articles of Incorporation of Schuck's.
3.06 -- Amended and Restated Bylaws of Schuck's.
4.0l -- Indenture by and among the Company, Kragen, Schuck's and
Wells Fargo Bank, N.A., as Trustee, dated as of October
30, 1996, including form of Old Note.
4.02 -- Form of Note.
4.03 -- Registration Rights Agreement, dated October 30, 1996,
between the Company, Kragen, Schuck's, DLJ and Merrill
(filed as Exhibit 1.02).
4.04 -- Form of Letter of Transmittal (filed as Exhibit 1.03).
4.05 -- Credit Agreement, dated as of October 30, 1996, among the
Company, the several Lenders from time to time parties
thereto, The Chase Manhattan Bank, as administrative
agent for the Lenders, and Lehman Commercial Paper Inc.,
as documentation agent for the Lenders and Chase
Securities Inc., as arranger.
5.01* -- Opinion of Gibson, Dunn & Crutcher LLP.
8.01* -- Opinion of Gibson, Dunn & Crutcher LLP regarding tax
matters.
10.01 -- Employment Agreement, dated June 19, 1996, between the
Company and Jules Trump.
10.02 -- Amended and Restated Employment Agreement, dated June 19,
1996, between the Company and James Bazlen.
10.03 -- Amended and Restated Employment Agreement, dated June 19,
1996, between the Company and Arthur Hicks.
10.04* -- Amended and Restated Participation Agreement, dated June
19, 1996, between the Company and James Bazlen.
10.05 -- Amended and Restated Participation Agreement, dated June
19, 1996, between the Company and Arthur Hicks.
10.06 -- 1996 Associate Stock Option Plan.
10.07 -- 1996 Executive Stock Option Plan.
10.08 -- 1996 General and Administrative Staff Incentive
Compensation Plan.
10.09 -- Real Estate Financing Agreement, dated as of October 30,
1996, between Cantrade Trust Company Limited, in its
capacity as trustee of The Carmel Trust, and the Company.
10.10 -- Amended and Restated Lease, dated October 23, 1989 (the
"Missouri Falls Lease"), between the Company and Missouri
Falls Associates Limited Partnership.
</TABLE>
<PAGE> 123
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS PAGE
------- ----------------------- ----
<C> <S> <C>
10.11 -- First Amendment to the Missouri Falls Lease, dated
November 22, 1991, between the Company and Missouri Falls
Associates Limited Partnership.
10.12 -- Amendment to Leases, dated as of October 30, 1996, by and
between Missouri Falls Associates Limited Partnership and
the Company.
10.13 -- Financing Advisory Agreement, dated October 30, 1996,
between the Company and Investcorp International Inc.
10.14 -- Financial Advisory Services Letter Agreement, dated
October 30, 1996, between the Company and Investcorp
International Inc.
10.15 -- Standby Loan Commitment Letter Agreement, dated October
30, 1996, between the Company and Invifin S.A.
10.16 -- Agreement for Management Advisory, Strategic Planning and
Consulting Services, dated October 30, 1996, between the
Company and Investcorp International Inc.
10.17* -- Stockholders' Agreement, dated October 30, 1997, by and
among the Initial Investcorp Group, Cantrade Trust
Company Limited, in its capacity as trustee of The Carmel
Trust, Holdings and the Company.
10.18* -- Employment Agreement between the Company and Maynard
Jenkins.
11.01 -- Statement re: Computation of Ratio of Earnings to Fixed
Charges.
16.01 -- Letter of Price Waterhouse LLP re Change in Certifying
Accountant.
21.01 -- Subsidiaries of the Company.
23.01 -- Consent of Price Waterhouse LLP.
23.03* -- Consent of Gibson, Dunn & Crutcher LLP (included in
Exhibit 5.01).
24.01 -- Powers of Attorney (included on Signature Pages of
Registration Statement).
25.01* -- Statement of Eligibility of Trustee.
27.01 -- Financial Data Schedule.
</TABLE>
- ---------------
* to be filed by amendment
<PAGE> 1
EXHIBIT 1.01
EXECUTION COPY
$125,000,000
CSK AUTO, INC.
11% Senior Subordinated Notes due 2006
PURCHASE AGREEMENT
October 23, 1996
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Ladies and Gentlemen:
Northern Automotive Corporation, an Arizona corporation which on the
Closing Date will change its name to CSK Auto, Inc. (the "COMPANY"), proposes
to issue and sell to the several initial purchasers named above (the "INITIAL
PURCHASERS") $125,000,000 aggregate principal amount of its 11% Senior
Subordinated Notes due 2006 (the "NOTES"). The Company's payment obligations
under the Notes will be guaranteed by each of its subsidiaries and all of its
future U.S. subsidiaries (the "GUARANTORS"). The Notes are to be issued
pursuant to the provisions of an Indenture to be dated as of October 30, 1996
(the "INDENTURE") among the Company, the Guarantors and Wells Fargo Bank,
National Association, as Trustee (the "TRUSTEE").
The Notes will be offered and sold to the Initial Purchasers without being
registered under the United States Securities Act
<PAGE> 2
of 1933, as amended (the "SECURITIES ACT"), in reliance on an exemption
therefrom. The Initial Purchasers have advised the Company that they will make
an offering of the Notes purchased by them hereunder in accordance with Section
4 hereof on the terms set forth in the Final Offering Memorandum (as defined
below) as soon as practicable after the date hereof as in their judgment is
advisable.
It is understood that on the Closing Date (as defined herein), following
the consummation of the Acquisition and the Financings (each as defined in the
Final Offering Memorandum), the Company will be a wholly-owned subsidiary of
CSK Group, Ltd., a Delaware corporation ("HOLDINGS"). In connection with the
Acquisition, Holdings, CSK Holdings, Ltd., a Delaware corporation that as of
the Closing Date will be merged with and into Holdings, The Carmel Trust, a
trust governed by the laws of Canada ("CARMEL") and certain entities listed as
"purchasers" on the signature pages thereto (the "INITIAL INVESTCORP GROUP"),
entered into a Stock Purchase Agreement (the "STOCK PURCHASE AGREEMENT") dated
as of September 29, 1996 pursuant to which the Initial Investcorp Group will,
on the Closing Date, among other things, acquire a 51% common equity interest
in Holdings, whereupon the Initial Investcorp Group shall acquire control of
the Company. Concurrent with the closing of the Acquisition, the parties
thereto, as well as the Company, will enter into a Stockholders' Agreement (the
"STOCKHOLDERS' AGREEMENT"). It is also understood that the Company will,
concurrently with the closing hereunder, enter into a Credit Agreement
(together with the related guarantees and collateral documents required to be
delivered by the CSK Parties on the Closing Date, the "SENIOR BANK FACILITY")
with certain lenders and The Chase Manhattan Bank, as administrative agent, as
part of the Financings. The Company, Holdings and the Guarantors are
hereinafter referred to collectively as the "CSK PARTIES".
In connection with the sale of the Notes, the Company has prepared a
preliminary Offering Memorandum dated October 9, 1996 (the "PRELIMINARY
OFFERING MEMORANDUM") and a final Offering Memorandum dated October 23, 1996
(the "FINAL OFFERING MEMORANDUM" and, with the Preliminary Offering Memorandum,
each an "OFFERING MEMORANDUM") setting forth or including a description of the
terms of the Notes, the Acquisition and Financings (including, the terms of the
offering), a description of the Company and any material developments relating
to the Company occurring after the date of the most recent financial statements
included therein.
The CSK Parties and the Initial Purchasers will enter into a Registration
Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT") concurrently with the
issuance of the Notes. Pursuant to the Registration Rights Agreement, under
the circumstances and the terms set forth therein, the CSK Parties will agree
to file with the Securities and Exchange Commission
2
<PAGE> 3
(the "COMMISSION"): (i) a registration statement on Form S-1 or S-4 (the
"EXCHANGE OFFER REGISTRATION STATEMENT") relating to an offer (the "EXCHANGE
OFFER") to the holders of Notes to exchange their Notes for an issue of notes
(the "NEW NOTES") registered under the Securities Act and otherwise identical
in all material respects to the Notes or, alternatively, (ii) in certain
circumstances, a shelf registration statement (the "SHELF REGISTRATION
STATEMENT") to cover resales of Notes by holders who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement. This Agreement, the Indenture, the Notes and the
Registration Rights Agreement are hereinafter referred to collectively as the
"OPERATIVE DOCUMENTS".
1. Agreements to Sell and Purchase. On the basis of the representations
and warranties contained in this Purchase Agreement (this "AGREEMENT"), and
subject to its terms and conditions, the Company agrees to issue and sell, and
each Initial Purchaser agrees, severally and not jointly, to purchase from the
Company the principal amount of Notes set forth opposite the name of such
Initial Purchaser in Schedule I hereto, at 97% of the principal amount thereof
(the "PURCHASE PRICE").
2. Delivery and Payment. Delivery of and payment for the Notes shall be
made at 10:00 A.M., New York City time, on October 30, 1996 (the "CLOSING
DATE") in immediately available funds and at such place as the Initial
Purchasers shall designate. Certificates for the Notes shall be registered in
such names and issued in such denominations as the Initial Purchasers shall
request in writing not later than two business days prior to the Closing Date.
Such certificates shall be made available to the Initial Purchasers for
inspection not later than 9:30 A.M., New York City time, on the business day
next preceding the Closing Date. Certificates evidencing the Notes shall be
delivered on the Closing Date with any transfer taxes thereon duly paid by the
Company, against payment of the Purchase Price therefor in same day funds to
the order of the Company or as the Company may direct. The Closing Date and
the location of delivery of and the form of payment for the Notes may be varied
by agreement between the Initial Purchasers and the Company.
3. Agreements of the CSK Parties.
(a) The Company agrees to advise the Initial Purchasers promptly and, if
requested by them, to confirm such advice in writing of the happening of any
event during the period referred to in paragraph (d) below which makes any
statement of a material fact made in the Final Offering Memorandum untrue or
which requires the making of any additions to or changes in such Offering
Memorandum in order to make such statement not misleading.
3
<PAGE> 4
(b) The Company agrees to furnish to the Initial Purchasers during the
period referred to in paragraph (d) below as many copies of the Preliminary
Offering Memorandum, the Final Offering Memorandum and any supplements and
amendments thereto as they may reasonably request.
(c) The Company agrees not to make any amendment or supplement to either
Offering Memorandum of which the Initial Purchasers shall not previously have
been advised or to which they shall reasonably object and to prepare, promptly
upon their reasonable request, any amendment or supplement to either Offering
Memorandum which may be necessary or advisable in connection with the offering
of the Notes by the Initial Purchasers.
(d) The Company agrees that if, during such period as the Offering
Memorandum shall be required to be distributed by an Initial Purchaser in
connection with Exempt Resales (as defined herein) (the "OFFERING PERIOD"), any
event shall occur as a result of which, in the opinion of counsel for the
Initial Purchasers, it becomes necessary to amend or supplement the Final
Offering Memorandum in order to make the statements therein, in the light of
the circumstances when such Offering Memorandum is delivered to a purchaser,
not misleading, or if it is necessary to amend or supplement such Offering
Memorandum to comply with any law, forthwith to prepare an appropriate
amendment or supplement to such Offering Memorandum so that the statements in
such Offering Memorandum, as so amended or supplemented, will not, in the light
of the circumstances when it is so delivered, be misleading, or so that such
Offering Memorandum will comply with law, and to furnish to the Initial
Purchasers and to such dealers as the Initial Purchasers shall specify such
number of copies thereof as the Initial Purchasers or such dealers may
reasonably request.
(e) The Company and the Guarantors agree to cooperate with the Initial
Purchasers and their counsel in connection with the registration or
qualification of the Notes for offer and sale by the Initial Purchasers and by
dealers under the state securities or Blue Sky laws of such jurisdictions as
the Initial Purchasers may request, to continue such qualification in effect so
long as required for distribution of the Notes and to file such consents to
service of process (except general consents to service of process) or other
documents as may be necessary in order to effect such registration or
qualification; provided, however, that in connection therewith neither the
Company nor the Guarantors shall be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction where it is not so qualified or so subject.
(f) The Company and the Guarantors agree during a period of five years
following the date of this Agreement, to deliver to each of you promptly upon
their becoming available, copies of all
4
<PAGE> 5
current, regular and periodic reports filed by the Company and the Guarantors
with the Commission or any securities exchange or with any governmental
authority succeeding to any of the Commission's functions.
(g) The Company and Holdings agree to use the proceeds from the sale of
the Notes and other Financings in the manner specified in the Final Offering
Memorandum under the caption "Use of Proceeds".
(h) The Company agrees to pay all costs, expenses, fees and taxes incident
to (i) the preparation, printing, filing and distribution of each Offering
Memorandum, Exchange Offer Registration Statement and any Shelf Registration
Statement (including financial statements and all amendments and supplements,
in the case of each Offering Memorandum, prior to or during the Offering Period
and, in the case of the Exchange Offer Registration Statement and any Shelf
Registration Statement, during the period such registration statement shall be
kept effective pursuant to the terms of the Registration Rights Agreement, but
not including fees and disbursements of counsel to the Initial Purchasers),
(ii) the delivery of this Agreement, the Indenture, the Registration Rights
Agreement and all other agreements, memoranda, correspondence and other
documents delivered in connection with the offering of the Notes or the New
Notes (including in each case any fees and disbursements of the Trustee and its
counsel relating to such delivery, but not including fees and disbursements of
counsel to the Initial Purchasers), (iii) the registration or qualification of
the Notes and the New Notes for offer and sale under the securities or Blue Sky
laws of the several states (including the reasonable fees and disbursements of
counsel for the Initial Purchasers relating to such registration or
qualification and memoranda relating thereto), (iv) furnishing such copies of
each Offering Memorandum and all amendments and supplements thereto as may be
requested for use in connection with the offering or sale of the Notes by the
Initial Purchasers or by dealers to whom Notes may be sold, (v) any fees
charged by rating agencies for the rating of the Notes and the New Notes, (vi)
the fees and expenses, if any, incurred in connection with the admission of the
Notes for trading on the PORTAL trading system and the deposit of the global
Notes with the Depository Trust Company, (vii) any stamp or transfer taxes
payable in connection with the sale of the Notes to the Initial Purchasers,
(viii) the issuance, transfer and delivery by the Company of the Notes and the
New Notes (including, without limitation, the fees of the Company's transfer
agent and the registrar, the cost of its personnel and other internal costs,
the costs of printing and engraving the certificates representing the Notes and
the New Notes and any stock and securities transfer taxes payable thereon),
(ix) the reasonable fees and expenses of the Trustee and the fees and
disbursements of counsel for the Trustee, (x) the costs and expenses of the
Company relating to investor presentations on any
5
<PAGE> 6
"road show" undertaken in connection with the marketing of the offering of the
Notes, including without limitation, expenses associated with the production of
road show slides and graphics, travel, meals and lodging expenses of officers
of the Company (provided that the costs of charter aircraft during the "road
show" to make investor presentations will be paid equally by the Company and
the Initial Purchasers and the cost of ground transportation, conference rooms
and other meeting places used on the "road show" to make investor presentations
will be paid by the Initial Purchasers) and (xi) the performance by each CSK
Party of their obligations under this Agreement; provided that, except as
otherwise provided in this Section 3(h) and Section 6, the Initial Purchasers
shall pay their own costs and expenses, including the fees and disbursements of
their counsel.
(i) The Company agrees, during the period beginning on the date hereof and
continuing to and including the Closing Date, not to offer, sell, contract to
sell or otherwise dispose of any debt securities or rights to purchase debt
securities of the Company substantially similar to the Notes (other than the
Notes) without the prior written consent of the Initial Purchasers.
(j) Each CSK Party agrees to use its reasonable best efforts (i) to do and
perform all things required or necessary to be done and performed under this
Agreement by it prior to the Closing Date and (ii) to satisfy or cause to be
satisfied all conditions precedent on its part to the delivery of the Notes.
(k) Each CSK Party agrees not to sell, offer for sale or solicit offers to
buy or otherwise negotiate, and not to permit its affiliates (as defined in
Regulation 501(b) of Regulation D under the Securities Act, "AFFILIATES") to
sell, offer for sale or solicit offers to buy or otherwise negotiate, directly
or through any agent, in respect of any security (as defined in the Securities
Act) the offering of which security will be integrated with the sale of the
Notes in a manner which would require the registration of the Notes under the
Securities Act and to take all action that is appropriate to assure that its
offerings of other securities will not be integrated for purposes of the
Securities Act with the offerings contemplated hereby.
(l) Each CSK Party agrees, except pursuant to the Exchange Offer or a
Shelf Registration Statement, not to solicit any offer to buy or sell the Notes
by means of any form of general solicitation or general advertising (as those
terms are used in Regulation D under the Securities Act ("REGULATION D")) in
any manner involving a public offering within the meaning of Section 4(2) of
the Securities Act, including: (i) any advertisement, article, notice or other
communication published in any newspaper, magazine or similar medium or
broadcast over television or radio and (ii) any seminar or meeting whose
attendees have been invited by any general solicitation or general advertising.
6
<PAGE> 7
(m) Each CSK Party agrees not to engage, or permit any person acting on
behalf of any CSK Party to engage, in any directed selling efforts within the
meaning of Regulation S under the Securities Act ("REGULATION S") with respect
to the Notes, and to comply, and cause each such person so acting to comply,
with the offering restrictions requirement of Regulation S.
(n) Each CSK Party agrees, so long as any of the Notes remain outstanding
and are "restricted securities" within the meaning of Rule 144(a)(3) under the
Securities Act, during any period in which it is not subject to Section 13 or
15(d) of the Exchange Act, to make available to any holder of Notes in
connection with any sale thereof and any prospective purchaser of Notes from
such holder, in each case upon request, the information specified in, and
meeting the requirements of, Rule 144A(d)(4) under the Securities Act.
(o) Each CSK Party agrees not to, and not to permit any of its affiliates
(as defined in Rule 144(a)(1)) to, (i) purchase any of the Notes unless such
Notes are held in the form of a Certificated Note (as defined in the Final
Offering Memorandum) and (ii) resell any of the Notes, except as permitted by
the Indenture.
4. Offering of Notes; Restrictions on Transfer.
Each Initial Purchaser, as to itself, represents, warrants and covenants
that:
(a) it is a qualified institutional buyer as defined in Rule 144A under
the Securities Act (a "QIB") with such knowledge and experience in financial
and business matters as are necessary to evaluate the merits and risks of an
investment in the Notes, and is not acquiring the Notes with a view to any
distribution thereof;
(b) it will not solicit offers for, or offer to sell, Notes by any
form of general solicitation or general advertising (as those terms are used in
Regulation D) or in any manner involving a public offering within the meaning
of Section 4(2) of the Securities Act;
(c) it will solicit offers for Notes only from, and will offer such Notes
only to (collectively, "EXEMPT RESALES"):
(i) in the case of offers inside the United States, persons that it
reasonably believes to be (A) QIBs or (B) other "institutional accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) that, prior to their purchase of the Notes, deliver to the
Initial Purchasers a letter containing the representations
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<PAGE> 8
and agreements set forth in Exhibit A to the Final Offering Memorandum and
(ii) in the case of offers outside the United States in reliance
upon Regulation S, persons other than U.S. persons ("foreign purchasers,"
which term shall include dealers or other professional fiduciaries in the
United States acting on a discretionary basis for foreign beneficial owners
(other than an estate or trust)), who, in each case, in purchasing such
Notes are deemed to have represented and agreed as provided in the Final
Offering Memorandum under the caption "Notice to Investors";
(d) it understands that the Notes have not been registered under the
Securities Act and may not be offered or sold within the United States or to,
or for the account or benefit of, U.S. persons except in accordance with Rule
144A or Regulation S under the Securities Act or pursuant to another exemption
from the registration requirements of the Securities Act;
(e) in connection with sales outside the United States, it has not offered
the Notes, and will not offer and sell the Notes to, or for the account or
benefit of U.S. persons (i) as part of their distribution at any time and (ii)
otherwise until 40 days after the later of the date hereof and the Closing Date
except, in either case, in accordance with Rule 903 of Regulation S or as
otherwise permitted in paragraph (c) above; neither it, nor its Affiliates nor
any person acting on its behalf has engaged or will engage in any directed
selling efforts (within the meaning of Regulation S) with respect to the Notes;
and it, its Affiliates and any such other persons have complied and will comply
with the offering restrictions requirement of Regulation S;
(f) it agrees that, at or prior to confirmation of sales of the Notes, it
will have sent to each distributor, dealer or person receiving a selling
concession, fee or other remuneration that purchases Notes from it during the
restricted period a confirmation or notice substantially to the following
effect:
The Securities covered hereby have not been registered under the U.S.
Securities Act of 1933 (the "SECURITIES ACT") and may not be offered and
sold within the United States or to, or for the account or benefit of, U.S.
persons (i) as part of their distribution at any time or (ii) otherwise
until 40 days after the later of the commencement of the offering and the
closing date, except in either case in accordance with Regulation S (or
Rule 144A if available) under the Securities Act.
(g) it will comply with all applicable laws and regulations in each
jurisdiction in which it acquires, offers, sells or delivers Notes or has in
its possession or distributes either
8
<PAGE> 9
Offering Memorandum or any such other material, in all cases at its own
expense;
(h) it has (i) not offered or sold and will not offer or sell any Notes to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing or investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995 ("REGULATIONS"); (ii) complied and will comply with
all applicable provisions of the Financial Services Act 1986 and the
Regulations with respect to anything done by it in relation to the Notes in,
from or otherwise involving the U.K.; and (iii) only issued or passed on and
will only issue or pass on to any person in the U.K. any document received by
it in connection with the issue of the Notes if that person is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements)(Exemptions) Order 1996 or is a person to whom such document may
otherwise lawfully be issued or passed on; and
(i) it understands that the Notes have not been and will not be registered
under the Securities and Exchange Law of Japan, and represents that it has not
offered or sold, and agrees that it will not offer or sell, any Notes, directly
or indirectly in Japan or to or from any resident of Japan, except (i) pursuant
to an exemption from the registration requirements of the Securities and
Exchange Law of Japan and (ii) in compliance with any other applicable
requirements of Japanese law.
Terms used but not otherwise defined in this Section 4 have the meanings
given to them by Regulation S.
5. Representations and Warranties of the CSK Parties. The CSK Parties
jointly and severally represent and warrant to the Initial Purchasers that:
(a) The Final Offering Memorandum (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) was, on the
date of its issuance, and is, at the date hereof, accurate in all material
respects and did not and does not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and the Final Offering Memorandum (as amended or
supplemented as necessary) will be, as of the Closing Date, accurate in all
material respects and will not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances, existing at the Closing Date, not
misleading; provided that this representation and warranty shall not apply to
any statements or omissions made
9
<PAGE> 10
in reliance upon and in conformity with information relating to the Initial
Purchasers furnished to the Company in writing by or on behalf of such Initial
Purchasers expressly for use therein.
(b) The Preliminary Offering Memorandum was, on the date of its issuance,
accurate in all material respects and did not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in conformity
with information relating to the Initial Purchasers furnished to the Company in
writing by or on behalf of such Initial Purchasers expressly for use therein.
(c) Each CSK Party has been duly organized, is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation, has all requisite corporate power and authority to carry on its
business as it is currently being conducted and as described in each Offering
Memorandum and to own, lease and operate its properties, and is duly qualified
and in good standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or leasing of
property requires such qualification, except where the failure to be so
qualified or have such power or authority would not have a material adverse
effect on the financial condition, earnings, business or operations of the
Company and the Guarantors, taken as a whole ("MATERIAL ADVERSE EFFECT").
(d) Each CSK Party has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement and the other
Operative Documents and, in the case of the Company, to issue, sell and deliver
the Notes to the Initial Purchasers as provided herein and consummate the
Financings, in the case of the Guarantors, to guarantee the Notes and in the
case of Holdings, to consummate the Acquisition and Financings.
(e) All of the outstanding shares of capital stock of, or other ownership
interests in, each of the Guarantors have been duly authorized and validly
issued and are fully paid and non-assessable, and are owned by the Company,
free and clear of any security interest, claim, lien, encumbrance or adverse
interest of any nature, other than (i) the lien under the Senior Bank Facility
to be in effect from and after the Closing Date, (ii) the lien under the Credit
Agreement dated February 15, 1995 (the "EXISTING CREDIT AGREEMENT") in effect
prior to its termination on the Closing Date or (iii) liens which would not
individually or in the aggregate (including the liens specified in (i) and
(ii)) have a Material Adverse Effect.
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<PAGE> 11
(f) The execution, delivery and performance of each Operative Document by
each CSK Party which is a party thereto and compliance by each such CSK Party
with all the provisions thereof, the consummation by the CSK Parties of the
transactions contemplated thereby and the consummation by the CSK Parties of
the Acquisition and Financings will not require any CSK Party to obtain any
consent, approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body (except (i) such as have been
obtained, (ii) such as may be required under the securities or Blue Sky laws of
various states and (iii) such as may be required under federal securities laws
in connection with the Exchange Offer or the Shelf Registration Statement) and
will not conflict with or constitute a breach of any of the terms or provisions
of, or a default under, the charter or by-laws of any CSK Party or, except
where such conflict or breach would not have a Material Adverse Effect, any
agreement, indenture or other instrument to which a CSK Party is a party or by
which a CSK Party or its property is bound, or violate or conflict with any
laws, administrative regulations or rulings or court decrees applicable to a
CSK Party or its property.
(g) This Agreement has been duly and validly authorized, executed and
delivered by each CSK Party.
(h) The Indenture has been duly and validly authorized by the Company and
the Guarantors and, when duly executed and delivered by the Company and the
Guarantors (assuming the due execution and delivery thereof by the Trustee),
will be the legally valid and binding obligation of the Company and the
Guarantors, enforceable against the Company and the Guarantors in accordance
with its terms, except for (i) the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and other similar laws relating
to or affecting the rights of creditors generally and (ii) limitations imposed
by federal or state law or equitable principles upon the specific
enforceability of any of the remedies, covenants or other provisions of the
Indenture and upon the availability of injunctive relief or other equitable
remedies. When executed and delivered, the Indenture will conform in all
material respects to the description thereof in the Final Offering Memorandum.
(i) The Notes have been duly and validly authorized for issuance and sale
by the Company to the Initial Purchasers pursuant to this Agreement and, when
issued and authenticated in accordance with the terms of the Indenture and
delivered against payment therefor in accordance with the terms hereof
(assuming the due authentication thereof by the Trustee), will be the legally
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms and entitled to the benefits of the Indenture,
except that the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or similar laws
affecting
11
<PAGE> 12
creditors' rights generally and the availability of equitable remedies may be
limited by equitable principles of general applicability. When issued,
authenticated and delivered, the Notes will conform in all material respects to
the description thereof in the Final Offering Memorandum.
(j) Each of the agreements and other documents comprising the Senior Bank
Facility has been duly authorized by the CSK Parties and, when executed and
delivered by the CSK Parties, will constitute a valid and binding agreement of
the CSK Parties, enforceable in accordance with its terms, except that the
enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or similar laws affecting
creditors' rights generally and the availability of equitable remedies may be
limited by equitable principles of general applicability.
(k) The Registration Rights Agreement has been duly and validly authorized
by the Company and the Guarantors and, when duly executed and delivered by the
Company and the Guarantors, will be the legally valid and binding agreement of
the Company and the Guarantors, enforceable against the Company and the
Guarantors in accordance with its terms, except for (i) the effect of
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
other similar laws relating to or affecting the rights of creditors generally,
(ii) limitations imposed by federal or state law or equitable principles upon
the specific enforceability of any of the remedies, covenants or other
provisions of the Registration Rights Agreement and upon the availability of
injunctive relief or other equitable remedies and (iii) limitations imposed by
applicable laws and equitable consideration of public policy issues upon the
enforceability of rights to indemnification and contribution under the
Registration Rights Agreement. When executed and delivered, the Registration
Rights Agreement will conform in all material respects to the description
thereof in the Final Offering Memorandum.
(l) Since the respective dates as of which information is given in each
Offering Memorandum, except as otherwise stated therein or contemplated
thereby, (i) there has been no material adverse change, or any development that
is reasonably likely to result in a prospective material adverse change in the
financial condition, earnings, business or operations of the Company and the
Guarantors, taken as a whole, (ii) there have been no transactions entered into
by the Company or either Guarantor, other than those in the ordinary course of
business, that are material with respect to the Company and the Guarantors,
taken as a whole, (iii) there has not been any material change in the capital
stock, short- term debt or long-term debt of the Company and the Guarantors,
taken as a whole, except in each case as described in each Offering Memorandum
and (iv) except as contemplated by the Acquisition and Financings, there has
been no dividend or distribution of any kind declared, paid or made by
12
<PAGE> 13
the Company or either Guarantor on any class of its capital stock.
(m) No CSK Party is in violation of its charter or by-laws or in default
in the performance of any obligation, agreement or condition contained in any
bond, debenture, note or any other evidence of indebtedness or in any other
agreement, indenture or instrument material to the conduct of the business of
the Company and the Guarantors, taken as a whole, to which any CSK Party is a
party or by which any CSK Party or its property is bound, except for any such
violation or default that would not have a Material Adverse Effect.
(n) Except as set forth in each Offering Memorandum, there is
(i) no action, suit or proceeding before or by any court, arbitrator
or governmental agency, body or official, domestic or foreign, or to the
knowledge of the Company or the Guarantors, now pending, threatened or
contemplated to which the Company or the Guarantors is or may be a party or
to which the business or property of the Company or the Guarantors is or
may be subject,
(ii) no statute, rule, regulation or order that has been enacted,
adopted or issued by any governmental agency or that, to the knowledge of
the Company or the Guarantors, has been proposed by any governmental body,
and
(iii) no injunction, restraining order or order of any nature by a
federal or state court of competent jurisdiction has been or, to the
knowledge of the Company or the Guarantors, may be issued,
that is required to be disclosed in the Final Offering Memorandum in order
to make the statements therein not misleading and that is not so disclosed or
would interfere with or adversely affect the issuance of the Notes or the
consummation of the Acquisition and Financings or in any manner draw into
question the validity of any Operative Document or could reasonably be expected
to have a Material Adverse Effect. No contract, agreement, instrument or
document of a character required to be described in the Final Offering
Memorandum in order to make the statements therein not misleading is not so
described.
(o) Except as disclosed in each Offering Memorandum, neither the Company
nor any Guarantor has violated any foreign, federal, state or local law or
regulation relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS") nor any federal or state law relating to
discrimination in the hiring, promotion or pay of
13
<PAGE> 14
employees nor any applicable federal or state wages and hours laws nor any
provisions of the Employee Retirement Income Security Act of 1974, as amended,
or the rules and regulations promulgated thereunder, which in each case could
reasonably be expected to have a Material Adverse Effect.
(p) Except as described in each Offering Memorandum, the Company and the
Guarantors (i) have all permits, licenses, franchises and authorizations of
governmental or regulatory authorities ("PERMITS"), including, without
limitation, under any applicable Environmental Laws, material to the ownership,
leasing and operation of their properties and the conduct of their business and
(ii) have fulfilled and performed all of their material obligations with
respect to such permits and no event has occurred which allows, or after notice
or lapse of time would allow, revocation or termination thereof or results in
any other material impairment of the rights of the holder of any such permit,
except where the failure to have, fulfill or perform the same, and except where
any such revocation, termination or impairment, would not have a Material
Adverse Effect. Except as described in each Offering Memorandum, such permits
contain no restrictions that are materially burdensome to the Company and the
Guarantors, taken as a whole.
(q) The costs and liabilities associated with the effect of Environmental
Laws on the business, operations and properties of the Company and the
Guarantors (including without limitation any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental
Laws or any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties) would not, singly or
in the aggregate, have a Material Adverse Effect.
(r) The Company has good and marketable title in fee simple to, or has
valid rights to lease or otherwise use, all items of real or personal property
which are material to the business of the Company and the Guarantors, taken as
a whole, in each case free and clear of all liens, encumbrances and defects
that would have a Material Adverse Effect, other than (i) Permitted Liens (as
defined in the Indenture) and (ii) liens pursuant to the Existing Credit
Agreement, which will be terminated as of the Closing Date upon consummation of
the Acquisition and the Financings. No default has occurred or is continuing
under any lease to which the Company is a party which could have a Material
Adverse Effect.
(s) Neither the Company nor any Guarantor is (i) an "investment company"
or a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended (the "INVESTMENT COMPANY ACT") or
(ii) a "holding company" or a "subsidiary company" of a holding company or an
"affiliate" thereof within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
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<PAGE> 15
(t) The financial statements, together with related schedules and notes
forming part of each Offering Memorandum (and any amendment or supplement
thereto), present fairly the financial position, results of operations and
changes in financial position of the Company and the Guarantors on the basis
stated in each Offering Memorandum at the respective dates or for the
respective periods to which they apply; such statements and related schedules
and notes have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, except as
disclosed therein; and the other financial and statistical information and data
set forth in each Offering Memorandum (and any amendment or supplement thereto)
is, in all material respects, accurately presented and prepared on a basis
consistent with such financial statements and the books and records of the
relevant entity except to the extent stated therein.
(u) Upon consummation of the Acquisition and Financings (including the
issuance of the Notes), the present fair salable value of the assets of the
Company and the Guarantors, taken as a whole, will exceed the amount that will
be required to be paid on or in respect of its existing debts and other
liabilities (including contingent liabilities) as they become absolute and
matured. The assets of the Company and the Guarantors, taken as a whole, upon
the issuance of the Notes, will not constitute unreasonably small capital to
carry out their businesses as now conducted, including the capital needs of the
Company and the Guarantors, taking into account the projected capital
requirements and capital availability of the Company and the Guarantors.
Neither the Company nor the Guarantors (i) is entering into the Acquisition and
Financings with the intent to hinder, delay, or defraud any entity to which it
is or will become indebted or (ii) will receive less than reasonably equivalent
value in exchange for entering into the Acquisition and Financings.
(v) There are no holders of securities of the Company or the Guarantors
who, by reason of the execution by the Company and the Guarantors of this
Agreement or the consummation of the transactions contemplated hereby or by the
Acquisition and Financings, have the right to request or demand that the
Company or the Guarantors register under the Securities Act securities of the
Company or any Guarantor held by them, except pursuant to the Stockholders'
Agreement or Registration Rights Agreement.
(w) Except as disclosed in each Offering Memorandum, other than this
Agreement, there are no contracts, agreements or understandings between any CSK
Party and any person that would give rise to a valid claim against the Company
or either Guarantor or the Initial Purchasers for a brokerage commission,
finder's fee or like payment in connection with the issuance, purchase or sale
of the Notes.
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<PAGE> 16
(x) The Company does not own any "margin securities" as that term is
defined in Regulations G and U of the Board of Governors of the Federal Reserve
System and none of the proceeds from the sale of the Securities will be used,
directly or indirectly, for the purpose of purchasing or carrying any margin
security, for the purpose of reducing or retiring any indebtedness that was
originally incurred to purchase or carry any margin security.
(y) To the best of the Company's knowledge, Price Waterhouse LLP is an
"independent public accountant", as defined in the Securities Act.
(z) The Company and the Guarantors have complied with all of the
provisions of Florida H.B. 1771, codified as Section 517.075 of the Florida
statutes, and all regulations promulgated thereunder relating to issuers doing
business with the Government of Cuba or with any person or any affiliate
located in Cuba.
(aa) No CSK Party nor any Affiliate of any CSK Party has directly, or
through any agent, (i) sold, offered for sale, solicited offers to buy or
otherwise negotiated in respect of, any security (as defined in the Securities
Act) the offering of which security is or will be integrated with the sale of
the Notes in a manner that would require the registration of the Notes under
the Securities Act or (ii) solicited any offer to buy or sell the Notes by any
form of general solicitation or general advertising (as those terms are used in
Regulation D) in any manner involving a public offering within the meaning of
Section 4(2) of the Securities Act.
(bb) No CSK Party, any Affiliate or any person acting on their behalf
has engaged in any directed selling efforts (as that term is defined in
Regulation S) with respect to the Notes.
(cc) Assuming (a) the accuracy of the Initial Purchasers'
representations and warranties set forth in this Agreement and (b) that the
purchasers who buy the Notes in Exempt Resales are either QIBs, "institutional
investors" or "foreign purchasers" (as each term is defined in Section 4(d) of
this Agreement), it is not necessary, in connection with the sale of the Notes
to the Initial Purchasers, to register the Notes under the Securities Act or to
qualify the Indenture under the Trust Indenture Act of 1939. The Notes satisfy
the eligibility requirements set forth in Rule 144A(d)(3) under the Securities
Act.
(dd) No CSK Party has taken and no CSK Party will take, directly or
indirectly, any action prohibited by Rule 10b-6 of the Securities Exchange Act
of 1934, as amended.
(ee) Except as disclosed in each Offering Memorandum, there are no
business relationships or related party transactions which would be required to
be disclosed by Item 404 of Regulation S-K
16
<PAGE> 17
of the Securities and Exchange Commission in a registration statement of the
Company and the Guarantors becoming effective on the date hereof.
(ff) The Acquisition and Financings have been duly authorized by all
requisite corporate action on the part of each CSK Party.
6. Indemnification. (a) Each of the Company and the Guarantors jointly
and severally agrees to indemnify and hold harmless the Initial Purchasers and
each person, if any, who controls each Initial Purchaser within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, and the
respective officers, directors, partners and employees of the Initial
Purchasers (each an "INDEMNIFIED PERSON") from and against any and all losses,
claims, damages, liabilities and judgments caused by any untrue statement or
alleged untrue statement of a material fact contained in either Offering
Memorandum (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except (i) insofar as
such losses, claims, damages, liabilities or judgments are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information relating to the Initial Purchasers furnished in writing to the
Company by or on behalf of any Initial Purchaser expressly for use therein and
(ii) that, with respect to any such untrue statement or omission or alleged
untrue statement or omission made in the Preliminary Offering Memorandum, the
indemnity agreement contained in this Section 6 shall not inure to the benefit
of the Initial Purchaser from whom the person asserting any such losses,
claims, damages, liabilities and judgments purchased the Notes if the untrue
statement or omission or alleged untrue statement or omission in the
Preliminary Offering Memorandum was corrected in the Final Offering Memorandum.
The Company and the Guarantors shall notify the Initial Purchasers promptly of
the institution, threat or assertion of any claim, proceeding (including
governmental or regulatory investigation) or litigation in connection with the
matters addressed by this Agreement which involve the Company or the Guarantors
or an Indemnified Person.
(b) If any action is brought against any Indemnified Person, based upon
either Offering Memorandum or any amendment or supplement thereto and with
respect to which indemnity may be sought against the Company or the Guarantors,
such Indemnified Person shall promptly notify the Company and the Guarantors,
in writing and the Company and the Guarantors shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Person and payment of all fees and expenses. Any Indemnified Person shall have
the right to employ separate counsel in any such action and participate in the
17
<PAGE> 18
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Person unless (i) the employment of such counsel
shall have been specifically authorized in writing by the Company and the
Guarantors, (ii) the Company and the Guarantors shall have failed to assume the
defense and employ counsel or (iii) the named parties to any such action
(including any impleaded parties) include both such Indemnified Person and the
Company and the Guarantors, and such Indemnified Person shall have been advised
by such counsel that there may be one or more legal defenses available to it
which are different from or additional to those available to the Company and
the Guarantors (in which case the Company and the Guarantors shall not have the
right to assume the defense of such action on behalf of such Indemnified
Person, it being understood, however, that the Company and the Guarantors shall
not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all such Indemnified Persons, which firm shall be designated in
writing by Donaldson, Lufkin & Jenrette Securities Corporation, and that all
such reasonable fees and expenses shall be reimbursed as they are incurred).
(c) Neither the Company nor any Guarantor shall be liable for any
settlement of any such action effected without its written consent, but, if
settled with the written consent of the Company and the Guarantors, the Company
and the Guarantor agree to indemnify and hold harmless any Indemnified Person
from and against any loss or liability by reason of such settlement.
Notwithstanding the immediately preceding sentence, if in any case where the
fees and expenses of counsel are at the expense of the indemnifying party and
an Indemnified Person shall have requested the indemnifying party to reimburse
the Indemnified Person for such fees and expenses of counsel as incurred, such
indemnifying party agrees that it shall be liable for any settlement of any
action effected without its written consent if (i) such settlement is entered
into more than sixty business days after the receipt by such indemnifying party
of the aforesaid request and (ii) such indemnifying party shall have failed to
reimburse the Indemnified Person in accordance with such request for
reimbursement prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the Indemnified Person, effect any
settlement of any pending or threatened proceeding in respect of which any
Indemnified Person is or could have been a party and indemnity could have been
sought hereunder by such Indemnified Person, unless such settlement includes an
unconditional release of such Indemnified Person from all liability on claims
that are the subject matter of such proceeding.
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<PAGE> 19
(d) Each Initial Purchaser agrees to indemnify and hold harmless the
Company, the Guarantors, each person controlling the Company within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act and their
respective officers, directors, partners and employees (the "CSK INDEMNIFIED
PERSONS"), to the same extent as the foregoing indemnity from the Company and
the Guarantors to such Initial Purchaser but only with reference to information
relating to such Initial Purchaser furnished in writing by or on behalf of such
Initial Purchaser to the Company, expressly for use in either Offering
Memorandum. If any action shall be brought against any CSK Indemnified Person
based on either Offering Memorandum and in respect of which indemnity may be
sought against any Initial Purchaser, such Initial Purchaser shall have the
rights and duties given to the Company and the Guarantors (except that if the
relevant CSK Indemnified Person shall not have assumed the defense thereof,
such Initial Purchaser shall be required to do so, but may employ separate
counsel therein and participate in the defense thereof but the fees and
expenses of such counsel shall be at such Initial Purchaser's expense), and the
CSK Indemnified Persons shall have the rights and duties given to the Initial
Purchasers by Sections 6(b) and (c).
(e) If the indemnification provided for in this Section 6 is unavailable
to an indemnified party in respect of any losses, claims, damages, liabilities
or judgments referred to therein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities and judgments (i) in such proportion as is appropriate to reflect
the relative benefits received by the indemnifying party on the one hand and
the indemnified party on the other hand from the offering of the Notes or (ii)
if the allocation provided by clause (i) above 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
indemnifying parties and the indemnified party in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the
Guarantors, on the one hand, and the Initial Purchasers, on the other hand,
shall be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company and the Guarantors
bear to the total underwriting discounts and commissions received by the
Initial Purchasers, in each case as set forth on the cover page of the Final
Offering Memorandum. The relative fault of the Company and the Guarantors, on
the one hand, and the Initial Purchasers, on the other hand, shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Company and the
19
<PAGE> 20
Guarantors or an Initial Purchaser and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the Guarantors and the Initial Purchasers agree that it
would not be just and equitable if contribution pursuant to this Section 6(e)
were determined by pro rata allocation (even if the Initial Purchasers 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 in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 6, no Initial Purchaser shall be required to contribute any amount in
excess of the amount by which the total underwriting discount applicable to the
Notes purchased by such Initial Purchaser exceeds the amount of any damages
which such Initial Purchaser has otherwise been required to pay by reason of
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 Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Initial
Purchasers' obligations to contribute pursuant to this subsection are several
and in proportion to the respective amount of Notes purchased by each Initial
Purchaser hereunder and not joint. No party shall be liable for contribution
with respect to any action or claim settled without its consent, provided that
such consent was not unreasonably withheld.
The indemnity and contribution agreements contained in this Section are in
addition to any liability which the indemnifying persons may otherwise have to
the indemnified persons referred to above.
7. Conditions of Several Obligations of the Initial Purchasers. The
several obligations of the Initial Purchasers under this Agreement are subject
to the satisfaction of each of the following conditions:
(a) All the representations and warranties of each CSK Party contained in
this Agreement shall be true and correct on the Closing Date with the same
force and effect as if made on and as of the Closing Date. The CSK Parties
shall have performed or complied with all of the agreements herein contained
and required to be performed or complied with by them at or prior to the
Closing Date.
20
<PAGE> 21
(b) Subsequent to the execution and delivery of this Agreement and prior
to the Closing Date, there shall not have been any downgrading, nor shall any
notice have been given of any intended or potential downgrading, or of any
review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any securities of the Company or any of
the Guarantors by any "nationally recognized statistical rating organization",
as such term is defined for purposes of Rule 436(g)(2) under the Securities
Act.
(c) (i) Since the date of the latest balance sheet included in the Final
Offering Memorandum, there shall not have been any material adverse change, or
any development that is reasonably likely to result in a prospective material
adverse change, in the financial condition, earnings, business or operations of
the Company and the Guarantors, taken as a whole.
(ii) Since the date of the latest balance sheet included in the
Final Offering Memorandum there shall not have been any material adverse
change, or any development involving a prospective material adverse change,
in the capital stock or in the long-term debt of the Company and the
Guarantors from that set forth in the Final Offering Memorandum and, except
as contemplated by the Acquisition and Financings, no dividend or
distribution of any kind shall have been declared, paid or made by the
Company and the Guarantors on any class of their capital stock.
(iii) Neither the Company nor either Guarantor shall have incurred
any liabilities or obligations, direct or contingent, or entered into any
transactions, not in the ordinary course of business, that are material,
individually or in the aggregate, to the Company and the Guarantors, taken as a
whole, other than those reflected in the Final Offering Memorandum.
(d) On the Closing Date, the Initial Purchasers shall have received
certificates dated the Closing Date, signed by the President and the Treasurer
of the Company and Holdings, respectively, confirming the matters set forth in
paragraphs (a), (b) and (c) of this Section as they relate to the CSK Parties.
(e) No action shall have been taken and no statute, rule or regulation or
order shall have been enacted, adopted or issued by any governmental agency
that would as of the Closing Date prevent the issuance of the Notes or the
consummation of the Acquisition and other Financings. No injunction,
restraining order or order of any nature by a federal or state court of
competent jurisdiction shall have been issued as of the Closing Date that would
prevent or interfere with the issuance of the Notes or the consummation of the
Acquisition and other Financings. On the Closing Date, no action, suit or
proceeding shall be pending against or affecting or, to the best knowledge of
any CSK Party,
21
<PAGE> 22
threatened against, any CSK Party, before ANY court or arbitrator or any
governmental body, agency or official, except as disclosed in the Final
Offering Memorandum and except for such actions, suits or proceedings that if
adversely determined would not, either individually or in the aggregate, have a
material adverse effect on the issuance of the Notes or would not individually
or in the aggregate have a Material Adverse Effect or in any manner draw into
question the validity of any Operative Document or prevent the consummation of
the Acquisition and Financings.
(f) The Initial Purchasers shall have received on the Closing Date an
opinion (satisfactory to the Initial Purchasers and counsel to the Initial
Purchasers), dated the Closing Date, of Bryan Cave, Arizona counsel for the
Company and the Guarantors, substantially to the following effect:
(i) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation
and has the requisite corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Final Offering Memorandum, except where the failure to have such power or
authority would not have a Material Adverse Effect.
(ii) All of the outstanding shares of capital stock of, or other
ownership interests in, each of the Guarantors are owned by the Company,
free and clear of any security interest, claim, lien, encumbrance or
adverse interest of any nature other than the lien under the Senior Bank
Facility.
(iii) The execution, delivery and performance of each Operative
Document and compliance by the Company with all the provisions thereof, the
consummation of the transactions contemplated thereby and the consummation
of the Acquisition and Financings will not conflict with or constitute a
breach of any of the terms or provisions of, or a default under, the
charter or by-laws of the Company.
(iv) The Company has the requisite corporate power and authority to
execute, deliver and perform its obligations under the Operative Documents
and to consummate the Acquisition and Financings.
(v) Each of the Operative Documents to which the Company is a party
has been duly authorized, executed and delivered by the Company.
(vi) The Acquisition and Financings have been duly authorized by
all requisite corporate action on the part of the Company.
22
<PAGE> 23
(g) The Initial Purchasers shall have received on the Closing Date an
opinion (satisfactory to the Initial Purchasers and counsel to the Initial
Purchasers), dated the Closing Date, of Lon Novatt, General Counsel of the
Company, substantially to the following effect:
(i) Each of the Guarantors is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has the requisite corporate power and authority to own,
lease and operate its properties and to conduct its business as described
in the Final Offering Memorandum, except where the failure to have such
power or authority would not have a Material Adverse Effect.
(ii) All of the outstanding shares of capital stock of, or other
ownership interests in, each of the Guarantors have been duly authorized
and validly issued and are fully paid and non-assessable.
(iii) The execution, delivery and performance of each Operative
Document and compliance by each of the Guarantors with all the provisions
thereof, the consummation of the transactions contemplated thereby and the
consummation of the Acquisition and Financings will not conflict with or
constitute a breach of any of the terms or provisions of, or a default
under, the charter or by-laws of any of the Guarantors.
(iv) Each of the Guarantors has the requisite corporate power and
authority to execute, deliver and perform its obligations under the
Operative Documents and to consummate the Acquisition and Financings.
(v) Each of the Operative Documents to which the Guarantors are a
party has been duly authorized, executed and delivered by such Guarantor;
and
(vi) The Acquisition and Financings have been duly authorized by
all requisite corporate action on the part of each of the Guarantors.
(h) The Initial Purchasers shall have received on the Closing Date an
opinion (satisfactory to the Initial Purchasers and counsel to the Initial
Purchasers), dated the Closing Date, of Parker Chapin Flattau & Klimpl, LLP,
counsel for the Company and the Guarantors, substantially to the following
effect:
(i) Each of the Company and the Guarantors is duly qualified to do
business as a foreign corporation in good standing in all jurisdictions in
which the nature of the property owned or leased by such person or the
nature of the
23
<PAGE> 24
business transacted by such person makes such qualification necessary,
except where failure to be so qualified would not have a Material Adverse
Effect.
(ii) Except as set forth in each Offering Memorandum, there is (a)
no action, suit or proceeding before or by any court, arbitrator or
governmental agency, body or official, domestic or foreign, now pending,
or, to such counsel's knowledge, threatened or contemplated to which any
CSK Party is or may be a party or to which the business or property of any
CSK Party is or may be subject, (b) no statute, rule, regulation or order
that has been enacted, adopted or issued by any governmental agency or, to
such counsel's knowledge, that has been proposed by any governmental body
and (c) no injunction, restraining order or order of any nature by a
federal or state court of competent jurisdiction has been or, to such
counsel's knowledge, may be issued that is required to be disclosed in the
Final Offering Memorandum in order to make the statements therein not
misleading and that is not so disclosed or could reasonably be expected to
have a Material Adverse Effect. No contract, agreement, instrument or
document known to such counsel of a character required to be described in
the Final Offering Memorandum in order to make the statements therein not
misleading is not so described.
(iii) The statements (other than financial, statistical and
accounting data) in the second paragraph under the caption "Management's
Discussion and Analysis of Results of Operation and Financial Condition -
Liquidity and Capital Resources" in the first seven paragraphs under the
caption "Certain Transactions", and under the caption "Business-Legal
Proceedings" in the Final Offering Memorandum, insofar as such statements
constitute a summary of legal matters, documents or proceedings referred to
therein, fairly present the information required with respect to such legal
matters, documents and proceedings in order to make the statements therein
not materially misleading.
(iv) Neither the Company nor either Guarantor is an "investment
company" or a company "controlled" by an investment company within the
meaning of the Investment Company Act of 1940, as amended.
(v) Except as disclosed in each Offering Memorandum, there are no
business relationships or related party transactions known to such counsel
which would be required to be disclosed by Item 404 of Regulation S-K of
the Securities and Exchange Commission in a registration statement of the
Company and the Guarantors becoming effective on the date hereof.
24
<PAGE> 25
(vi) In the course of the preparation by the Company of the
Offering Memorandum, such counsel has participated in conferences and
discussions with officers and other representatives of the Company and
others at which the contents of the Final Offering Memorandum were
discussed. Although such counsel has not independently verified and is not
passing upon and does not assume responsibility for the accuracy,
completeness or fairness of the statements and information included in the
Final Offering Memorandum, no facts have come to such counsel's attention
which cause such counsel to believe that the Final Offering Memorandum
(except for any financial statements and notes and schedules thereto, pro
forma financial information, other financial, statistical or accounting
data contained or incorporated by reference therein or information under
the captions "Description of Senior Subordinated Notes", "The Acquisition
and Financings" and "Credit Agreement", as to all of which such counsel
makes no comment), as of the date thereof and as of the date hereof,
contained any untrue statement of a material fact or omitted to state any
material fact necessary to make the statements made therein, in light of
the circumstances under which they are made, not misleading.
(i) The Initial Purchasers shall have received on the Closing Date a copy
of the opinion dated the Closing Date, of Gibson Dunn & Crutcher, special
counsel for the Company and the Guarantors, substantially to the following
effect:
(i) Holdings is a corporation duly incorporated, validly existing and
in good standing in the State of Delaware.
(ii) Holdings has the requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement and to
consummate the Acquisition and Financings.
(iii) The Acquisition and Financings have been duly authorized by all
requisite corporate action on the part of Holdings.
(iv) This Agreement has been duly and validly authorized, executed
and delivered by Holdings.
(v) Assuming that the Indenture and the Registration Rights Agreement
have been duly and validly authorized by each CSK Party which is a party
thereto and, validly executed and delivered by the other parties thereto,
such agreements will be the legally valid and binding agreement of each CSK
Party enforceable against each CSK Party in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and other similar laws now or hereafter in effect
relating
25
<PAGE> 26
to or affecting creditors' rights and remedies generally and to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity) and except to the extent that
indemnification and contribution may be unenforceable.
(vi) Assuming the Notes have been duly authorized and executed by
the Company, when authenticated in accordance with the terms of the
Indenture and delivered to and paid for by the Initial Purchasers in
accordance with the terms of this Agreement (assuming due authentication
thereof by the Trustee), will constitute valid and legally binding
obligations of the Company enforceable against the Company in accordance
with their terms and entitled to the benefits of the Indenture, subject to
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other similar laws now or hereafter in effect relating to or
affecting creditors' rights and remedies generally and to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
(vii) The execution, delivery and performance of each Operative
Document by each CSK Party which is a party thereto and compliance by each
such CSK Party with all the provisions thereof, and the consummation by the
CSK Parties of the transactions contemplated thereby and the consummation
by the CSK Parties of the Acquisition and Financings will not require any
CSK Party to obtain any consent, approval, authorization or other order of
any court, regulatory body, administrative agency or other governmental
body (except (x) such as have been obtained, (y) such as may be required
under the securities or Blue Sky laws of various states and (z) such as may
be required under federal securities laws in connection with the Exchange
Offer or the Shelf Registration Statement) and will not, to the knowledge
of such counsel, conflict with or constitute a breach of any of the terms
or provisions of, or a default under any agreement, indenture or other
instrument to which a CSK Party is a party or by which a CSK Party or its
property is bound (identified to such counsel in a certificate of a
responsible officer of the Company as being a material agreement, indenture
or other instrument), or violate or conflict with any laws, administrative
regulations or, to the knowledge of such counsel after due inquiry of
responsible officers of the Company, rulings or court decrees applicable to
a CSK Party.
(viii) Except as set forth in each Offering Memorandum, to such
counsel's actual knowledge without independent investigation, no
injunction, restraining order or order of any nature by a federal or state
court of competent jurisdiction has been or, to such counsel's knowledge,
may be issued that would interfere with or adversely affect the issuance of
the Notes or the
26
<PAGE> 27
consummation of Acquisition and other Financings or in any manner draw into
question the validity of any Operative Document or other Financings or in
any manner draw into question the validity of any Operative Document.
(ix) The Indenture, the Notes and the Registration Rights Agreement
conform in all material respects to the descriptions thereof contained in
the Final Offering Memorandum.
(x) To the best of such counsel's knowledge, the statements contained
under the captions "Acquisition and Financings", "Credit Agreement",
"Management -1996 Stock Incentive Plan of the Company", the eighth, ninth
and tenth paragraphs of "Certain Transactions", "-Stockholders' Agreement",
"Description of the Senior Subordinated Notes", "ERISA Considerations" and
"Notice to Investors" in the Final Offering Memorandum, insofar as such
statements constitute a summary of legal matters, documents or proceedings
referred to therein, fairly present, taken together in their entirety, the
information provided with respect to such legal matters, documents or
proceedings.
(xi) Assuming the accuracy of the representations and warranties of
the CSK Parties contained in paragraphs (aa),(bb) and (cc) of Section 5
hereof and of the Initial Purchasers contained in Section 4 hereof and
assuming compliance with the covenants of the CSK Parties contained in
Section 3 hereof and with the representations and covenants referred to
under the captions "Private Placement" and "Notice to Investors" in the
Final Offering Memorandum, the issuance and sale of the Notes to the
Initial Purchasers and the initial offering, resale and delivery of the
Notes by the Initial Purchasers, in each case in the manner contemplated in
the Final Offering Memorandum and this Agreement, are exempt from the
registration requirements of the Securities Act of 1933, as amended,
provided that no opinion need be expressed as to any subsequent resales of
the Notes.
Such counsel may state in such opinion that as to certain matters relating
to the Company and the Guarantors they are relying on the opinions of Bryan
Cave and Lon Novatt set forth in paragraphs (f) and (g).
(j) All proceedings taken in connection with the sale of the Notes as
herein contemplated shall be reasonably satisfactory in form and substance to
the Initial Purchasers and to Davis Polk & Wardwell, counsel for the Initial
Purchasers, and the Initial Purchasers shall have received on the Closing Date
an opinion, dated the Closing Date, of Davis Polk & Wardwell in form and
substance reasonably satisfactory to the Initial Purchasers.
27
<PAGE> 28
(k) At the time this Agreement is executed and delivered by the CSK
Parties and on the Closing Date, the Initial Purchasers shall have received
letters, substantially in the form previously approved by the Initial
Purchasers, from Price Waterhouse LLP, independent public accountants, with
respect to the financial statements and certain financial information contained
in each Offering Memorandum.
(l) The Initial Purchasers shall have received on or before the Closing
Date a copy of a letter from each of Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc., and Moody's Investors Services
assigning to the Notes ratings of B- and B3, respectively. Such ratings shall
have been confirmed on the Closing Date by the applicable rating agency and
neither of such rating agencies shall have announced that it has its rating of
the Notes under surveillance or review.
(m) The Notes shall be eligible for inclusion in the PORTAL trading
system.
(n) Counsel for the Initial Purchasers shall have been furnished with such
documents as they may reasonably require for the purpose of enabling them to
review or pass upon the matters referred to in this Section 7 in order to
evidence the accuracy, completeness or satisfaction in all material respects of
any of the representations, warranties or conditions herein contained.
(o) Each Operative Document shall have been executed and delivered by each
party thereto and a true and complete copy of each shall have been delivered to
the Initial Purchasers.
(p) No CSK Party shall have failed at or prior to the Closing Date to
perform or comply with any of the agreements contained in any Operative
Document and required to be performed or complied with by such CSK Party at or
prior to the Closing Date.
(q) The Operative Documents, the Stock Purchase Agreement and the
Stockholders' Agreement shall be in full force and effect on the Closing Date.
No waiver, amendment or modification of any provision of the Stock Purchase
Agreement shall have occurred other than any waiver, amendment or modification
which in the Initial Purchasers' reasonable judgment does not make it
impracticable to market the Notes on the terms and in the manner contemplated
in the Final Offering Memorandum.
(r) The Senior Bank Facility shall be in full force and effect on the
Closing Date, and prior to or contemporaneously with the Closing Date, each of
the actions contemplated or required to occur and each of the conditions
contemplated or required to be satisfied on or prior to the closing of the
Senior Bank Facility, shall have occurred or been satisfied and no waiver,
amendment or modification of any provision of the Senior
28
<PAGE> 29
Bank Facility shall have occurred, other than any such action or condition or
any such waiver, amendment or modification which in the Initial Purchasers'
reasonable judgment does not make it impracticable to market the Notes on the
terms and in the manner contemplated in the Final Offering Memorandum; and the
Company shall have received the proceeds of the borrowings under the Senior
Bank Facility and the Acquisition and other Financings shall have occurred
prior to or simultaneously with the closing hereunder in the manner described
in the Final Offering Memorandum.
All opinions, certificates, letters and other documents required by this
Section to be delivered by any CSK Party will be in compliance with the
provisions thereof only if they are reasonably satisfactory in form and
substance to the Initial Purchasers. The Company will furnish the Initial
Purchasers with such conformed copies of such opinions, certificates, letters
and other documents as it shall reasonably request.
8. Termination. This Agreement may be terminated at any time prior to
the Closing Date by the Initial Purchasers by notice to the Company if any of
the following has occurred: (i) any CSK Party shall have failed, refused or
been unable to perform in any material respect any agreement on its part then
to be performed under any Operative Document, (ii) since the respective dates
as of which information is given in either Offering Memorandum, any adverse
change in the condition (financial or otherwise), earnings, business,
operations or prospects of the Company and the Guarantors, whether or not
arising in the ordinary course of business, which would, in the Initial
Purchasers' judgment, make it impracticable to market the Notes on the terms
and in the manner contemplated in the Final Offering Memorandum, (iii) any
outbreak or escalation of hostilities or other national or international
calamity or crisis involving the United States or change in economic conditions
or in the financial markets of the United States that, in the Initial
Purchasers' judgment, is material and adverse and would, in the Initial
Purchasers' judgment, make it impracticable to market the Notes on the terms
and in the manner contemplated in the Final Offering Memorandum, (iv) the
suspension or material limitation of trading in securities on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National Market
System or limitation on prices for securities on any such exchange or national
market system, (v) the enactment, publication, decree or other promulgation of
any federal or state statute, regulation, rule or order of any court or other
governmental authority which in the Initial Purchasers' opinion materially and
adversely affects, or will materially and adversely affect, the financial
condition, earnings, business, operations or prospects of the Company and the
Guarantors, taken as a whole, (vi) the declaration of a banking moratorium by
either federal or New York State authorities or (vii) the taking of any action
by any federal, state or local government or agency
29
<PAGE> 30
in respect of its monetary or fiscal affairs which in the Initial Purchasers'
opinion has a material adverse effect on the financial markets in the United
States.
Notwithstanding any termination of this Agreement, the Company shall be
liable for all expenses which it has agreed to pay pursuant to Section 3
hereof. 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 3 hereof
9. Defaulting Initial Purchaser. If either Initial Purchaser shall
default in its obligation to purchase Notes hereunder, the non-defaulting
Initial Purchaser may in its discretion arrange for it or for another party or
parties to purchase such Notes to which such default relates on the terms
contained herein. In the event that within five calendar days after such a
default the non-defaulting Initial Purchaser does not arrange for the purchase
of the Notes to which such default relates as provided in this Section 10, this
Agreement shall terminate without liability of the Company with respect
thereto, but nothing in this Agreement shall relieve a defaulting Initial
Purchaser of its liability, if any, to the other Initial Purchaser and the
Company for damages occasioned by its default hereunder.
10. Miscellaneous. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (a) if to any CSK Party, to the
Company, 645 Missouri Avenue, Suite 400, Phoenix Arizona 85012 , Attention:
Chief Financial Officer, with a copy to Gibson, Dunn & Crutcher, 200 Park
Avenue, New York, NY 10166, Attention: Charles K. Marquis and (b) if to the
Initial Purchasers, to Donaldson, Lufkin & Jenrette Securities Corporation, 277
Park Avenue, New York, New York 10172, Attention: High Yield Group, or in any
case to such other address as the person to be notified may have requested in
writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the CSK Parties and their respective
officers and directors and of the Initial Purchasers set forth in or made
pursuant to this Agreement shall remain operative and in full force and effect,
and will survive delivery of and payment for the Notes, regardless of (i) any
investigation, or statement as to the results thereof, made by the Initial
Purchasers or on the Initial Purchasers behalf or by or on behalf of any CSK
Party or their respective officers or directors or any controlling person of
any such CSK Party, (ii) acceptance of and payment for the Notes hereunder or
(iii) termination of this Agreement.
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the CSK
30
<PAGE> 31
Parties, the Initial Purchasers, any Indemnified Persons or CSK Indemnified
Persons referred to herein and their respective successors and assigns, all as
and to the extent provided in this Agreement, and no other person shall acquire
or have any right under or by virtue of this Agreement. The term "successors
and assigns" shall not include a purchaser of any of the Notes from the Initial
Purchasers merely because of such purchase.
THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
31
<PAGE> 32
Please confirm that the foregoing correctly sets forth the agreement among the
CSK Parties and the Initial Purchasers.
Very truly yours,
CSK GROUP, LTD.
By:
-------------------------------
Name:
Title:
NORTHERN AUTOMOTIVE CORPORATION
By:
-------------------------------
Name:
Title:
KRAGEN AUTO SUPPLY CO.
By:
-------------------------------
Name:
Title:
SCHUCK'S DISTRIBUTION CO.
By:
-------------------------------
Name:
Title:
32
<PAGE> 33
Accepted and agreed to as of the date
first above written.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
--------------------------------
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
By:
--------------------------------
Name:
Title:
33
<PAGE> 34
SCHEDULE I
<TABLE>
<CAPTION>
INITIAL PURCHASERS PRINCIPAL AMOUNT OF NOTES TO
BE PURCHASED
<S> <C>
Donaldson, Lufkin & $62,500,000
Jenrette Securities
Corporation
Merrill Lynch, Pierce, 62,500,000
Fenner & Smith
Incorporated
Total $125,000,000
</TABLE>
34
<PAGE> 1
EXHIBIT 1.02
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
Dated as of October 30, 1996
by and among
CSK Auto, Inc.,
Kragen Auto Supply Co.,
Schuck's Distribution Co.
and
Donaldson, Lufkin & Jenrette
Securities Corporation
and
Merrill Lynch, Pierce, Fenner & Smith Incorporated
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of October 30, 1996, by and among CSK AUTO, INC., KRAGEN AUTO
SUPPLY CO., SCHUCK'S DISTRIBUTION CO. and DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION and MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
(the latter two being the "INITIAL PURCHASERS").
<PAGE> 2
This Agreement is made pursuant to the Purchase Agreement, dated
October 23, 1996, (the "PURCHASE AGREEMENT"), by and among CSK Group, Ltd., CSK
Auto, Inc., Kragen Auto Supply Co., Schuck's Distribution Co. and the Initial
Purchasers relating to $125,000,000 aggregate principal amount of CSK Auto,
Inc.'s 11% Senior Subordinated Notes due 2006, guaranteed by Kragen Auto Supply
Co. and Schuck's Distribution Co. (the "NOTES"). In order to induce the
Initial Purchasers to purchase the Notes, the Company has agreed to provide the
registration rights set forth in this Agreement. The execution and delivery of
this Agreement is a condition to the obligations of the Initial Purchasers set
forth in Section 1 of the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS.
As used in this Agreement, the following capitalized terms shall have
the following meanings:
ACT: The Securities Act of 1933, as amended.
ADVICE: As defined in Section 6(d) hereof.
BUSINESS DAY: Any day except a Saturday, Sunday or other day in the
City of New York, or in the city of the corporate trust office of the Trustee,
on which banks are authorized to close.
BROKER-DEALER: Any broker or dealer registered under the Exchange Act.
BROKER-DEALER TRANSFER RESTRICTED SECURITIES: Exchange Notes that are
acquired by a Broker-Dealer in the Exchange Offer in exchange for Transfer
Restricted Securities that such Broker-Dealer acquired for its own account as a
result of market making activities or other trading activities (other than
Transfer Restricted Securities acquired directly from the Company or any of its
affiliates).
CERTIFICATED NOTES: As defined in the Indenture.
CLOSING DATE: The date hereof.
COMMISSION: The Securities and Exchange Commission.
COMPANY: CSK Auto, Inc., an Arizona corporation, and its successors.
CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Exchange Notes to be
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issued in the Exchange Offer, (b) the maintenance of such Registration
Statement continuously effective and the keeping of the Exchange Offer open for
a period not less than the minimum period required pursuant to Section 3(b)
hereof and (c) the delivery by the Company to the Registrar under the Indenture
of Exchange Notes in the same aggregate principal amount as the aggregate
principal amount of Transfer Restricted Securities tendered by Holders thereof
pursuant to the Exchange Offer.
CSK INDEMNIFIED PARTIES: As defined in Section 8(b) hereof.
EFFECTIVENESS TARGET DATE: As defined in Section 5 hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
EXCHANGE OFFER: The registration by the Company under the Act of the
Exchange Notes pursuant to the Exchange Offer Registration Statement pursuant
to which the Company shall offer the Holders of all outstanding Transfer
Restricted Securities the opportunity to exchange all such outstanding Transfer
Restricted Securities for Exchange Notes in an aggregate principal amount equal
to the aggregate principal amount of the Transfer Restricted Securities
tendered in such Exchange Offer by such Holders.
EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
EXCHANGE NOTES: The Company's 11% Senior Subordinated Notes due 2006
to be issued pursuant to the Indenture (i) in the Exchange Offer or (ii) upon
the request of any Holder of Transfer Restricted Securities covered by a Shelf
Registration Statement in exchange for such Transfer Restricted Securities.
GLOBAL NOTE HOLDER: As defined in the Indenture.
HOLDER: As defined in Section 2 hereof.
INDEMNIFIED HOLDER: As defined in Section 8(a) hereof.
INDENTURE: The Indenture, dated the Closing Date, among the Company,
the Subsidiary Guarantors and Well Fargo Bank, N.A., as trustee, pursuant to
which the Notes are to be issued, as such Indenture is amended or supplemented
from time to time in accordance with the terms thereof.
INITIAL PURCHASERS: As defined in the first introductory paragraph of
this Agreement.
INTEREST PAYMENT DATE: As defined in the Indenture and the Notes.
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LIQUIDATED DAMAGES: As defined in Section 5 hereof.
NASD: National Association of Securities Dealers, Inc.
NOTES: As defined in the first introductory paragraph of this
Agreement.
PERSON: An individual, partnership, corporation, limited liability
company, trust, unincorporated organization, or a government or agency or
political subdivision thereof.
PROSPECTUS: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
PURCHASE AGREEMENT: As defined in the second introductory paragraph of
this Agreement.
REGISTRAR: As defined in the Indenture.
REGISTRATION DEFAULT: As defined in Section 5 hereof.
REGISTRATION STATEMENT: Any registration statement of the Company and
the Subsidiary Guarantors relating to (a) an offering of Exchange Notes
pursuant to an Exchange Offer or (b) the registration for resale of Transfer
Restricted Securities pursuant to the Shelf Registration Statement, in each
case, (i) which is filed pursuant to the provisions of this Agreement and (ii)
including the Prospectus included therein, all amendments and supplements
thereto (including post-effective amendments) and all exhibits and material
incorporated by reference therein.
RESTRICTED BROKER-DEALER: Any Broker-Dealer which holds Broker-Dealer
Transfer Restricted Securities.
SHELF REGISTRATION STATEMENT: As defined in Section 4(a) hereof.
SUBSIDIARY GUARANTORS: Kragen Auto Supply Co., a California
corporation, Schuck's Distribution Co., a Washington corporation, each of their
respective successors, and each other U.S. subsidiary that the Company may
hereafter form or acquire.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
as in effect on the date of the Indenture.
TRANSFER RESTRICTED SECURITIES: Each Note until (i) the date on which
such Note has been exchanged by a Person other than a Broker-Dealer for an
Exchange Note in the Exchange Offer, (ii) following the exchange by a
Broker-Dealer in the Exchange Offer
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of a Note for an Exchange Note, the date on which such Exchange Note is sold to
a purchaser who receives from such Broker-Dealer on or prior to the date of
such sale a copy of the Prospectus contained in the Exchange Offer Registration
Statement, (iii) the date on which such Note has been effectively registered
under the Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such Note is distributed to the public
pursuant to Rule 144 under the Act.
TRUSTEE: Wells Fargo Bank, N.A., as trustee under the Indenture.
UNDERWRITTEN REGISTRATION or UNDERWRITTEN OFFERING: A registration in
which securities of the Company are sold to an underwriter for reoffering to
the public.
SECTION 2. HOLDERS.
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "HOLDER") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER.
1. Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) below have been
complied with), the Company and the Subsidiary Guarantors shall:
(i) cause the Exchange Offer Registration Statement to be
filed with the Commission as soon as practicable after the Closing
Date, but in no event later than 120 days after the Closing Date,
(ii) use their respective best efforts to cause such Exchange
Offer Registration Statement to become effective at the earliest
possible time, but in no event later than 210 days after the Closing
Date,
(iii) in connection with the foregoing, (A) file all
pre-effective amendments to such Exchange Offer Registration Statement
as may be necessary in order to cause such Exchange Offer Registration
Statement to become effective, (B) file, if applicable, a
post-effective amendment to such Exchange Offer Registration Statement
pursuant to Rule 430A under the Act and (C) cause all necessary
filings, if any, in connection with the registration and qualification
of the Exchange Notes to be made under the Blue Sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange
Offer, and
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<PAGE> 6
(iv) upon the effectiveness of such Exchange Offer
Registration Statement, commence and Consummate the Exchange Offer.
The Exchange Offer Registration Statement shall be on the appropriate form
permitting registration of the Exchange Notes to be offered in exchange for the
Notes that are Transfer Restricted Securities and to permit sales of
Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers as
contemplated by Section 3(c) below.
2. The Company and the Subsidiary Guarantors shall use their
respective best efforts to cause the Exchange Offer Registration Statement to
be effective continuously, and shall keep the Exchange Offer open for a period
of not less than the minimum period required under applicable federal and state
securities laws to Consummate the Exchange Offer; provided that in no event
shall such period be less than 20 Business Days. The Company and the
Subsidiary Guarantors shall cause the Exchange Offer to comply with all
applicable federal and state securities laws. No securities other than the
Transfer Restricted Securities shall be included in the Exchange Offer
Registration Statement. The Company and the Subsidiary Guarantors shall use
their respective best efforts to cause the Exchange Offer to be Consummated
within 30 Business Days after the date on which such Exchange Offer
Registration Statement shall have been declared effective by the Commission.
3. The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Restricted Broker-Dealer who holds Notes that are Transfer
Restricted Securities and that were acquired for the account of such
Broker-Dealer as a result of market-making activities or other trading
activities, may exchange such Notes (other than Transfer Restricted Securities
acquired directly from the Company or any affiliate of the Company) pursuant to
the Exchange Offer. Such section shall also provide that since such
Broker-Dealer may be deemed to be an "underwriter" within the meaning of the
Act, it must therefore deliver a prospectus meeting the requirements of the Act
in connection with its initial sale of each Exchange Note received by such
Broker-Dealer in the Exchange Offer, which prospectus delivery requirement may
be satisfied by the delivery by such Broker-Dealer of the Prospectus contained
in the Exchange Offer Registration Statement. Such section shall also contain
all other information with respect to such sales of Broker-Dealer Transfer
Restricted Securities by Restricted Broker-Dealers that the Commission may
require in order to permit such sales pursuant thereto, but such section shall
not name any such Broker-Dealer or disclose the amount of Notes held by any
such Broker-Dealer, except to the extent required by the Commission as a result
of a change in policy after the date of this Agreement.
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<PAGE> 7
The Company and the Subsidiary Guarantors shall use their respective
best efforts to keep the Exchange Offer Registration Statement continuously
effective, supplemented and amended as required by the provisions of Section
6(c) below to the extent necessary to ensure that it is available for sales of
Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers, and
to ensure that such Registration Statement conforms with the requirements of
this Agreement, the Act and the policies, rules and regulations of the
Commission as announced from time to time, for a period of one year from the
date on which the Exchange Offer is Consummated.
The Company and the Subsidiary Guarantors shall provide sufficient
copies of the latest version of such Prospectus to such Restricted
Broker-Dealers promptly upon request, and in no event later than one day after
such request, at any time during such one-year period in order to facilitate
such sales.
SECTION 4. SHELF REGISTRATION.
(a) Shelf Registration. If:
(i) the Company and the Subsidiary Guarantors are not required
to file an Exchange Offer Registration Statement or are not permitted
to Consum- mate the Exchange Offer because the Exchange Offer is not
permitted by applicable law or Commission policy (after the procedures
set forth in Section 6(a)(i) below have been complied with) or
(ii) any Holder of Transfer Restricted Securities shall notify
the Company within 20 Business Days following the Consummation of the
Exchange Offer that (A) such Holder was prohibited by law or
Commission policy from participating in the Exchange Offer or (B) such
Holder may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the
Prospectus contained in the Exchange Offer Registration Statement is
not appropriate or available for such resales by such Holder or (C)
such Holder is a Broker-Dealer and holds Notes acquired directly from
the Company or one of its affiliates,
then the Company and the Subsidiary Guarantors shall:
(x) use their respective best efforts to cause to be filed, on
or prior to 60 days after
(A) the date on which the Company determines that it is not
required or permitted to file the Exchange Offer Registration
Statement pursuant to clause (i) above or
(B) the date on which the Company receives the notice
specified in clause (ii) above,
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<PAGE> 8
(and, in any event, in either case within 120 days after such filing
obligation arises), a shelf registration statement pursuant to Rule
415 under the Act (which may be an amendment to the Exchange Offer
Registration Statement (in either event, the "SHELF REGISTRATION
STATEMENT") and which requirement shall be deemed to be satisfied by
the filing of the Exchange Offer Registration Statement if the
Exchange Offer was not permitted under applicable federal law or
Commission policy), relating to all Transfer Restricted Securities the
Holders of which shall have provided the information required pursuant
to Section 4(b) hereof, and
(y) use their respective best efforts to cause such Shelf
Registration Statement to become effective on or prior to 180 days
after the date on which the Company becomes obligated to file such
Shelf Registration Statement.
The Company and the Subsidiary Guarantors shall use their respective best
efforts to keep the Shelf Registration Statement discussed in this Section 4(a)
continuously effective, supplemented and amended as required by, and subject
to, the provisions of Sections 6(b) and (c) hereof to the extent necessary to
ensure that it is available for sales of Transfer Restricted Securities by the
Holders thereof entitled to the benefit of this Section 4(a), and to ensure
that it conforms with the requirements of this Agreement, the Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period of at least three years (as extended pursuant to Section
6(d)) following the date on which such Shelf Registration Statement first
becomes effective under the Act.
(b) Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor,
such information specified in item 507 of Regulation S-K under the Act for use
in connection with any Shelf Registration Statement or Prospectus or
preliminary Prospectus included therein. No Holder of Transfer Restricted
Securities shall be entitled to Liquidated Damages pursuant to Section 5 hereof
unless and until such Holder shall have used its best efforts to provide all
such information. Each Holder as to which any Shelf Registration Statement is
being effected agrees to furnish promptly to the Company all information
required to be disclosed in order to make the information previously furnished
to the Company by such Holder not materially misleading.
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<PAGE> 9
SECTION 5. LIQUIDATED DAMAGES.
If:
(i) the Company fails to file any of the Registration
Statements required by this Agreement on or before the date specified
for such filing,
(ii) any of such Registration Statements is not declared
effective by the Commission on or prior to the date specified herein
for such effectiveness (the "EFFECTIVENESS TARGET DATE"),
(iii) the Company fails to consummate the Exchange Offer
within 30 Business Days of the Effectiveness Target Date with respect
to the Exchange Offer Registration Statement or
(iv) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to
be effective or usable in connection with resales of Transfer
Restricted Securities during the periods specified in this agreement
without being succeeded within 30 days by an additional Registration
Statement filed and declared effective
(each such event referred to in clause (i) through (iv) above a "REGISTRATION
DEFAULT"), then the Company and the Subsidiary Guarantors hereby jointly and
severally agree to pay liquidated damages ("LIQUIDATED DAMAGES") to each Holder
of Transfer Restricted Securities, with respect to the first 90-day period
immediately following the occurrence of such Registration Default in an amount
equal to $.05 per week per $1,000 principal amount of Transfer Restricted
Securities held by such Holder. The amount of the Liquidated Damages will
increase by an additional $.05 per week per $1,000 principal amount of Transfer
Restricted Securities with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of Liquidated
Damages of $.30 per week per $1,000 principal amount of Transfer Restricted
Securities. All accrued Liquidated Damages will be paid by the Company on
semi-annual payment dates which correspond to interest payment dates for the
Notes to the Global Note Holder by wire transfer of immediately available funds
and to Holders of Certificated Notes by wire transfer to the accounts specified
by them or by mailing checks to their registered addresses if no such accounts
have been specified. Upon the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
Notwithstanding anything to the contrary set forth herein, (1) upon
filing of the Exchange Offer Registration Statement (and/or, if applicable, the
Shelf Registration Statement), in the
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<PAGE> 10
case of (i) above, (2) upon the effectiveness of the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (ii) above, (3) upon Consummation of the Exchange
Offer, in the case of (iii) above, or (4) upon the filing of a post-effective
amendment to the Registration Statement or an additional Registration Statement
that causes the Exchange Offer Registration Statement (and/or, if applicable,
the Shelf Registration Statement) to again be declared effective or made
usable, in the case of (iv) above, the Liquidated Damages payable with respect
to the Transfer Restricted Securities as a result of such clause (i), (ii),
(iii) or (iv), as applicable, shall cease. All obligations of the Company and
the Subsidiary Guarantors set forth in the preceding paragraph that are
outstanding with respect to any Transfer Restricted Securities at the time such
security ceases to be a Transfer Restricted Security shall survive until such
time as all such obligations with respect to such security shall have been
satisfied in full.
SECTION 6. REGISTRATION PROCEDURES.
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company and the Subsidiary Guarantors shall comply with all
applicable provisions of Section 6(c) below, shall use their respective best
efforts to effect such exchange and to permit the sale of Broker-Dealer
Transfer Restricted Securities being sold in accordance with the intended
method or methods of distribution thereof, and shall comply with all of the
following provisions:
(i) If, following the date hereof there has been published a
change in Commission policy with respect to exchange offers such as the
Exchange Offer, such that in the opinion of counsel to the Company there is a
substantial question as to whether the Exchange Offer is permitted by
applicable federal law, the Company and the Subsidiary Guarantors hereby agree
to seek a no-action letter or other favorable decision from the Commission
allowing the Company and the Subsidiary Guarantors to Consummate an Exchange
Offer for the Transfer Restricted Securities. The Company and the Subsidiary
Guarantors hereby agree to pursue the issuance of such a decision to the
Commission staff level. In connection with the foregoing, the Company and the
Subsidiary Guarantors hereby agree to take all such other actions as are
requested by the Commission or otherwise required in connection with the
issuance of such decision, including without limitation (A) participating in
telephonic conferences with the Commission, (B) delivering to the Commission
staff an analysis prepared by counsel to the Company setting forth the legal
bases, if any, upon which such counsel has concluded that such an Exchange
Offer should be permitted and (C) diligently pursuing a resolution (which need
not be favorable) by the Commission staff of such submission.
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(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder shall furnish, upon
request of the Company, prior to the Consummation of the Exchange Offer, a
written representation to the Company and the Subsidiary Guarantors (which may
be contained in the letter of transmittal contemplated by the Exchange Offer
Registration Statement) to the effect that (A) it is not an affiliate of the
Company or a Broker-Dealer that acquired such Transfer Restricted Securities
directly from the Company or one of its affiliates (B) it is not engaged in,
and does not intend to engage in, and has no arrangement or understanding with
any person to participate in, a distribution of the Exchange Notes to be issued
in the Exchange Offer and (C) it is acquiring the Exchange Notes in its
ordinary course of business. Each Holder hereby acknowledges and agrees that
any Broker-Dealer and any such Holder using the Exchange Offer to participate
in a distribution of the securities to be acquired in the Exchange Offer (1)
could not under Commission policy as in effect on the date of this Agreement
rely on the position of the Commission enunciated in Morgan Stanley and Co.,
Inc. (available June 5, 1991) and Exxon Capital Holdings Corporation (available
May 13, 1988), as interpreted in the Commission's letter to Shearman & Sterling
dated July 2, 1993, and similar no- action letters (including, if applicable,
any no-action letter obtained pursuant to clause (i) above), and (2) must
comply with the registration and prospectus delivery requirements of the Act in
connection with a secondary resale transaction and that such a secondary resale
transaction must be covered by an effective registration statement containing
the selling security holder information required by Item 507 or 508, as
applicable, of Regulation S-K if the resales are of Exchange Notes obtained by
such Holder in exchange for Transfer Restricted Securities acquired by such
Holder directly from the Company or an affiliate thereof.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company and the Subsidiary Guarantors shall provide a
supplemental letter to the Commission (A) stating that the Company and the
Subsidiary Guarantors are registering the Exchange Offer in reliance on the
position of the Commission enunciated in Exxon Capital Holdings Corporation
(available May 13, 1988), Morgan Stanley and Co., Inc. (available June 5, 1991)
and, if applicable, any no-action letter obtained pursuant to clause (i) above,
(B) including a representation that neither the Company nor the Subsidiary
Guarantors have entered into any arrangement or understanding with any Person
to distribute the Exchange Notes to be received in the Exchange Offer and that,
to the best of the Company's and the Subsidiary Guarantors' information and
belief, each Holder participating in the Exchange Offer is acquiring the
Exchange Notes in its ordinary course of business and has no arrangement or
understanding with any Person to participate in the distribution of the
Exchange Notes received in the Exchange Offer and (C) any other undertaking or
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<PAGE> 12
representation required by the Commission as set forth in any no-action letter
obtained pursuant to clause (i) above.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, if any, the Company and the Subsidiary Guarantors shall
comply with all the provisions of Section 6(c) below and shall use their
respective best efforts to effect such registration to permit the sale of the
Transfer Restricted Securities being sold in accordance with the intended
method or methods of distribution thereof (as indicated in the information
furnished to the Company pursuant to Section 4(b) hereof), and pursuant thereto
the Company and the Subsidiary Guarantors will prepare and file with the
Commission a Registration Statement relating to the registration on any
appropriate form under the Act, which form shall be available for the sale of
the Transfer Restricted Securities in accordance with the intended method or
methods of distribution thereof within the time periods and otherwise in
accordance with the provisions hereof.
(c) General Provisions. In connection with any Registration
Statement and any related Prospectus required by this Agreement to permit the
sale or resale of Transfer Restricted Securities (including, without
limitation, any Exchange Offer Registration Statement and the related
Prospectus, to the extent that the same are required to be available to permit
sales of Broker-Dealer Transfer Restricted Securities by Restricted
Broker-Dealers), the Company and the Subsidiary Guarantors shall:
(i) use their respective best efforts to keep such Registration
Statement continuously effective and provide all requisite financial statements
for the period specified in Section 3 or 4 of this Agreement, as applicable.
Upon the occurrence of any event that would cause any such Registration
Statement or the Prospectus contained therein (A) to contain a material
misstatement or omission or (B) not to be effective and usable for resale of
Transfer Restricted Securities during the period required by this Agreement,
the Company and the Subsidiary Guarantors shall promptly (x) notify the
underwriter(s), if any, and the selling Holders of such event and (y) file an
appropriate amendment to such Registration Statement, (1) in the case of clause
(A), correcting any such misstatement or omission, and (2) in the case of
clauses (A) and (B), use their respective best efforts to cause such amendment
to be declared effective and such Registration Statement and the related
Prospectus to become usable for their intended purpose(s) as soon as
practicable thereafter;
(ii) prepare and file with the Commission such amendments and post-
effective amendments to such Registration Statement as may be necessary to keep
such Registration Statement effective for the applicable period set forth in
Section 3 or 4 hereof, or
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<PAGE> 13
such shorter period as will terminate when all Transfer Restricted Securities
covered by such Registration Statement have been sold; cause the related
Prospectus to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Act, and to comply
fully with Rules 424, 430A and 462, as applicable, under the Act in a timely
manner; and comply with the provisions of the Act with respect to the
disposition of all securities covered by such Registration Statement during the
applicable period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such Registration Statement or
supplement to the related Prospectus;
(iii) advise the underwriter(s), if any, and selling Holders
promptly and, if requested by such Persons, confirm such advice in writing, (A)
when the Prospectus or any Prospectus supplement or post-effective amendment
has been filed, and, with respect to any Registration Statement or any
post-effective amendment thereto, when the same has become effective, (B) of
any request by the Commission for amendments to such Registration Statement or
amendments or supplements to the related Prospectus or for additional
information relating thereto, (C) of the issuance by the Commission of any stop
order suspending the effectiveness of such Registration Statement under the Act
or of the suspension by any state securities commission of the qualification of
the Transfer Restricted Securities for offering of sale in any jurisdiction, or
the initiation of any proceeding for any of the preceding purposes, (D) of the
existence of any fact or the happening of any event that makes any statement of
a material fact made in such Registration Statement, the related Prospectus,
any amendment or supplement thereto or any document incorporated by reference
therein untrue, or that requires the making of any additions to or changes in
such Registration Statement in order to make the statements therein not
misleading, or that requires the making of any additions to or changes in the
related Prospectus in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If at any time the
Commission shall issue any stop order suspending the effectiveness of such
Registration Statement, or any state securities commission or other regulatory
authority shall issue an order suspending qualification or exemption from the
qualification of the Transfer Restricted Securities under state securities or
Blue Sky laws, the Company and the Subsidiary Guarantors shall use their
respective best efforts to obtain the withdrawal or lifting of such order at
the earliest possible time;
(iv) furnish to the Initial Purchasers, each selling Holder named
in any Registration Statement or related Prospectus and each of the
underwriter(s) in connection with such sale, if any, before their being filed
with the Commission, copies of any Registration Statement or any Prospectus
included therein or any amendments or supplements to any such Registration
Statement or
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<PAGE> 14
Prospectus (including all documents incorporated by reference after the initial
filing of such Registration Statement), which documents will be subject to the
review and comment of such Initial Purchasers, Holders and underwriter(s) in
connection with such sale, if any, for a period of at least five Business Days,
and the Company will not file any such Registration Statement or Prospectus or
any amendment or supplement to any such Registration Statement or Prospectus
(including all such documents incorporated by reference) to which the Initial
Purchasers or selling Holders of the Transfer Restricted Securities covered by
such Registration Statement or the underwriter(s) in connection with such sale,
if any, shall reasonably object within five Business Days after the receipt
thereof. The objection of an Initial Purchaser, selling Holder or underwriter,
if any, shall be deemed to be reasonable if such objection relates to a
material misstatement or omission in such Registration Statement, amendment,
Prospectus or supplement, as applicable, as proposed to be filed or relates to
the fact that such Registration Statement, amendment, Prospectus or supplement
fails to comply with the applicable requirements of the Act;
(v) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus, provide
copies of such document to the Initial Purchasers, the selling Holders and to
the underwriter(s) in connection with such sale, if any, make the Company's and
the Subsidiary Guarantors' representatives available for discussion of such
document and other customary due diligence matters, and include such
information in such document prior to the filing thereof as such Initial
Purchasers, selling Holders or underwriter(s), if any, reasonably may request;
(vi) make available, and cause the Company's and the Subsidiary
Guarantors' officers, directors and employees to make available, at reasonable
times for inspection by the selling Holders, any managing underwriter
participating in any disposition pursuant to such Registration Statement and
any attorney or accountant retained by such selling Holders or any of such
underwriter(s), all financial and other records, pertinent corporate documents
and properties of the Company and the Subsidiary Guarantors and other related
information reasonably requested by any such Holder, underwriter, attorney or
accountant in connection with such Registration Statement or any post-effective
amendment thereto subsequent to the filing thereof and prior to its
effectiveness;
(vii) if requested by any selling Holders or the underwriter(s), if
any, in connection with such sale, promptly include in any Registration
Statement or Prospectus, pursuant to a supplement or post-effective amendment
if necessary, such information as such selling Holders and underwriter(s) if
any, may reasonably request to have included therein, including, without
limitation, information relating to the "Plan of
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<PAGE> 15
Distribution" of the Transfer Restricted Securities, information with respect
to the principal amount of Transfer Restricted Securities being sold to such
underwriter(s), the purchase price being paid therefor and any other terms of
the offering of the Transfer Restricted Securities to be sold in such offering,
and make all required filings of such Prospectus supplement or post-effective
amendment as soon as practicable after the Company is notified of the matters
to be included in such Prospectus supplement or post-effective amendment;
(viii) furnish to each selling Holder and each of the underwriter(s),
if any, in connection with such sale, without charge, at least one copy of the
Registration Statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by reference therein
and all exhibits (including exhibits incorporated therein by reference);
(ix) deliver to each selling Holder and each of the underwriter(s),
if any, without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such Persons
reasonably may request; the Company and the Subsidiary Guarantors hereby
consent to the use (in accordance with law) of the Prospectus and any amendment
or supplement thereto by each of the selling Holders and each of the
underwriter(s), if any, in connection with the offering and sale of the
Transfer Restricted Securities covered by the Prospectus or any amendment or
supplement thereto;
(x) enter into such agreements (including an underwriting
agreement) and make such representations and warranties and take all such other
actions in connection therewith in order to expedite or facilitate the
disposition of the Transfer Restricted Securities pursuant to any Registration
Statement contemplated by this Agreement as may be reasonably requested by any
Holder of Transfer Restricted Securities or underwriter, if any, in connection
with any sale or resale pursuant to any Registration Statement contemplated by
this Agreement, and in such connection, whether or not an underwriting
agreement is entered into and whether or not the registration is an
Underwritten Registration, the Company and the Subsidiary Guarantors shall:
(A) furnish (or in the case of paragraphs (2) and (3), use its
best efforts to furnish) to each selling Holder and each underwriter, if any,
upon the effectiveness of the Shelf Registration Statement and to each
Restricted Broker- Dealer upon Consummation of the Exchange Offer:
(1) a certificate, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf Registration
Statement, as the case may be, signed on behalf of the Company and the
Subsidiary Guarantors by (x) the President or any Vice President and
(y) a principal financial or accounting officer of the Company and the
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<PAGE> 16
Subsidiary Guarantors, confirming, as of the date thereof, the matters
set forth in paragraphs (a) through (c) of Section 7 of the Purchase
Agreement and such other similar matters as the Holders,
underwriter(s) and/or Restricted Broker-Dealers may reasonably
request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf Registration
Statement, as the case may be, of counsel for the Company and the
Subsidiary Guarantors covering matters similar to those set forth in
paragraphs (f), (g), (h) and (i) of Section 7 of the Purchase
Agreement and such other matters as the Holders, underwriters and/or
Restricted Broker-Dealers may reasonably request, and in any event
including a statement to the effect that such counsel has participated
in conferences with officers and other representatives of the Company
and the Subsidiary Guarantors, representatives of the independent
public accountants for the Company and the Subsidiary Guarantors at
which the contents of the Exchange Offer Registration Statement or
Shelf Registration Statement, as the case may be, were discussed,
although such counsel has not independently verified the accuracy,
completeness or fairness of such statements; and that such counsel
advises that, on the basis of the foregoing (relying as to materiality
to a large extent upon facts provided to such counsel by officers and
other representatives of the Company and the Subsidiary Guarantors and
without independent check or verification), no facts came to such
counsel's attention that caused such counsel to believe that the
applicable Registration Statement, at the time such Registration
Statement or any post-effective amendment thereto became effective
and, in the case of the Exchange Offer Registration Statement, as of
the date of Consummation of the Exchange Offer, 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 contained in such
Registration Statement as of its date and, in the case of the opinion
dated the date of Consummation of the Exchange Offer, as of the date
of Consummation, contained an untrue statement of a material fact or
omitted 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. Without limiting the foregoing, such
counsel may state further that such counsel assumes no responsibility
for, and has not independently verified, the accuracy, completeness or
fairness of the financial statements, notes and schedules and other
financial and statistical data included in any Registration Statement
contemplated by this Agreement or the related Prospectus; and
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<PAGE> 17
(3) a customary comfort letter, dated as of the date of
effectiveness of the Shelf Registration Statement or the date of
Consummation of the Exchange Offer, as the case may be, from the
Company's independent accountants, in the customary form and covering
matters of the type customarily covered in comfort letters to
underwriters in connection with primary underwritten offerings, and
affirming the matters set forth in the comfort letters delivered
pursuant to Section 7 of the Purchase Agreement, without exception;
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, in connection with any sale or resale pursuant
to any Shelf Registration Statement the indemnification provisions and
procedures of Section 8 hereof with respect to all parties to be indemnified
pursuant to said Section; and
(C) deliver such other documents and certificates as may be
reasonably requested by the selling Holders, the underwriter(s), if any, and
Restricted Broker- Dealers, if any, to evidence compliance with clause (A)
above and with any customary conditions contained in the underwriting agreement
or other agreement entered into by the Company and the Subsidiary Guarantors
pursuant to this Section 6(c)(x).
The above shall be done at each closing under such underwriting or
similar agreement, as and to the extent required thereunder, and if at any time
the representations and warranties of the Company and the Subsidiary Guarantors
contemplated in (A)(1) above cease to be true and correct, the Company and the
Subsidiary Guarantors shall so advise the underwriter(s), if any, the selling
Holders and each Restricted Broker-Dealer promptly and if requested by such
Persons, shall confirm such advice in writing;
(xi) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders, the underwriter(s), if any, and
their respective counsel in connection with the registration and qualification
of the Transfer Restricted Securities under the securities or Blue Sky laws of
such jurisdictions as the selling Holders or underwriter(s), if any, may
reasonably request and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Transfer
Restricted Securities covered by the applicable Registration Statement;
provided, however, that neither the Company nor the Subsidiary Guarantors shall
be required to register or qualify as a foreign corporation where it is not now
so qualified or to take any action that would subject it to the service of
process in suits or to taxation, other than as to matters and transactions
relating to the Registration Statement, in any jurisdiction where it is not now
so subject;
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<PAGE> 18
(xii) issue, upon the request of any Holder of Transfer Restricted
Securities covered by any Shelf Registration Statement contemplated by this
Agreement, Exchange Notes having an aggregate principal amount equal to the
aggregate principal amount of Transfer Restricted Securities surrendered to the
Company by such Holder in exchange therefor or being sold by such Holder; such
Exchange Notes to be registered in the name of such Holder or in the name of
the purchaser(s) of such Transfer Restricted Securities, as the case may be; in
return, the Transfer Restricted Securities held by such Holder shall be
surrendered to the Company for cancellation;
(xiii) in connection with any sale of Transfer Restricted Securities
that will result in such securities no longer being Transfer Restricted
Securities, cooperate with the selling Holders and the underwriter(s), if any,
to facilitate the timely preparation and delivery of certificates representing
Transfer Restricted Securities to be sold and not bearing any restrictive
legends; and register such Transfer Restricted Securities in such denominations
and such names as the Holders or the underwriter(s), if any, may request at
least two Business Days prior to such sale of Transfer Restricted Securities;
(xiv) use their respective best efforts to cause the disposition of
the Transfer Restricted Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to enable the seller or sellers thereof or the
underwriter(s), if any, to consummate the disposition of such Transfer
Restricted Securities, subject to the proviso contained in clause (xi) above;
(xv) subject to Section 6(c)(i), if any fact or event contemplated
by Section 6(c)(iii)(D) above shall exist or have occurred, prepare a
supplement or post-effective amendment to the Registration Statement or related
Prospectus or any document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchasers of
Transfer Restricted Securities, the Prospectus will not contain an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading;
(xvi) provide a CUSIP number (and, if applicable, a CINS number) for
all Transfer Restricted Securities not later than the effective date of a
Registration Statement covering such Transfer Restricted Securities and provide
the Trustee under the Indenture with printed certificates for the Transfer
Restricted Securities which are in a form eligible for deposit with The
Depository Trust Company;
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<PAGE> 19
(xvii) cooperate and assist in any filings required to be made with
the NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter") that is
required to be retained in accordance with the rules and regulations of the
NASD;
(xviii) otherwise use their respective best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable Registration
Statement, as soon as practicable, a consolidated earnings statement meeting
the requirements of Rule 158 (which need not be audited) covering a
twelve-month period beginning after the effective date of the Registration
Statement (as such term is defined in paragraph (c) of Rule 158 under the Act);
(xix) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by this
Agreement and, in connection therewith, cooperate with the Trustee and the
Holders to effect such changes to the Indenture as may be required for such
Indenture to be so qualified in accordance with the terms of the TIA; and
execute and use its best efforts to cause the Trustee to execute, all documents
that may be required to effect such changes and all other forms and documents
required to be filed with the Commission to enable such Indenture to be so
qualified in a timely manner; and
(xx) provide promptly to each Holder upon request each document
filed with the Commission pursuant to the requirements of Section 13 or Section
15(d) of the Exchange Act.
(d) Restrictions on Holders. Each Holder agrees by acquisition of
a Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(i) or 6(c)(iii)(D) , such Holder will forthwith discontinue
disposition of Transfer Restricted Securities pursuant to the applicable
Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 6(c)(xv) hereof, or
until it is advised in writing by the Company that the use of the Prospectus
may be resumed, and has received copies of any additional or supplemental
filings that are incorporated by reference in the Prospectus (the "ADVICE").
If so directed by the Company, each Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Transfer Restricted
Securities that was current at the time of receipt of either such notice. In
the event the Company shall give any such notice, the time period regarding the
effectiveness of such Registration Statement set forth in Section 3 or 4
hereof, as applicable, shall be extended by the number of days during the
period from and including the date of the giving of such notice pursuant to
Section 6(c)(i) or
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<PAGE> 20
6(c)(iii)(D) hereof to and including the date when each selling Holder covered
by such Registration Statement shall have received the copies of the
supplemented or amended Prospectus contemplated by Section 6(c)(xv) hereof or
shall have received the Advice.
SECTION 7. REGISTRATION EXPENSES.
(a) All expenses incident to the Company's and the Subsidiary
Guarantors' performance of or compliance with this Agreement will be borne by
the Company, regardless of whether a Registration Statement becomes effective,
including without limitation: (i) all registration and filing fees and
expenses (including filings made by any Initial Purchaser or Holder with the
NASD (and, if applicable, the fees and expenses of any "qualified independent
underwriter" and its counsel that may be required by the rules and regulations
of the NASD)); (ii) all fees and expenses involved in the registration of
Exchange Notes under and compliance with federal securities and state Blue Sky
or securities laws; (iii) all expenses of printing, messenger and delivery
services and telephone relating in any way to the Company's and Subsidiary
Guarantors' performance of services under this Agreement (including, without
limitation, all such expenses incurred in connection with the preparation,
filing and delivery of the Registration Statements, the Indenture, the
Prospectuses, any supplements or amendments to any of the foregoing, and the
certificates for the Exchange Notes); (iv) all fees and disbursements of
counsel for the Company, the Subsidiary Guarantors and, subject to Section 8,
the Holders; (v) all application and filing fees in connection with listing the
Exchange Notes on a national securities exchange or automated quotation system
pursuant to the requirements hereof; (vi) all fees charged by ratings agencies
for the rating of the Notes and the Exchange Notes; (vii) all fees and expenses
incurred in connection with the issuance, transfer and delivery by the Company
of the Notes and the Exchange Notes (including, without limitation, the fees of
the Company's transfer agent and the Registrar, the costs of printing and
engraving the certificates representing the Exchange Notes and any stock and
securities transfer taxes payable thereon); (viii) the reasonable fees and
expenses of the Trustee and the fees and disbursements of counsel for the
Trustee; (ix) all fees and disbursements of independent certified public
accountants of the Company and the Subsidiary Guarantors (including the
expenses of any special audit and comfort letters required by or incident to
such performance); provided that, in any underwritten offering of the Notes or
the Exchange Notes, each Holder is responsible for any underwriting discounts
or commissions in connection with the sale of its Notes or Exchange Notes
thereby.
The Company will, in any event, bear its and the Subsidiary
Guarantors' internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing
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<PAGE> 21
legal or accounting duties), the expenses of any annual audit and the fees and
expenses of any Person, including special experts, retained by the Company or
the Subsidiary Guarantors.
(b) In connection with any Registration Statement required by this
Agreement, the Company and the Subsidiary Guarantors will reimburse the Initial
Purchasers and the Holders of Transfer Restricted Securities being tendered in
the Exchange Offer and/or resold pursuant to the "Plan of Distribution"
contained in the Exchange Offer Registration Statement or registered pursuant
to the Shelf Registration Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel, who shall be chosen by the Holders
of a majority in principal amount of the Transfer Restricted Securities for
whose benefit such Registration Statement is being prepared.
SECTION 8. INDEMNIFICATION.
(a) The Company and the Subsidiary Guarantors, jointly and severally, agree
to indemnify and hold harmless (i) each Holder and (ii) each person, if any,
who controls (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) any Holder (any of the persons referred to in this clause (ii)
being hereinafter referred to as a "controlling person") and (iii) the
respective officers, directors, partners and employees of any Holder or any
controlling person (any person referred to in clause (i), (ii) or (iii) may
hereinafter be referred to as an "INDEMNIFIED HOLDER"), to the fullest extent
lawful, from and against any and all losses, claims, damages, liabilities,
judgments, actions and expenses (including without limitation and as incurred,
reimbursement of all reasonable costs of investigating, preparing, pursuing or
defending any claim or action, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, including the reasonable
fees and expenses of counsel to any Indemnified Holder) directly or indirectly
caused by, related to, based upon, arising out of or in connection with any
untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement, preliminary prospectus or Prospectus (or any
amendment or supplement thereto), or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except (i) insofar as such losses, claims,
damages, liabilities or expenses are caused by an untrue statement or omission
or alleged untrue statement or omission that is made in reliance upon and in
conformity with information relating to any of the Holders furnished in writing
to the Company by any of the Holders expressly for use therein and (ii) that,
with respect to any such untrue statement or omission or alleged untrue
statement or omission made in any preliminary prospectus, the indemnity
agreement contained in this Section 8 shall not inure to the benefit of the
Holder from whom the person asserting any such losses, claims, damages,
liabilities and judgments purchased the
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Notes if the untrue statement or omission or alleged untrue statement or
omission in the preliminary prospectus was corrected in the Prospectus. The
Company and the Guarantors shall notify the Holders promptly of the
institution, threat or assertion of any claim, proceeding (including
governmental or regulatory investigation) or litigation in connection with the
matters addressed by this Agreement which involve the Company or the Guarantors
or an Indemnified Person.
(b) If any action is brought against any Indemnified Holder, based
upon any Registration Statement, preliminary prospectus or Prospectus,
amendment or supplement thereto and with respect to which indemnity may be
sought against the Company or the Subsidiary Guarantors, such Indemnified
Holder shall promptly notify the Company and the Subsidiary Guarantors, in
writing and the Company and the Subsidiary Guarantors shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to such
Indemnified Holder and payment of all fees and expenses. Any Indemnified
Holder shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Holder unless (i) the employment of
such counsel shall have been specifically authorized in writing by the Company
and the Subsidiary Guarantors, (ii) the Company and the Subsidiary Guarantors
shall have failed to assume the defense and employ counsel or (iii) the named
parties to any such action (including any impleaded parties) include both such
Indemnified Holder and the Company and the Subsidiary Guarantors, and such
Indemnified Holder shall have been advised by such counsel that there may be
one or more legal defenses available to it which are different from or
additional to those available to the Company and the Subsidiary Guarantors (in
which case the Company and the Subsidiary Guarantors shall not have the right
to assume the defense of such action on behalf of such Indemnified Holder, it
being understood, however, that the Company and the Subsidiary Guarantors shall
not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all such Indemnified Holders, which firm shall be designated in
writing by the Indemnified Holders holding a majority in aggregate principal
amount of the securities held by all such Indemnified Holders and that all such
reasonable fees and expenses shall be reimbursed as they are incurred).
(c) Neither the Company nor any Subsidiary Guarantor shall be liable
for any settlement of any such action effected without its written consent,
but, if settled with the written consent of the Company and the Subsidiary
Guarantors, the Company and the Subsidiary Guarantors agree to indemnify and
hold harmless any Indemnified Holder from and against any loss or liability by
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<PAGE> 23
reason of such settlement. Notwithstanding the immediately preceding sentence,
if in any case where the fees and expenses of counsel are at the expense of the
indemnifying party and an Indemnified Holder shall have requested the
indemnifying party to reimburse the Indemnified Holder for such fees and
expenses of counsel as incurred, such indemnifying party agrees that it shall
be liable for any settlement of any action effected without its written consent
if (i) such settlement is entered into more than sixty business days after the
receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall have failed to reimburse the Indemnified Holder in
accordance with such request for reimbursement prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the Indemnified Holder, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Holder is or could have been a
party and indemnity could have been sought hereunder by such Indemnified
Holder, unless such settlement includes an unconditional release of such
Indemnified Holder from all liability on claims that are the subject matter of
such proceeding.
(d) Each Holder agrees to indemnify and hold harmless the Company,
the Subsidiary Guarantors, each person controlling the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
and their respective officers, directors, partners and employees (the "CSK
INDEMNIFIED PERSONS"), to the same extent as the foregoing indemnity from the
Company and the Subsidiary Guarantors to such Holder but only with reference to
information relating to such Holder furnished in writing by or on behalf of
such Holder to the Company, expressly for use in any Registration Statement.
If any action shall be brought against any CSK Indemnified Person in respect of
which indemnity may be sought against a Holder, such Holder shall have the
rights and duties given to the Company and the Subsidiary Guarantors (except
that if the relevant CSK Indemnified Person shall not have assumed the defense
thereof, such Holder shall be required to do so, but may employ separate
counsel therein and participate in the defense thereof but the fees and
expenses of such counsel shall be at such Holder's expense), and the CSK
Indemnified Persons shall have the rights and duties given to the Holders by
Sections 8(b) and (c).
(e) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities or judgments referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and judgments (i) in such proportion as is appropriate to
reflect the relative benefits received by the indemnifying party on the one
hand and the indemnified party on the other hand from the sale of the Transfer
Restricted Securities or (ii) if the allocation provided by clause (i) above
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<PAGE> 24
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 indemnifying parties and the indemnified party in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative fault of the Company and the Subsidiary
Guarantors, on the one hand, and the Holders, on the other hand, shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Company and the Subsidiary Guarantors or
a Holder and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Subsidiary Guarantors and the Holders agree that
it would not be just and equitable if contribution pursuant to this Section
8(e) were determined by pro rata allocation (even if the Holders 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 in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8, no Holder
shall be required to contribute any amount in excess of the amount by which the
total received by such Holder with respect to the sale of its Transfer
Restricted Securities pursuant to a Registration Statement exceeds the sum of
(i) the amount paid by such Holder for such Transfer Restricted Securities plus
(ii) the amount of any damages which such Holder has otherwise been required to
pay by reason of 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 Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Holders' obligations to contribute pursuant to this subsection are several and
in proportion to the respective amount of Notes purchased by each Holder
hereunder and not joint. No party shall be liable for contribution with
respect to any action or claim settled without its consent, provided that such
consent was not unreasonably withheld.
The indemnity and contribution agreements contained in this Section
are in addition to any liability which the indemnifying persons may otherwise
have to the indemnified persons referred to above.
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SECTION 9. RULE 144A.
The Company and the Subsidiary Guarantors hereby agree with each
Holder, for so long as any Transfer Restricted Securities remain outstanding
and during any period in which the Company or the Subsidiary Guarantors are not
subject to Section 13 or 15(d) of the Exchange Act, to make available, upon
request of any Holder, to any Holder or beneficial owner of Transfer Restricted
Securities in connection with any sale thereof and any prospective purchaser of
such Transfer Restricted Securities designated by such Holder or beneficial
owner, the information required by Rule 144A(d)(4) under the Act in order to
permit resales of such Transfer Restricted Securities pursuant to Rule 144A.
Notwithstanding the foregoing, nothing in this Section 9 shall be deemed to
require the Company or the Subsidiary Guarantors to register any of their
securities pursuant to the Exchange Act.
SECTION 10. UNDERWRITTEN REGISTRATIONS.
No Holder may participate in any Underwritten Registration unless such
Holder (a) agrees to sell such Holder's Transfer Restricted Securities on the
basis provided in any underwriting agreements approved by the persons entitled
hereunder to approve such arrangements and entered into in connection therewith
and (b) completes and executes all reasonable questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS.
For any Underwritten Offering, the investment banker or investment
bankers and manager or managers that will administer such offering will,
subject to the consent of the Company (which consent shall not be unreasonably
withheld or delayed), be selected by the Holders of a majority in aggregate
principal amount of the Transfer Restricted Securities included in such
offering. Such investment bankers and managers are referred to herein as the
"UNDERWRITERS".
SECTION 12. MISCELLANEOUS.
(a) Remedies. Each Holder, in addition to being entitled to
exercise all rights provided herein, in the Indenture, the Purchase Agreement
or granted by law, including recovery of liquidated or other damages, will be
entitled to specific performance of its rights under this Agreement. The
Company and the Subsidiary Guarantors agree that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by them of
the provisions of this Agreement and hereby agree to waive the defense in any
action for specific performance that a remedy at law would be adequate.
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(b) No Inconsistent Agreements. Neither the Company nor the
Subsidiary Guarantors will, on or after the date of this Agreement, enter into
any agreement with respect to its securities that is inconsistent with the
rights granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Neither the Company nor the Subsidiary Guarantors have
previously entered into any agreement granting any registration rights with
respect to its securities to any Person. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Company's and the Subsidiary Guarantors'
securities under any agreement in effect on the date hereof.
(c) Adjustments Affecting the Notes. Neither the Company nor the
Subsidiary Guarantors will take any action, or voluntarily permit any change to
occur, with respect to the Notes that would materially and adversely affect the
ability of the Holders to Consummate any Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given unless (i) in the case
of Section 5 hereof and this Section 12(d)(i), the Company has obtained the
written consent of Holders of all outstanding Transfer Restricted Securities
and (ii) in the case of all other provisions hereof, the Company has obtained
the written consent of Holders of a majority of the outstanding principal
amount of Transfer Restricted Securities.
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof that
(i) relates exclusively to the rights of Holders whose
Transfer Restricted Securities are being tendered pursuant to the
Exchange Offer and that does not impair directly or indirectly the
rights of other Holders whose Transfer Restricted Securities are not
being tendered pursuant to such Exchange Offer may be given by the
Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities being tendered or registered pursuant to such
Exchange Offer or
(ii) relates exclusively to the rights of Holders whose
Transfer Restricted Securities are being registered in a Shelf
Registration and that does not impair directly or indirectly the
rights of other Holders whose securities are not included in such
Shelf Registration may be given by the Holders of a majority in
aggregate principal amount of Transfer Restricted Securities being
sold or registered in the Shelf Registration.
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(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the
records of the Registrar under the Indenture, with a copy to the
Registrar under the Indenture; and
(ii) if to the Company or the Subsidiary Guarantors, to:
CSK Auto, Inc.
645 E. Missouri Avenue
Suite 400
Phoenix, AZ 85012
Telecopier No.: (602) 234-1713
Attention: President
With copies to:
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, NY 10166
Telecopier No.: (212) 351-4035
Attention: Charles K. Marquis
and
Investcorp International Inc
280 Park Avenue
37 West Floor
New York, NY 10017
Telecopier No.: (212) 983-7073
Attention: Jon T. Hedley
All such notices and communications shall be deemed to have been duly
given: (i) at the time delivered by hand, if personally delivered; (ii) five
Business Days after being deposited in the mail, postage prepaid, if mailed;
(iii) when receipt acknowledged, if telecopied and (iv) on the next Business
Day, if timely delivered to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of
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each of the parties, including without limitation and without the need for an
express assignment, subsequent Holders of Transfer Restricted Securities;
provided that this Agreement shall not inure to the benefit of or be binding
upon a successor or assign of a Holder unless and to the extent such successor
or assign acquired Transfer Restricted Securities directly from such Holder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held by a court of competent jurisdiction to be invalid, illegal or
unenforceable, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions contained herein shall
not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted with respect to the
Transfer Restricted Securities. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
28
<PAGE> 29
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
CSK AUTO, INC.
By:
-----------------------------------
Name:
Title:
KRAGEN AUTO SUPPLY CO.
By:
-----------------------------------
Name:
Title:
SCHUCK'S DISTRIBUTION CO.
By:
-----------------------------------
Name:
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
----------------------------
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
By:
----------------------------
Name:
Title:
29
<PAGE> 1
EXHIBIT 1.03
LETTER OF TRANSMITTAL
OFFER FOR ALL OUTSTANDING
PRIVATELY PLACED 11% SENIOR SUBORDINATED NOTES DUE 2006
IN EXCHANGE FOR
11% SERIES A SENIOR SUBORDINATED NOTES DUE 2006
OF
CSK AUTO, INC.
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1997, UNLESS EXTENDED
The Exchange Agent is Wells Fargo Bank, N.A., whose mailing address,
facsimile number and telephone number are as follows:
By Hand Delivery, Mail or Overnight Express
(INSURED OR REGISTERED RECOMMENDED):
WELLS FARGO BANK, N.A.,
CORPORATE TRUST DIVISION
#4101-082
100 WEST WASHINGTON
PHOENIX, ARIZONA 85003
ATTENTION: KATHLEEN JAKUBOWICZ
<TABLE>
<S> <C>
By Facsimile: By Telephone:
(602) 440-1389 (602) 440-1459
</TABLE>
DESCRIPTION OF SECURITIES TENDERED
<TABLE>
<CAPTION>
NAME AND ADDRESS OF REGISTERED HOLDER AS IT
APPEARS ON THE PRIVATELY PLACED 11% SENIOR CERTIFICATE NUMBER(S) PRINCIPAL AMOUNT OF
SUBORDINATED NOTES DUE 2006 ("OLD NOTES") OF OLD NOTES TRANSMITTED OLD NOTES TRANSMITTED
- ------------------------------------------- ------------------------------- -------------------------------
<S> <C> <C>
- ------------------------------------------ ------------------------------ ------------------------------
- ------------------------------------------ ------------------------------ ------------------------------
- ------------------------------------------ ------------------------------ ------------------------------
- ------------------------------------------ ------------------------------ ------------------------------
- ------------------------------------------ ------------------------------ ------------------------------
</TABLE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE
ACCOMPANYING INSTRUCTIONS CAREFULLY.
<PAGE> 2
Ladies and Gentlemen:
1. The undersigned hereby agrees to exchange the aggregate principal amount
of privately placed 11% Senior Subordinated Notes Due 2006 (the "Old Notes") for
a like principal amount of 11% Series A Senior Subordinated Notes Due 2006 (the
"Notes") of the Company, upon the terms and subject to the conditions contained
in the Registration Statement on Form S-4 filed by CSK Auto, Inc., an Arizona
corporation, with the Securities and Exchange Commission (the "Registration
Statement") and the accompanying Prospectus dated , 1997 included
therein (the "Prospectus"), receipt of which is hereby acknowledged.
2. The undersigned hereby acknowledges and agrees that the Notes will bear
interest from and including October 30, 1996, the date of issuance of the Old
Notes. Accordingly, the undersigned will forego accrued but unpaid interest on
his, her or its Old Notes that are exchanged for Notes from and including
October 30, 1996 but will receive such interest under the Notes.
3. The undersigned hereby represents and warrants that he, she or it has
full authority to tender the Old Notes described above. The undersigned will,
upon request, execute and deliver any additional documents deemed by the Company
to be necessary or desirable to complete the exchange of the Old Notes.
4. The undersigned understands that the tender of the Old Notes pursuant to
all of the procedures set forth in the Prospectus will constitute an agreement
between the undersigned and the Company as to the terms and conditions set forth
in the Prospectus.
5. The undersigned hereby represents and warrants that the undersigned is
acquiring the Notes in the ordinary course of the business of the undersigned
and that the undersigned is not engaged in, and does not intend to engage in, a
distribution of the Notes.
6. If the undersigned is a broker-dealer, (i) it hereby represents and
warrants that it acquired the Old Notes for its own account as a result of
market-making activities or other trading activities and (ii) it hereby
acknowledges that it will deliver a prospectus meeting the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), in connection with
any resale of the Notes received hereby. The acknowledgment contained in the
foregoing sentence shall not be deemed an admission that the undersigned is an
"underwriter" within the meaning of the Securities Act.
7. Any obligation of the undersigned hereunder shall be binding upon the
successors, assigns, executors, administrators, trustees in bankruptcy and legal
and personal representatives of the undersigned.
<PAGE> 3
SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS
(SEE INSTRUCTION 1)
To be completed ONLY IF the Notes are to be issued in the name of someone
other than the undersigned or are to be sent to someone other than the
undersigned or to the undersigned at an address other than that provided above.
Issue to:
Name
----------------------------------------------
(Please Print)
Address
----------------------------------------------
---------------------------------------
---------------------------------------
(Include Zip Code)
Mail to:
Name
----------------------------------------------
(Please Print)
Address
----------------------------------------------
---------------------------------------
---------------------------------------
(Include Zip Code)
<PAGE> 4
SIGNATURE
----------------------------------------------
(Name of Registered Holder)
By:
----------------------------------------------
Name:
Title:
Date:
----------------------------------------------
(Must be signed by registered holder exactly as name appears on Old Notes. If
signature is by trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, please set forth full title. See Instruction 3.)
Address:
----------------------------------------------
---------------------------------------
Telephone No.
----------------------------------------------
Taxpayer Identification No.:
- ------------------------------------------------------------------------
Signature Guaranteed By:
- ------------------------------------------------------------------------
(See Instruction 1)
Title:
----------------------------------------------
Name of Institution:
----------------------------------------------
Address:
----------------------------------------------
Date:
----------------------------------------------
PLEASE READ THE INSTRUCTIONS BELOW, WHICH FORM
A PART OF THIS LETTER OF TRANSMITTAL.
<PAGE> 5
INSTRUCTIONS
1. GUARANTEE OF SIGNATURES. Signatures on this Letter of Transmittal must
be guaranteed by a firm that is a member of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or by
a commercial bank or trust company having an office in the United States which
is a member of a recognized Medallion Signature Program approved by the
Securities Transfer Association, Inc. (an "Eligible Institution") unless (i) the
"Special Issuance and Delivery Instructions" above have not been completed or
(ii) the old Notes described above are tendered for the account of an Eligible
Institution.
2. DELIVERY OF LETTER OF TRANSMITTAL AND OLD NOTES. The Old Notes, together
with a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof), should be mailed or delivered to the Exchange Agent at the
address set forth above.
THE METHOD OF DELIVERY OF OLD NOTES AND OTHER DOCUMENTS IS AT THE ELECTION
AND RISK OF THE RESPECTIVE HOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL (WITH
RETURN RECEIPT), PROPERLY INSURED, IS SUGGESTED.
3. GUARANTEED DELIVERY PROCEDURES. Registered holders who wish to tender
their Old Notes and (i) whose Old Notes are not immediately available or (ii)
who cannot deliver their Old Notes, the Letter of Transmittal or any other
required documents to the Exchange Agent prior to the Expiration Date, may
effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the registered holder of the Old
Notes, the certificate number or numbers of such Old Note(s) and the
principal amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that, within five New York Stock Exchange
trading days after the Expiration Date, the Letter of Transmittal (or
facsimile thereof) together with the certificate(s) representing the Old
Notes and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer and all other documents required by
the Letter of Transmittal are received by the Exchange Agent within five
New York Stock Exchange trading days after the Expiration Date.
Upon request of the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to registered holders who wish to tender their Old Notes according to the
guaranteed delivery procedures set forth above.
4. SIGNATURES ON LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by a person other than a registered holder
of any Old Notes, such Old Notes must be endorsed or accompanied by appropriate
bond powers, in either case signed exactly as the name or names of the
registered holder or holders appear on the Old Notes.
If this Letter of Transmittal or any Old Notes or bond power is signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
person should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
5. EXCHANGE OF OLD NOTES ONLY. Only the above-described Old Notes may be
exchanged for Notes pursuant to the Exchange Offer.
6. MISCELLANEOUS. All questions as to the validity, form, eligibility
(including time of receipt), acceptance and withdrawal of tendered Old Notes
will be resolved by the Company, whose determination will be final and binding.
The Company reserves the absolute right to reject any or all tenders that are
not in proper form or the acceptance of which would, in the opinion of counsel
for the Company, be unlawful. The Company also reserves the right to waive any
irregularities or conditions of tender as to particular Old Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in
<PAGE> 6
this Letter of Transmittal) will be final and binding. Unless waived, any
irregularities in connection with tenders or consents must be cured within such
time as the Company shall determine. Neither the Company nor the Exchange Agent
shall be under any duty to give notification of defects in such tenders or shall
incur liabilities for failure to give such notification. Tenders of Old Notes
will not be deemed to have been made until such irregularities have been cured
or waived. Any Old Notes received by the Exchange Agent that are not properly
tendered and as to which the irregularities have not been cured or waived will
be returned by the Exchange Agent to the tendering holder thereof.
IMPORTANT TAX INFORMATION
Under current Federal income tax law, an Old Noteholder whose tendered Old
Notes are accepted for payment generally is required to provide the Exchange
Agent (as agent for the payer) with his or her correct taxpayer identification
number ("TIN") on Substitute Form W-9 below. If such Old Noteholder is an
individual, the TIN is his or her social security number. If the Exchange Agent
is not provided with the correct TIN, the Old Noteholder may be subject to a $50
penalty imposed by the Internal Revenue Service. In addition, payments that are
made to such Old Noteholders with respect to New Notes exchanged pursuant to the
Offer may be subject to backup withholding.
Certain Old Noteholders (including, among others, all corporations and
certain foreign individuals) may not be subject to these backup withholding and
reporting requirements. Exempt Old Noteholders should indicate their exempt
status on Substitute Form W-9. In order for a foreign individual to qualify as
an exempt recipient, that Old Noteholder must submit a properly completed
Internal Revenue Service Form W-8, signed under penalties of perjury, attesting
to his or her exempt status. Such statements can be obtained from the Exchange
Agent. See the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 for additional instructions.
If backup withholding applies, the Exchange Agent is required to withhold
31 percent of any such payments made to the Old Noteholder. Backup withholding
is not an additional tax. Rather, the federal income tax liability of persons
subject to backup withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund may be obtained.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to an Old
Noteholder with respect to Old Notes exchanged pursuant to the Offer, each Old
Noteholder is required to notify the Exchange Agent of his, her or its correct
TIN by completing the Substitute Form W-9 below certifying the TIN provided on
such form is correct (or that such Old Noteholder is awaiting a TIN) and that
(1) the Old Noteholder has not been notified by the Internal Revenue Service
that he, she or it is subject to backup withholding as a result of a failure to
report all interest or dividends or (2) the Internal Revenue Service has
notified the Old Noteholder that he, she or it is no longer subject to backup
withholding.
<PAGE> 7
What NUMBER TO GIVE THE EXCHANGE AGENT
The Old Noteholder is required to give the Exchange Agent the social
security number or employer identification number of the record owner of the Old
Notes. If the Old Notes are in more than one name or are not in the name of the
actual owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidelines on which
number to report.
PAYER'S NAME: WELLS FARGO BANK, N. A.,
AS AGENT
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX Social Security Number
FORM W-9 AT RIGHT AND CERTIFY BY SIGNING AND DATING or
BELOW Employer Identification Number:
------------------------------
- ------------------------------------------------------------------------------------------------------------------
PART 2 -- Certification Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number
DEPARTMENT OF THE TREASURY (or I
INTERNAL REVENUE SERVICE am waiting for a number to be issued to me) and
PAYOR'S REQUEST FOR (2) I am not subject to backup withholding because: (a) I am exempt from
TAXPAYER IDENTIFICATION backup withholding, (b) I have not been notified by the Internal Revenue
NUMBER "TIN" Service (the "IRS") that I am subject to backup withholding as a result of
a failure to report all interest or dividends or (c) the IRS has notified
me that I am no longer subject to backup withholding.
Certification Instructions -- You must cross out Item (2) above if you
have been notified by the IRS that you are currently subject to backup
withholding because of under-reporting interest or dividends on your tax
return. However, if after being notified by the IRS that you were subject
to backup withholding you received another notification from the IRS that
you are no longer subject to backup withholding, do not
cross out such Item (2).
-------------------------------------------------------------------------------
PART 3
SIGNATURE: DATE: Awaiting
--------------------- ------------------- TIN [ ]
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31
PERCENT OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS.
<PAGE> 8
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAX IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number within sixty (60) days, 31 percent of
all reportable payments made to me thereafter will be withheld until I provide a
number.
<TABLE>
<S> <C>
- --------------------------------------------------------- -----------------------------------------------------
Signature Date
</TABLE>
<PAGE> 9
NOTICE OF GUARANTEED DELIVERY
FOR
OFFER FOR ALL OUTSTANDING
PRIVATELY PLACED 11% SENIOR SUBORDINATED NOTES DUE 2006
IN EXCHANGE FOR
11% SERIES A SENIOR SUBORDINATED NOTES DUE 2006
OF
CSK AUTO, INC.
Registered holders of privately placed 11% Senior Subordinated Notes Due
2006 (the "Old Notes") who wish to tender their Old Notes in exchange for a like
principal amount of 11% Series A Senior Subordinated Notes Due 2006 (the
"Notes") and whose Old Notes are not immediately available or who cannot deliver
their Old Notes and Letter of Transmittal or any other documents required by the
Letter of Transmittal to Wells Fargo Bank, N.A., (the "Exchange Agent") prior to
the Expiration Date, must use this Notice of Guaranteed Delivery or one
substantially equivalent hereto. This Notice of Guaranteed Delivery may be
delivered by hand or sent by facsimile transmission or mail to the Exchange
Agent. See "THE OFFER -- Procedures for Tendering" in the Prospectus.
THE EXCHANGE AGENT FOR THE OFFER IS
WELLS FARGO BANK, N.A.
By Hand Delivery, Mail or Overnight Express
(INSURED OR REGISTERED RECOMMENDED):
WELLS FARGO BANK, N.A.
CORPORATE TRUST DIVISION
# 4101-082
100 WEST WASHINGTON
PHOENIX, ARIZONA 85003
ATTENTION: KATHLEEN JAKUBOWICZ
<TABLE>
<S> <C>
By Facsimile: By Telephone:
(602) 440-1389 (602) 440-1459
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO
A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN ELIGIBLE INSTITUTION UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED ON THE LETTER
OF TRANSMITTAL FOR GUARANTEE OF SIGNATURES.
<PAGE> 10
Ladies and Gentlemen:
The undersigned hereby tenders the principal amount of Old Notes indicated
below, upon the terms and subject to the conditions contained in the
Registration Statement on Form S-4 filed by CSK Auto, Inc., an Arizona
corporation, with the Securities and Exchange Commission (the "Registration
Statement") and the accompanying Prospectus dated , 1997 included
therein (the "Prospectus"), receipt of which is hereby acknowledged.
DESCRIPTION OF SECURITIES TENDERED
<TABLE>
<S> <C> <C>
Name and address of registered holder Certificate number(s) of Old Notes Principal Amount of Old Notes
as it appears on the Old Notes transmitted transmitted
- ------------------------------------ ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------ ------------------------------------
</TABLE>
<PAGE> 11
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office, branch,
agency or correspondent in the United States, which is a member of a recognized
Medallion Signature Program approved by the Securities Transfer Association,
Inc., hereby guarantees to deliver to the Exchange Agent at one of its addresses
set forth above, the Old Notes, together with a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, and any other documents required by the Letter of
Transmittal within five New York Stock Exchange, Inc. trading days after the
date of execution of this Notice of Guaranteed Delivery.
<TABLE>
<S> <C>
Name of Firm: ------------------------------------- -----------------------------------------------------
(Authorized Signature)
Address: -------------------------------------------- Title:
-----------------------------------------------
---------------------------------------------------
(Zip Code) Name:
-----------------------------------------------------
(Please type or print)
Area Code and Telephone Number: Date:
-----------------------------------------------------
- -----------------------------------------------------
</TABLE>
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. OLD
NOTES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
<PAGE> 1
EXHIBIT 2.01
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement, dated as of September 29, 1996 is by
and among the 16 corporations identified on Schedule I hereto, each a Cayman
Islands corporation (collectively "Purchaser"), The Carmel Trust, a trust
governed by the laws of Canada ("Seller"), CSK Group, Ltd., a Delaware
corporation ("CSK"), and CSK Holdings, Ltd., a Delaware corporation ("Holdings"
and, together with CSK, the "Controlling Stockholders").
RECITALS
A. Seller owns all of the issued and outstanding capital stock of CSK,
CSK owns all the issued and outstanding capital stock of Holdings, and Holdings
owns all the issued and outstanding capital stock of Northern Automotive
Corporation, an Arizona corporation (the "Company").
B. Purchaser desires to purchase from Seller, and Seller desires to
sell to Purchaser, certain of the issued and outstanding shares of common stock
of CSK on the terms and conditions contained herein which, after the redemption
by CSK of all the additional shares of the issued and outstanding shares of
common stock of CSK and the purchase by Seller of new shares of common stock of
CSK, will result in Purchaser owning stock representing 51% of the voting power
and economic value of the then issued and outstanding shares of capital stock
of CSK.
C. Purchaser desires to purchase or arrange for the purchase from CSK
and CSK desires to sell to Purchaser or its designee up to $50,000,000
aggregate principal amount of 12% Subordinated Series B Notes due October 31,
2008 of CSK (the "Series B CSK Notes").
D. Seller desires to arrange for the purchase from CSK by
Transatlantic Finance, Ltd. ("Transatlantic") and CSK desires to sell to
Transatlantic up to $20,000,000 aggregate principal amount of 12% Subordinated
Series A Notes due October 31, 2008 of CSK (the "Series A CSK Notes").
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
SECTION 1.1 PURCHASE AND SALE OF SHARES.
(a) Upon and subject to the terms and conditions contained in this
Agreement, Purchaser agrees to purchase from Seller, and Seller agrees to sell
to Purchaser, equity securities which following the recapitalization of CSK
described in Sections 1.2(d) and 4.14 hereof and the
<PAGE> 2
sale of Capital Stock to Purchaser (described in Section 1.2(a) below) and
Seller (described in Section 1.2(e) below) will represent 51% of the voting
power and economic value of the equity Securities of CSK (the "Common Shares").
Purchaser shall pay to Seller $105,000,024 (the "Common Shares Purchase Price")
as the purchase price for the Common Shares in cash, by wire transfer of
immediately available funds to the account of Seller as designated by Seller in
accordance with this Agreement or to such other account as Seller may designate
by written notice to Purchaser prior to the Closing Date, as hereinafter
defined ("Seller's Account").
(b) Upon and subject to the terms and conditions contained in this
Agreement, Purchaser agrees to purchase or cause a company designated by it
prior to the Closing (with the Purchaser, in either case, the "Purchaser
Designee") to purchase from CSK, and CSK agrees to sell to the Purchaser
Designee $40,000,000 aggregate principal amount of Series B CSK Notes issued
pursuant to the Indenture attached hereto as Exhibit A. Notwithstanding the
foregoing, Purchaser may elect at the Closing (as defined below) to purchase
and CSK shall sell up to an additional $10,000,000 aggregate principal amount
of Series B CSK Notes (the "Additional Notes Option"). The Purchaser Designee
shall pay to CSK $40,000,000 or, if and to the extent the Additional Notes
Option is exercised, up to $50,000,000 (in either case, the "CSK Purchaser
Notes Purchase Price") as the purchase price for the Series B CSK Notes in
cash, by wire transfer of immediately available funds to the account of CSK as
designated by CSK in accordance with this Agreement or such other account as
CSK may designate by written notice to Purchaser prior to the Closing Date.
(c) Upon and subject to the terms and conditions contained in this
Agreement, Seller agrees to cause Transatlantic to purchase from CSK, and CSK
agrees to sell to Transatlantic $10,000,000 aggregate principal amount of
Series A CSK Notes issued pursuant to the Indenture attached hereto as Exhibit
B. Notwithstanding the foregoing, if and to the extent the Additional Notes
Option is exercised, Transatlantic shall purchase and CSK shall sell up to an
additional $10,000,000 aggregate principal amount of Series A CSK Notes.
Transatlantic shall pay to CSK $10,000,000 or, if and to the extent the
Additional Notes Option is exercised, up to $20,000,000 (in either case, the
"CSK Seller Notes Purchase Price") as the purchase price for the Series A CSK
Notes in case, by wire transfer of immediately available funds to the account
of CSK as designated by CSK in accordance with this Agreement or such other
account as CSK may designate by written notice to Seller prior to the Closing
Date.
(d) Upon and subject to the terms and conditions contained in this
Agreement, and after completion of the redemption described in Sections 1.2(d)
and 4.14 below, Seller agrees to purchase from CSK, and CSK agrees to sell to
Seller shares of CSK capital stock (the "Seller's Common Shares") which shares
will represent 49% of the voting power and economic value of the outstanding
shares of capital stock of CSK. Seller shall pay to CSK $100,882,376 (the
"Seller's Common Shares Purchase Price") as the purchase price for the Seller's
Common Shares in cash, by wire transfer of immediately available funds to the
account of CSK as designated by CSK in accordance with this Agreement or to
such other account as CSK may designate by written notice to the Seller prior
to the Closing Date.
SECTION 1.2 THE CLOSING. The closing of the transactions described in
Section 1.1 above (the "Closing") shall take place at the offices of Gibson,
Dunn & Crutcher LLP, 200 Park
2
<PAGE> 3
Avenue, New York, New York 10166, or at such other place as the parties may
agree, at 10 a.m. local time on October 31, 1996. The time and date of the
Closing as provided above is hereafter referred to as the "Closing Date". At
the Closing, the following shall transpire in the order specified: (a) Seller
shall cause CSK to amend its charter to give effect to the recapitalization
described in Section 4.14 hereof; (b) CSK shall cause Holdings to amend its
charter and Holdings shall cause the Company to amend its charter so as to
authorize the Holdings Preferred Shares and the Company Preferred Shares (each
as defined below), respectively; (c) Seller shall deliver to Purchaser
certificates representing the Common Shares, duly endorsed or accompanied by
appropriate stock transfer powers duly executed and Purchaser shall pay the
Common Shares Purchase Price to Seller in immediately available funds as
provided above; (d) CSK shall deliver to the Purchaser Designee the Series B
CSK Notes and the Purchaser Designee shall pay the Purchaser Notes Purchase
Price to CSK in immediately available funds as provided above; (e) CSK shall
deliver to Transatlantic the Series A CSK Notes and Transatlantic shall pay the
Seller Notes Purchase Price to CSK in immediately available funds as provided
above; (f) CSK shall redeem all of the outstanding shares of Capital Stock of
CSK which do not constitute the Common Shares and shall pay to Seller in
payment of such redemption $238,467,700 (the "Redemption Price") in cash, by
wire transfer of immediately available funds to Seller's Account; (g) CSK shall
deliver to Seller certificates representing the Seller's Common Shares, and the
Seller shall pay the Seller's Common Shares Purchase Price (from the proceeds
of the Common Shares Purchase Price received by Seller) to CSK in immediately
available funds as provided above; (h) the proceeds of the Seller's Common
Shares Purchase Price shall be paid by CSK to Holdings and by Holdings to the
Company as a capital contribution; (i) the proceeds of the CSK Purchaser Notes
Purchase Price and the CSK Seller Notes Purchase Price shall be paid by CSK to
Holdings as consideration for the purchase of shares of Holdings Preferred
Stock (the "Holdings Preferred Shares") with substantially the terms set forth
on Exhibit C hereto, and by Holdings to the Company as consideration for the
purchase of shares of the Company's Preferred Stock (the "Company's Preferred
Shares") with substantially the terms set forth on Exhibit C hereto; (j)
Holdings shall deliver to CSK certificates representing the Holdings Preferred
Shares; and the Company shall deliver to Holdings certificates representing the
Company Preferred Shares; (k) Seller and Purchaser shall cause the Company to
amend its charter to change its name to "CSK Auto, Inc."; and (l) Seller shall
execute an Assumption of Liabilities substantially in the form of Exhibit D
hereto (the "Assumption of Liabilities") pursuant to which it will
unconditionally assume any and all liabilities and obligations of the
Controlling Stockholders existing immediately prior to the Closing except for
any guarantees of liabilities or obligations of the Company.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Except as set forth on the Disclosure Letter delivered by Seller to
Purchaser in connection with this Agreement (the "Disclosure Letter"), Seller
hereby represents and warrants to Purchaser that the following representations
and warranties are, as of the date hereof, and will be, as of the Closing Date,
true and correct.
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SECTION 2.1 ORGANIZATION AND QUALIFICATION. The Company and each of
the Company's subsidiaries, Kragen Auto Supply Co. and Schucks Distribution
Co., being the only subsidiaries of the Company and being hereinafter
collectively referred to as the "Subsidiaries", is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has the requisite corporate power and
authority to own, lease and operate its assets and properties and to carry on
its businesses as they are now being conducted. The Company and each of the
Subsidiaries is qualified to do business and is in good standing in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the businesses conducted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing will not, when
taken together with all other such failures, have a Material Adverse Effect.
For purposes of this Agreements, a "Material Adverse Effect" shall be a
material adverse effect on the business, financial condition or results of
operations of the Controlling Stockholders, the Company and its Subsidiaries
taken as a whole.
SECTION 2.2 CAPITALIZATION.
(a) The Company has 20,000 authorized shares of Common Stock, of which
2,000 shares are outstanding as of the date hereof, all of which are validly
issued and are fully paid, nonassessable and free of preemptive rights and
except as set forth on the Disclosure Letter has no other securities authorized
or outstanding. Except as set forth in the Disclosure Letter, on the date
hereof, there are no outstanding subscriptions, options, warrants, rights,
calls, contracts, voting trusts, proxies or other commitments, understandings,
restrictions, or arrangements, including any right of conversion or exchange
under any outstanding security, instrument or other agreement obligating the
Company or any Subsidiary to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of the capital stock of the Company or any
Subsidiary or obligating the Company or any Subsidiary to grant, extend or
enter into any such agreement or commitment.
(b) CSK has 1,500 authorized shares of Common Stock, of which 100
shares are outstanding as of the date hereof, all of which are validly issued
and are fully paid, nonassessable and free of preemptive rights and except as
set forth in the Disclosure Letter has no other securities authorized or
outstanding. Except as set forth in the Disclosure Letter, on the date hereof,
there are no outstanding subscriptions, options, warrants, rights, calls,
contracts, voting trusts, proxies or other commitments, understandings,
restrictions, or arrangements, including any right of conversion or exchange
under any outstanding security, instrument or other agreement obligating CSK to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of the capital stock of CSK or obligating CSK to grant, extend or enter
into any such agreement or commitment. At the Closing, upon completion of each
of the transactions specified in Section 1.2 hereof, Purchaser will acquire the
Common Shares free and clear of all liens, encumbrances, security interests and
claims of any kind.
(c) Holdings has 1,000 authorized shares of Common Stock, of which
1,000 shares are outstanding as of the date hereof, all of which are validly
issued and are fully paid, nonassessable and free of preemptive rights and
50,000 authorized shares of Preferred Stock, all of which are validly issued
and are fully paid, nonassessable and free of preemptive rights and except as
set forth in the Disclosure Letter has no other securities authorized or
outstanding.
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Except as set forth in the Disclosure Letter, on the date hereof,
there are no outstanding subscriptions, options, warrants, rights, calls,
contracts, voting trusts, proxies or other commitments, understandings,
restrictions, or arrangements, including any right of conversion or exchange
under any outstanding security, instrument or other agreement obligating
Holdings to issue, deliver to sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of Holdings or obligating Holdings to
grant, extend or enter into any such agreement or commitment.
SECTION 2.3 PARENTS AND SUBSIDIARIES. Each of the Controlling
Stockholders is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization
and has the requisite power and authority to own, lease and operate its assets
and properties and to carry on its business as it is now being conducted. Each
of the Controlling Stockholders is qualified to do business, and is in good
standing, in each jurisdiction in which the properties owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified and in
good standing will not, when taken together with all such other failures, have
a Material Adverse Effect. Seller represents that (a) it has title to all of
the outstanding shares of capital stock of CSK, (b) CSK has title to all of the
outstanding shares of capital stock of Holdings subject to a pledge of shares
which pledge will be released prior to the Closing Date, (c) Holdings has title
to all of the outstanding shares of capital stock of the Company subject to a
pledge of such shares to Transamerica Business Corporation referred to below,
and (d) the Company has title to all of the outstanding shares of capital stock
of each of the Subsidiaries (the capitalization of each of which is set forth
in the Disclosure Letter) and that all such shares are validly issued, fully
paid, nonassessable and free of preemptive rights, and will on the Closing Date
be owned directly or indirectly by the Seller free and clear of any liens,
claims, encumbrances, security interests, equities, charges and options of any
nature whatsoever other than liens granted to Transamerica Business Corporation
and other commercial lenders (the "Transamerica Liens") under the Credit
Agreement dated February 15, 1995 (the "Transamerica Loan") which will be
released upon payment of the Transamerica Loan on Closing. There are no
outstanding subscriptions, options, warrants, rights, calls, contracts, voting
trusts, proxies or other commitments, understandings, restrictions or
arrangements, including any right of conversion or exchange under any
outstanding security, instrument or agreement, relating to the issuance, sale,
voting, transfer, ownership, or other rights affecting any shares of capital
stock of any Controlling Stockholder. Except as set forth in the Disclosure
Letter, none of the Company, the Controlling Stockholders and the Subsidiaries
(collectively, the "Group Companies") directly or indirectly owns an interest
in any corporation, partnership, joint venture or other business entity. As of
the Closing, Seller shall have assumed all liabilities of the Controlling
Stockholders, except for any guarantees of liabilities or obligations of the
Company, pursuant to the Assumption of Liabilities.
SECTION 2.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS. (a) Each of the
Seller, the Company and each of the Controlling Stockholders has full corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation by the Seller, the Company and each of the
Controlling Stockholders of the transactions contemplated hereby have been duly
authorized, and no other corporate proceedings on the part of the parties are
necessary to authorize the execution and delivery of this Agreement and the
consummation by them of the
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transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Seller, the Company and each of the Controlling
Stockholders and, assuming the due authorization, execution and delivery hereof
by Purchaser, constitutes a valid and legally binding agreement of such parties
enforceable against it in accordance with its terms except as may be limited by
(a) bankruptcy, insolvency, moratorium, reorganization and other similar laws
affecting creditors' rights generally and (b) the general principles of equity,
regardless of whether asserted in a proceeding in equity or at law. Seller, in
its capacity as the sole shareholder of CSK, has approved the terms of this
Agreement and the transactions contemplated hereby.
(b) The execution of this Agreement by the Seller and the Controlling
Stockholders does not, and the consummation of the transactions contemplated
hereby will not, violate, conflict with or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Seller or any
of the Group Companies under any of the terms, conditions or provisions of (i)
the respective charters or By-Laws of the Seller or any of the Group Companies,
(ii) any statute, law, ordinance, rule, regulation, judgment, decree, order,
injunctions, writ, permit or license of any court or governmental authority
applicable to the Seller or any of the Group Companies or of their respective
properties or assets, or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which the Seller or any of
the Group Companies is now a party or by which the Seller or any of the Group
Companies or any of their respective properties or assets may be bound or
affected, excluding from the foregoing clauses (ii) and (iii) with respect to
the Company, such violations, conflicts, breaches, defaults, termination,
accelerations or creations of liens, security interests, charges or
encumbrances that would not, in the aggregate, have a Material Adverse Effect.
(c) No declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this Agreement by
Seller except for any filing by Seller required by the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended and the rules and regulations
thereunder (the "HSR Act") due to the purchase of the Common Shares by
Purchaser, and except, in the case of the Company, for such declarations,
filings, registrations, notices, authorizations, consents or approvals the
failure of which to make or obtain, as the case may be, will not, in the
aggregate, have a Material Adverse Effect.
SECTION 2.5 REPORTS AND FINANCIAL STATEMENTS. The Company has
delivered to Purchaser true and complete copies of its (a) Registration
Statement on Form S-1 and Amendment No. 1 thereto filed with the Securities and
Exchange Commission on June 26, 1996 and August 12, 1996, respectively, and a
draft of Amendment No. 2 thereto which revised Amendment No. 1 to reflect
financial data and financial statements for the fiscal quarter ended July 28,
1996 (collectively, the "Registration Statement") and (b) unaudited
consolidated financial statements for the twenty-six weeks ended July 28, 1996
(the "Six Month Company Financial Statements"). As of its date of filing, the
Registration Statement did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
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necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The audited consolidated financial
statements and unaudited interim financial statements of the Company included
in the Registration Statement and the Six Month Company Financial Statements
(collectively, the "Company Financial Statements") fairly present the financial
position of the Company and its Subsidiaries as of the dates thereof and the
results of their operations and cash flows for the periods then ended in
conformity with generally accepted accounting principles applied on a
consistent basis (except as may be indicated therein or in the notes thereto),
subject, in the case of the unaudited interim financial statements, to normal
year-end and audit adjustments and any other adjustments described therein.
SECTION 2.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in
the Disclosure Letter or in the Registration Statement, neither the Company nor
any of its Subsidiaries had at July 28,1996, or has incurred since that date,
any liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of any nature, except liabilities, obligations or contingencies (a)
which are accrued or reserved against in the Company Financial Statements or
reflected in the notes thereto or (b) which were incurred after July 28, 1996,
and were incurred in the ordinary course of business and consistent with past
practices and, except for any such liabilities, obligations or contingencies
which (i) would not reasonably be likely, in the aggregate, to have a Material
Adverse Effect, or (ii) have been discharged or paid in full prior to the date
hereof.
SECTION 2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth
in the Disclosure Letter or in the Registration Statement, since July 28, 1996
there has not been any material adverse change in the business, operations,
property, financial condition or the results of operations of the Company and
its Subsidiaries, taken as a whole that would result in a Material Adverse
Effect and the Company and its Subsidiaries have in all material respects
conducted their respective businesses in the ordinary course consistent with
past practice.
SECTION 2.8 LITIGATION. The Disclosure Letter sets forth a description
of all claims, suits, actions and proceedings pending or, to the knowledge of
Seller and the Company, threatened against, relating to or affecting any of the
Group Companies or their securities. Except as disclosed in the Registration
Statement, the Company Financial Statements, or the Disclosure Letter, (a)
there are no claims, suits, actions or proceedings pending or, to the knowledge
of Seller and the Company, threatened, nor to the knowledge of Seller and the
Company are there any investigations or reviews pending or threatened, against,
relating to or affecting the Company or any of its Subsidiaries, which, if
adversely determined, is reasonably likely to have a Material Adverse Effect;
(b) there have not been any developments since July 28, 1996 with respect to
such claims, suits, actions, proceedings, investigations or reviews which,
individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect; and (c) except as contemplated by the HSR Act filing, neither
the Company nor any of its Subsidiaries is subject to any judgment, decree,
injunction, rule or order of any court, governmental department, commission,
agency, instrumentality or authority or any arbitrator which prohibits or
restricts the consummation of the transactions contemplated hereby or is
reasonably likely to have a Material Adverse Effect.
SECTION 2.9 NO VIOLATION OF LAW. Except as set forth in the Disclosure
Letter or the Registration Statement, neither CSK, Holdings, the Company nor
any of its Subsidiaries is in violation of, or, to the knowledge of the Seller
or the Company, is under investigation with
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respect to or has been given notice or been charged with any violation of, any
law, statute, order, rule, regulation, ordinance, or judgment of any
governmental or regulatory body or authority, except, in the case of the
Company and the Subsidiaries, for violations which in the aggregate are not
reasonably likely to have a Material Adverse Effect. The Company, the
Subsidiaries and the Controlling Stockholders have all governmental permits,
licenses, franchises and other governmental authorizations, consents and
approvals (the "Company Government Approvals") necessary to conduct their
businesses as presently conducted, except for those which the failure to obtain
would not in the aggregate have a Material Adverse Effect.
SECTION 2.10 COMPLIANCE WITH AGREEMENTS. Except as disclosed in the
Registration Statement, the Company Financial Statements or the Disclosure
Letter, the Seller and each of the Group Companies are not in breach or
violation of or in default in the performance or observance of any term or
provision of, and no event has occurred which, with lapse of time or action by
a third party (or both), could result in a default under, (i) the respective
charters or by-laws of the Seller or any of the Group Companies or (ii) any
contract, commitment, agreement, indenture, mortgage, loan agreement, note,
lease, bond, license, approval or other instrument to which the Seller or any
of the Group Companies is a party or by which any of them is bound or to which
any of their property is subject, except for such breaches, violations and
defaults which would not reasonably be likely to have, in the aggregate, a
Material Adverse Effect.
SECTION 2.11 BROKERS AND FINDERS. Neither Seller, nor the Controlling
Stockholders or the Company, nor any of their respective officers, directors or
employees has employed any broker or finder or incurred any liability for any
brokerage or finders' fees in connection with the transactions contemplated
hereby.
SECTION 2.12 ACQUISITION FOR INVESTMENT. Seller is acquiring the
Seller's Common Shares and Transatlantic is acquiring the Series A CSK Notes
for investment for their own respective accounts and not with a view to any
resale or distribution thereof.
SECTION 2.13 CONTROLLING STOCKHOLDERS. Except as set forth in the
Disclosure Letter, each of CSK and Holdings (i) conducts no activities other
than, directly or indirectly, holding the shares of Holdings, and the Company
and paying salaries and office expenses (which payment activities will cease
prior to the Closing); (ii) conducts no operations other than holding such
securities and paying such salaries and office expenses; (iii) except as set
forth in clauses (i) and (ii), has no assets, liabilities (whether absolute,
accrued, contingent or otherwise) or obligations of any nature; (iv) is not a
party to any contract, agreement or understanding other than this Agreement and
other agreements executed in connection with the transactions contemplated
hereby. Each of CSK and Holdings is not and has never been a party to or the
subject of any claim, suit, action, proceeding, investigation or review, and is
not and has never been subject to any judgment, decree, injunction, rule or
order of any court, governmental department, commission, agency,
instrumentality or authority.
SECTION 2.14 REAL PROPERTY HOLDING CORPORATION. None of the
Controlling Stockholders, the Company nor either of the Subsidiaries is a
United States Real Property Holding Corporation (a "USRPHC") within the meaning
of Section 897 of the Code and was not
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a USRPHC on any "determination date" (as defined in ss.1.897-2(c) of the
Treasury Regulations) that occurred in the five-year period preceding the
Closing Date.
SECTION 2.15 SHAREHOLDER APPROVAL. Appropriate shareholder approval in
form and substance reasonably satisfactory to Purchaser has been obtained by
the Company and any relevant Subsidiary under Internal Revenue Code Section
280G that will exempt the Company and any relevant Subsidiary from any loss of
deduction under Code Section 280G and exempt any recipient from an excise tax
under Code Section 4999 for any excess parachute payments paid or payable to
any employee as a result of the transactions contemplated herein.
SECTION 2.16 DEDUCTIBLE EXPENSES. By the time of the Closing, CSK and
Holdings will have incurred aggregate net deductible expenses in excess of
income for its 1995 and 1996 (through the Closing) fiscal years of not less
than $1,500,000.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller that the following
representations and warranties are, as of the date hereof, and will be, as of
the Closing Date, true and correct:
SECTION 3.1 ORGANIZATION OF PURCHASER. Purchaser is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation.
SECTION 3.2 AUTHORIZATION; NON CONTRAVENTION; APPROVALS. (a) Purchaser
has full corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery, and
performance of this Agreement and the consummation by the Purchaser of the
transactions contemplated hereby have been duly authorized, and no other
corporate proceedings on the part of the Purchaser are necessary to authorize
the execution and delivery of this Agreement and the consummation by the
Purchaser of the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Purchaser and assuming the due
authorization, execution and delivery hereof by Seller, the Company and each of
the Controlling Stockholders, constitutes a valid and legally binding agreement
of Purchaser enforceable against it in accordance with its terms, except as may
be limited by (a) bankruptcy insolvency, moratorium, reorganization and other
similar laws affecting creditors' rights generally and (b) the general
principles of equity, regardless of whether asserted in a proceeding in equity
or at law.
(b) The execution of this Agreement by Purchaser does not, and the
consummation of the transactions contemplated hereby will not, violate,
conflict with or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Purchaser under any of
the terms, conditions or provisions of (i) the charter or By-Laws of the
Purchaser, (ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunctions,
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writ, permit or license of any court of governmental authority applicable to
the Purchaser or its properties or assets, or (iii) any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession, contract,
lease or other instrument, obligation or agreement of any kind to which
Purchaser is now a party or by which Purchaser or any of its properties or
assets may be bound or affected, excluding from the foregoing clauses (ii) and
(iii) such violations, conflicts, breaches, defaults, termination,
accelerations or creations of liens, security interests, charges or
encumbrances that would not, in the aggregate, have a material adverse effect
on Purchaser.
(c) No declaration, filing or registration with, or notice to, or
authorization, consent or approval of, governmental or regulatory body or
authority is necessary for the execution and delivery of this Agreement by
Purchaser or the consummation by Purchaser of the transactions contemplated
hereby.
SECTION 3.3 BROKERS AND FINDERS. Neither the Purchaser nor any of its
officers, directors or employees has employed any broker or finder or incurred
any brokerage or finders' fees in connection with the transactions contemplated
hereby.
SECTION 3.4 ACQUISITION FOR INVESTMENT. Purchaser is acquiring the
Common Shares and the Purchaser Designee is acquiring the Series B CSK Notes
for investment for their own respective accounts and not with a view to any
resale or distribution thereof.
ARTICLE IV
COVENANTS OF PURCHASER AND SELLER
SECTION 4.1 ACCESS TO INFORMATION; CONFIDENTIALITY. Seller and the
Company shall, upon reasonable notice, (a) give or cause to be given to
Purchaser and its advisors, during regular business hours and in a manner so as
not to disrupt the business of the Company while recognizing the confidential
and sensitive nature of the transaction contemplated hereby, reasonable access
to all of the properties, documents and records of the Group Companies, and (b)
provide or cause to be provided to Purchaser such copies or extracts of the
Group Companies' documents and records as Purchaser may reasonably request. In
the event that this Agreement shall be terminated, Purchaser shall forthwith
return all such copies and extracts to Seller or the Company. All of the terms
and provisions of the letter agreement dated July 19, 1996, with respect to,
among other things, confidential treatment of information provided to Purchase
and/or its affiliates (the "Confidentiality Agreement"), shall survive the
execution, Closing and any termination of this Agreement.
SECTION 4.2 CONDUCT OF BUSINESS. From the date hereof to the Closing
Date, Seller, except as otherwise permitted by this Agreement or consented to
in writing by Purchaser (which consent shall not be unreasonably withheld or
delayed) will cause the Group Companies to continue the operation of their
business in the ordinary course and will use its best efforts to cause the
Group Companies: (a) to preserve the business organization of the Company
substantially intact, to keep available to Purchaser the services of the Vice
Presidents of the Company and to preserve for Purchaser the goodwill of the
customers of the Company; and (b) to maintain its assets and properties in at
least as good order and condition as exists on the date hereof, subject
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to ordinary wear and tear. Without limiting the generality of the foregoing,
except in the ordinary course of business or as otherwise permitted by this
Agreement or consented to in writing by Purchaser (which consent shall not be
unreasonably withheld or delayed), Seller will use its best efforts to cause
the Group Companies to refrain from (i) incurring any obligation or liability
(absolute, accrued, contingent or otherwise), (ii) granting any increase in
compensation payable or to become payable to any employee of the Company
outside of the ordinary course of business, or (iii) making or authorizing any
capital expenditure for addition to plant and equipment of the Company.
SECTION 4.3 NO ORGANIC CHANGE. Seller shall not cause or suffer to
occur any amendment to be made to the Company's or any Controlling
Stockholder's articles of incorporation or by-laws or any change to be made in
their respective authorized or outstanding capital stock other than as
contemplated by Section 4.14.
SECTION 4.4 NO DIVIDENDS, STOCK ISSUANCE, ETC. Except as set forth in
the Disclosure Letter and as contemplated herein, Seller shall not cause or
suffer to occur (a) any declaration or payment of dividends or other
distributions in respect of any shares of the Company's or any of the
Controlling Stockholder's capital stock, or (b) the issuance, sale, other
disposition, redemption, purchase or other acquisition by the Company or any of
the Controlling Stockholders of any of its capital stock or securities
convertible into its capital stock or any commitment so to do.
SECTION 4.5 GOVERNMENT REVIEWS. Seller and Purchaser, within 5
business days after the execution and delivery of this Agreement, (a) will make
(or cause their respective ultimate parent entities to make) required filings
with, prepare applications to and conduct negotiations with each governmental
agency as to which such filings, applications or negotiations are necessary or
appropriate for the consummation of the transactions contemplated hereby, and
(b) will provide such information as each may be required to make such filings,
prepare such applications and conduct such negotiations. Seller and Purchaser
will cooperate with each other and use their best efforts to assist the other
in making and pursuing such filings and applications as expeditiously as
practicable and conducting such negotiations and promptly will respond to all
requests for additional information or documentation.
SECTION 4.6 FINANCING. Purchaser shall arrange for financing for the
Company consisting of an aggregate of $198,000,000 plus an amount equal to the
difference between $70,000,000 and the sum of the CSK Purchaser Notes Purchase
Price plus the CSK Seller Notes Purchase Price, a portion of which may consist
of a bank facility and high-yield subordinated debt substantially on the terms
set forth on Exhibit E hereto, or alternative financing pursuant to a bridge
financing, in either event, the proceeds of such financing being sufficient to
consummate the transactions contemplated hereby.
SECTION 4.7 STOCKHOLDERS' AGREEMENT. Purchaser, Seller, the
Controlling Stockholders and the Company shall, at the Closing, enter into the
Stockholders' Agreement in the form annexed hereto as Exhibit F (the
"Stockholders' Agreement").
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SECTION 4.8 CHANGE OF NAME. Purchaser, Seller, the Company and
each of the Controlling Stockholders shall, at the Closing, take any and all
actions necessary to amend the charter of the Company to change its name to
"CSK Auto, Inc."
SECTION 4.9 REPLACEMENT SALE-LEASEBACKS. Purchaser, Seller and the
Company will use their respective best efforts following the Closing to obtain
replacement financing for existing sale-leasebacks between the Company and
affiliates of the Seller and, in connection therewith, will make such
modifications to the terms of such sale-leaseback arrangements as may be
necessary in order to make such financing competitive with similar financing
being offered in the market; provided, however, that the Company shall not be
required to modify the terms of any such lease so as to require annual rent of
more than 13% of the sale proceeds paid by the Seller's affiliate. [In
addition, prior to Closing, Seller shall cause its affiliate Transatlantic
Realty Ltd. and the Company to enter into amendments of existing leases from
previously concluded sale-leaseback transactions to delete therefrom all
purchase options in favor of the tenant other than those arising as a result of
casualty, condemnation, or environmental contamination.
SECTION 4.10 FULFILLMENT OF CONDITIONS. Subject to the terms of this
Agreement, Purchaser and Seller shall each use its best efforts to perform,
comply with and fulfill all obligations, covenants and conditions required by
this Agreement to be performed, complied with or fulfilled on its part prior to
or at the Closing and to take all action necessary to cause the Closing to
occur on or prior to October 31, 1996.
SECTION 4.11 FURTHER ASSURANCES. Subject to the terms of this
Agreement, Purchaser and Seller shall each use its best efforts at any time and
from time to time prior to, at or after the Closing to execute and deliver to
the other such further documents and instruments and to take all such further
actions as the other reasonably may request in order to consummate the
transactions contemplated by this Agreement.
SECTION 4.12 ACCESS TO INFORMATION. Subsequent to the Closing Date,
Purchaser, upon reasonable notice and not in a manner which is disruptive to
the Company's business, shall (a) give or cause to be given to the individuals
who have been designated by Seller pursuant to the Stockholders' Agreement to
be members of the Company's Board of Directors, and to each consultant or
advisor from time to time selected by such individuals on behalf of and in
their capacity as agent for any persons or entities holding from time to time
at least 10% of the then current voting power of CSK, at reasonable times, full
access to the documents and records of the Company and (b) provide or cause to
be provided to such individuals on behalf of any such stockholders, such copies
of the Company's documents and records as such individuals may reasonably
request.
SECTION 4.13 REPAYMENT OF CSK NOTES. Purchaser and Seller agree to
cause CSK to pay, and CSK agrees to pay, from the proceeds of any public
offerings of equity securities by CSK or any of its direct or indirect
subsidiaries immediately following each such public offering, to the full
extent permitted by the terms of such offerings and the terms of the financing
contemplated by Section 4.6, and subject to the overall best interests of the
stockholders of CSK, all then outstanding principal and unpaid interest on the
Series A CSK Notes and the Series B CSK Notes; provided, however, that if the
offering proceeds of any such public offering are
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insufficient to pay in full the outstanding principal and interest remaining on
the CSK Notes at the time of such offering, (i) up to the first $40,000,000 of
such proceeds will be used to pay all of the then outstanding principal and
unpaid interest on the Series A CSK Notes and an equal amount of the then
outstanding principal and unpaid interest on the Series B CSK Notes on a pro
rata basis, and (ii) any additional proceeds will be used to pay any remaining
outstanding principal and unpaid interest on the Series B CSK Notes. Any
remaining balances due on Series A CSK Notes and the Series B CSK Notes after
application of the proceeds of a public offering will be paid with the proceeds
of subsequent public offerings in the manner provided by this Section 4.13.
SECTION 4.14 RECAPITALIZATION OF CSK. Purchaser, Seller and CSK shall,
at the Closing, take any and all actions necessary to cause CSK to recapitalize
its authorized classes of capital stock in accordance with the Restated
Certificate of Incorporation attached as Exhibit G hereto. Such
recapitalization shall be effected by the filing of such Restated Certificate
of Incorporation substantially in the form so attached.
SECTION 4.15 EQUITY PARTICIPATION AGREEMENTS. The Purchaser and Seller
shall cause the Company to make any payments which shall become due pursuant to
the Equity Participation Agreements listed on Exhibit H hereto (the
"Participation Agreements") in the amounts set forth thereon to the persons
designated thereon (the "Participants"), provided that such payments to each
Participant shall be subject to the execution by such Participant of a waiver
to the effect that such payments represent all payments due such Participant
under his Participation Agreement, and the Seller shall reimburse the Company
for 60% of amounts which, pursuant to the terms of the Participation
Agreements, are payable one year after the Closing Date (excluding any such
amounts payable on account of interest). Such reimbursement will be made, after
such due date, promptly upon notice from Purchaser to Seller that such amounts
have been paid.
SECTION 4.16 MANAGEMENT EQUITY PURCHASERS. Notwithstanding any
provision hereof to the contrary, (a) Purchaser agrees that any shares of
capital stock of CSK to be purchased by John Antioco or any other person
selected as Chief Executive Officer of the Company in connection with the
transactions contemplated hereby, shall be purchased from Purchaser, (b) Seller
agrees that any shares of capital stock of CSK to be purchased by James Bazlen
in connection with the transactions contemplated hereby, shall be purchased
from Seller, and (c) Purchaser and Seller agree that any shares of capital
stock of CSK to be purchased by the Participants other than James Bazlen in
connection with the transactions contemplated hereby, shall be purchased from
CSK and that the relative percentages of voting power and economic value
represented by the Common Shares and the Seller Common Shares shall not be
affected by such sales.
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligation of Purchaser to consummate the transactions
contemplated by this Agreement is subject to the satisfaction at or prior to
the Closing of each of the following conditions:
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<PAGE> 14
SECTION 5.1 NO PROCEEDINGS. No preliminary or permanent injunction or
other binding order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, shall be in effect which shall have the effect of preventing the
consummation of the transactions contemplated by this Agreement; provided,
however, that the Purchaser shall use its best efforts to seek to obtain the
removal of such injunction, order, decree or ruling.
SECTION 5.2 REPRESENTATIONS AND WARRANTIES; COVENANTS. All
representations and warranties of Seller contained in this Agreement shall be
true and correct at and as of the Closing Date as though made at such time;
provided, however, that except with respect to the representations and
warranties contained in Sections 2.1, 2.2, 2.3, and 2.4, such representations
and warranties which are not otherwise qualified as to materiality shall be
true and correct in all material respects at and as of the Closing Date, as
though made at such time. Seller shall have performed and complied in all
material respects with all covenants, obligations and conditions required by
this Agreement to be performed or complied with by Seller prior to or on the
Closing Date.
SECTION 5.3 SALE LEASEBACK FINANCING. A company which is directly or
indirectly owned by Seller shall immediately prior to the Closing enter into an
agreement substantially in the form of Exhibit I hereto, pursuant to which it
shall agree to provide up to $50,000,000 of financing (at any time outstanding)
to the Company.
SECTION 5.4 LEGAL OPINION. Purchaser shall have received the favorable
opinions of counsel to each of Seller, CSK and the Company, with respect to the
matters referred to in Section 2.1, the first three sentences of Section 2.3,
and Sections 2.4 and 2.10. The opinion with respect to Section 2.4 which, as to
the Controlling Stockholders, shall be rendered by Parker Chapin Flattau &
Klimpl, LLP, shall rely, to the extent reasonable, on the opinions of local
counsel and need not address the enforceability or non-contravention of the
Restated Certificates of Incorporation or of the Stockholders' Agreement to the
extent its enforceability is impacted by the Restated Certificate of
Incorporation.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligation of Seller to consummate the transactions contemplated
by this Agreement is subject to the satisfaction at or prior to Closing of each
of the following conditions:
SECTION 6.1 EXPIRATION OF THE HSR WAITING PERIOD; NO PROCEEDINGS. Any
applicable waiting periods under the HSR Act shall have expired or been
terminated with respect to any filing required as a result of the Purchase of
Common Shares by Purchaser. No preliminary or permanent injunction or other
binding order, decree or ruling issued by a court of competent jurisdiction or
by governmental, regulatory or administrative agency or commission, shall be in
effect which shall have the effect of preventing the consummation of the
transactions
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<PAGE> 15
contemplated by this Agreement; provided, however, that the Seller shall use
its best efforts to seek to obtain the removal of such injunction, order,
decree or ruling.
SECTION 6.2 REPRESENTATIONS AND WARRANTIES; COVENANTS. All
representations and warranties of Purchaser contained in this Agreement shall
be true and correct at and as of the Closing Date as though made at such time,
provided, however, that except with respect to the representations and
warranties contained in Sections 3.1 and 3.2, such representations and
warranties which are not otherwise qualified as to materiality shall be true
and correct in all material respects at and as of the Closing Date, as though
made at such time. Purchaser shall have performed and complied in all material
respects with all covenants, obligations and conditions required by this
Agreement to be performed or complied with by Purchaser prior to or on the
Closing Date.
SECTION 6.3 DIVIDENDS AND REDEMPTION. At the Closing, the Company
shall have declared and paid a dividend to Holdings which shall have declared
and paid a dividend to CSK, each in such amount that when added to the proceeds
from the sale of the CSK Notes shall be sufficient to complete the redemption
contemplated in Section 1.2(d) and to pay the Redemption Price. Purchaser
agrees to take whatever action may be required of it to authorize and permit
the declaration and payment of such dividends and to effect such redemption.
SECTION 6.4 LEGAL OPINION. Seller shall have received the favorable
opinions of counsel to Purchaser, with respect to the matters referred to in
Sections 3.1 and 3.2. The opinion with respect to the third sentence of Section
3.2(a) with respect to enforceability, which shall be rendered by Gibson Dunn &
Crutcher, LLP, shall rely, to the extent reasonable, on the opinions of local
counsel.
ARTICLE VII
INDEMNIFICATION
SECTION 7.1 INDEMNIFICATION BY SELLER.
(a) From and after the Closing Date, Seller will indemnify Purchaser
for and hold Purchaser harmless from any and all Purchaser's Damages (as
defined below) in the manner and to the extent set forth in this Section 7.1.
(b) The term "Purchaser's Damages" shall include all losses, costs,
expenses (including attorney's fees and expenses and other costs and expenses
incident to any suit, action, investigation, claim or proceeding), fees,
liabilities and damages sustained by Purchaser arising from any failure of a
representation or warranty of Seller contained in this Agreement to be true and
correct at and as of the Closing Date (ignoring for this purpose all
qualifications as to materiality in such representations or warranties);
provided, however, that Seller shall not be liable for more than $25,000,000 in
the aggregate for all claims (other than claims arising from fraudulent
misrepresentation by Seller which shall be excluded from such limitation) for
Purchaser's Damages under this Section 7.1; and, provided, further however,
that Seller shall not have any obligation to indemnify Purchaser for any of
Purchaser's Damages unless and until, and
15
<PAGE> 16
only to the extent, Purchaser has suffered Purchaser's Damages in excess of
$2,000,000. The indemnity and hold harmless provisions set forth in this
Section 7.1 shall cover all Purchaser's Damages and shall be the sole and
exclusive remedy of Purchaser after the Closing for any breach of a
representation or warranty of Seller other than a fraudulent breach or
misrepresentation. The obligation of Seller to indemnify Purchaser for, and
hold Purchaser harmless against Purchaser's Damages under this Section 7.1
shall survive the Closing for a period of six months, except to the extent that
a claim with respect to Purchaser's Damages under this Section 7.1 is asserted
in good faith in writing prior to the expiration of such six-month period,
specifying in reasonable detail the representation or warranty that allegedly
has been breached and furnishing the basis for such allegation.
SECTION 7.2 INDEMNIFICATION BY PURCHASER.
(a) From and after the Closing Date, Purchaser will indemnify Seller
for and hold Seller harmless from any and all Seller's Damages (as defined
below) in the manner and to the extent set forth in this Section 7.2.
(b) The term "Seller's Damages" shall include all losses, costs,
expenses (including attorney's fees and expenses and other costs and expenses
incident to any suit, action, investigation, claim or proceeding), fees,
liabilities and damages sustained by Seller arising from any breach of a
representation or warranty of Purchaser contained in this Agreement. The
indemnity and hold harmless provisions set forth in this Section 7.2 shall
cover all Seller's Damages and shall be the sole and exclusive remedy of Seller
after the Closing for any breach of a representation or warranty of Purchaser
other than a fraudulent breach or misrepresentation. The obligation of
Purchaser to indemnify Seller for, and hold Seller harmless against, Seller's
Damages under this Section 7.2 shall survive the Closing for a period of six
months, except to the extent that a claim with respect to Seller's Damages
shall be valid unless asserted in good faith in writing prior to the expiration
of such six-month period, specifying in reasonable detail the representation or
warranty that allegedly has been breached and furnishing the basis for such
allegation.
SECTION 7.3 LEGAL PROCEEDINGS.
(a) If any legal proceedings shall be instituted, or any claim or
demand made against an indemnified party in respect of which an indemnifying
party may be liable hereunder, the indemnified party shall give prompt written
notice thereof to the indemnifying party. The indemnifying party, at its option
and expense, may participate in and/or assume the control of the defense of any
such legal proceeding and the negotiation and settlement of any such claim or
demand, and the indemnifying party shall have the absolute right, in its sole
discretion and without the consent of the indemnified party, to settle any such
legal proceeding, claim or demand; provided, however, that the indemnifying
party (i) will afford the indemnified party an adequate opportunity to
participate in such defense or negotiation and settlement, at the indemnified
party's expense, and (ii) may not, in defense of any such proceeding, claim or
demand, except with the written consent of the indemnified party, which consent
shall not be unreasonably withheld, consent to the entry of any judgment or
enter into any settlement unless the consented to judgment or settlement
involves only the payment of money damages by the indemnifying party requires,
as a term thereof, the giving by the claimant or plaintiff to the indemnified
party of a
16
<PAGE> 17
release from liability in respect thereof and does not impose any injunction or
any other equitable relief upon the indemnified party. After notice to the
indemnified party of the indemnifying party's election to assume the control of
the defense of any such proceeding or the negotiation and settlement of any
such claim or demand, the indemnifying party shall be liable to the indemnified
party in respect of legal or other expenses subsequently incurred by the
indemnified party in connection with any such defense or negotiation or
settlement only to the extent incurred at the request of the indemnifying
party. As to those actions, claims or demands with respect to which the
indemnifying party does not elect to assume the control of the defense or the
negotiation and settlement, the indemnified party will afford the indemnifying
party an adequate opportunity to participate in such defense or negotiation and
settlement, at the indemnifying party's expense.
(b) If the amount of Purchaser's Damages or Seller's Damages paid, at
any time subsequent to such payment, shall be reduced by any recovery,
settlement or otherwise, the amount of such reduction, less any expense
incurred by the party receiving such recovery in connection therewith, shall be
promptly repaid to the indemnifying party.
ARTICLE VIII
TERMINATION OF AGREEMENT
SECTION 8.1 TERMINATION OF AGREEMENT. This Agreement and the
transactions contemplated hereby may be terminated or abandoned at any time
prior to the Closing Date as follows:
(a) by the written consent of Seller and Purchaser;
(b) by Seller, if the Closing Date shall not have occurred on or
before November 15, 1996, for any reason other than the failure of Seller to
perform its obligations hereunder or a failure of a representation or warranty
of Seller to be true and correct at and as of the Closing Date;
(c) by Purchaser, if the Closing Date shall not have occurred on or
before November 15, 1996, for any reason other than the failure of Purchaser to
perform its obligations hereunder or a failure of a representation or warranty
of Purchaser to be true and correct at and as of the Closing Date;
(d) by Seller, if there has been a breach by Purchaser of any covenant
set forth herein or a failure of any condition to which the obligations of
Seller hereunder are subject, and such breach or failure cannot be cured by the
Closing Date and has not been waived; or if there has been a failure of a
representation or warranty in this Agreement of Purchaser to be true and
correct at and as of the Closing Date; provided, however, that except with
respect to the representations and warranties contained in Sections 3.1 and
3.2, if the representation or warranty that shall have failed to be true and
correct is not otherwise qualified as to materiality, it shall have failed to
be true and correct in a material respect; or
(e) by Purchaser, if there has been a breach by Seller of any covenant
set forth herein or a failure of any condition to which the obligations of
Purchaser hereunder are subject, and such
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<PAGE> 18
breach or failure cannot be cured by the Closing Date and has not been waived,
or if there has been a failure of a representation or warranty in this
Agreement of Seller to be true and correct at and as of the Closing Date;
provided, however, that except with respect to the representations and
warranties contained in Sections 2.1, 2.2, 2.3 and 2.4, if the representation
or warranty that shall have failed to be true and correct is not otherwise
qualified as to materiality, it shall have failed to be true and correct in a
material respect. Notwithstanding the foregoing, Purchaser may not terminate
this Agreement and the transactions contemplated hereby if (i) the losses,
costs, expenses, fees, liabilities and damages incurred or likely to be
incurred by the Company due to the existence of the facts or circumstances
which result in such breach or failure (the "Company Damages") are of a type
that reasonably can be adequately remedied by the payment of money to the
Company by Seller, (ii) (A) if the Company Damages arise out of a third-party
claim, at the Closing Seller makes a payment (the "Escrow Funds") in an amount
sufficient, in the good faith joint determination of Purchaser and Seller to
satisfy such claim, to The Chase Manhattan Bank as escrow agent to be held
pursuant to an escrow agreement which shall provide for distribution of the
Escrow Funds only upon and in accordance with (i) the joint written
instructions of Purchaser and Seller or (ii) the determination of a court of
competent jurisdiction with respect to such third party claim, and shall be in
such form as shall be reasonably acceptable to Purchaser and Seller, and (B) if
the Company Damages do not arise out of a third-party claim, at the Closing
Seller makes a payment (the "Cure Payment") to the Company in an amount
sufficient, in the good faith determination of Purchaser, to restore the
Company to the position it would have been in if such representation or
warranty had been true and correct as stated, such condition had been
satisfied, or such covenant had been complied with and (iii) after giving
effect to such Escrow Payment or Cure Payment, such breach or failure is not
reasonably likely to have a material adverse effect on the prospects for the
Company's business. Purchaser shall in all cases provide Seller with an
adequate opportunity to cure such breach or failure and Purchaser shall use its
best efforts to assist Seller in its efforts to cure such breach or failure. In
addition, notwithstanding Seller's delivery of the Cure Payment at the Closing,
if Seller disputes Purchaser's determination as to the amount of the Cure
Payment and the portion of the Cure Payment disputed by Seller is less than
$20,000,000, Seller shall have the right to dispute the amount of the Company
Damages paid by Seller at the Closing, by providing Purchaser with written
notice of such dispute (the "Disputed Damages Amount") within ten calendar days
following the Closing, in which event Purchaser and Seller shall use their best
efforts for a period of 30 calendar days after Seller's delivery of such notice
(or such longer period as they shall agree) to resolve any disagreements over
the Disputed Damages Amount. If, at the end of such period, Purchaser and
Seller are unable to resolve such disagreements, they shall each select one
accounting firm, which firms shall resolve any remaining disagreements.
Purchaser and Seller shall use their best efforts to cause such accounting
firms to make their determinations within 30 calendar days. If, at the end of
such period, such accounting firms are unable to resolve such disagreements,
they shall select a third accounting firm which shall resolve any remaining
disagreements. The determination of such third accounting firm shall be final,
binding and conclusive on all parties. Purchaser and Seller shall use their
best efforts to cause the third firm to make its determination within 30
calendar days. Within five business days of such determination, the amount, if
any, by which it is determined that the amount of the Cure Payment exceeded the
actual amount of the Company Damages shall be paid by the Company to Seller in
the same manner as the Purchase Price is to be paid by Buyer pursuant to
Section 1.1. Seller shall, under all circumstances, maintain the right at any
time prior to or following the
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<PAGE> 19
Closing to contest the breach or failure alleged by Purchaser and, if after the
Closing, to seek a return of all or any portion of the Cure Payment made by
Seller to the Company at the Closing pursuant to this Section.
SECTION 8.2 OBLIGATIONS UPON TERMINATION; CURE. If this Agreement
shall be terminated pursuant to Section 8.1, neither party shall have any
further obligation to the other, except as set forth in the last sentence of
Section 4.1; provided, however, that if Seller or Purchaser shall terminate
this Agreement pursuant to Section 8.1(d) or 8.1(e), it is expressly understood
that remedies for breach of contract and damages also shall survive such
termination unimpaired.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 PUBLICITY. Prior to and following the Closing, Purchaser
and Seller shall consult with each other in issuing any press release or
otherwise making any public statement with respect to the transactions
contemplated hereby, and shall not issue any such press release or make any
such public statement prior to approval by the other party, except as may be
required by law.
SECTION 9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Seller contained in Article II and the
representations and warranties of Purchaser contained in Article III shall
survive for a period of six months after the Closing Date, except as to any
alleged inaccuracy or breach thereof of which any party, prior to the
termination of such six-month period, shall have advised the other party in
writing, specifying in reasonable detail the representation or warranty that is
alleged to be inaccurate or that is alleged to have been breached and the basis
for such allegation.
SECTION 9.3 NOTICES. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given when received if
personally delivered; the next business day after transmission if transmitted
by telecopy, electronic or digital transmission method; the next business day
after it is sent, if sent for next day delivery to a domestic address by
recognized overnight delivery service (e.g., Federal Express); and upon
receipt, if sent by certified or registered mail, return receipt requested. In
each case notice shall be sent to:
If to Purchaser:
c/o Investcorp Management Services Limited
P.O. Box 1111
West Wind Building
George Town, Grand Cayman
British West Indies
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<PAGE> 20
with a copy to:
Charles K. Marquis, Esq.
Gibson Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166
If to Seller:
The Carmel Trust
c/o Mr. Robert Smith
12 Dunbar Road
Toronto, M4W 2X6
Canada
with a copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of Americas
New York, New York 10036
Attention: Mark S. Hirsch, Esq.
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
SECTION 9.4 CHOICE OF LAW; SERVICE OF PROCESS. This Agreement shall be
construed, interpreted and the rights of the parties determined in accordance
with the internal laws of the State of New York without reference to its choice
of law provisions (other than Section 5-1401 of New York's General Obligations
Law), except with respect to matters of law concerning the internal corporate
affairs of any corporate entity which is a party to or the subject of this
Agreement, and as to those matters the law of the jurisdiction under which the
respective entity derives its powers shall govern. Each party to this Agreement
irrevocably consents to the jurisdiction and venue of any state or federal
court situated in the City of New York, waives any objection or defense to any
such jurisdiction or venue as an inconvenient forum, and consents to the
service of any and all process in any action or proceeding arising out of or
relating to this Agreement by the mailing of copies of such process to such
party at its address specified in Section 9.3 hereof.
SECTION 9.5 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement,
together with all exhibits and schedules hereto (including the Disclosure
Letter), and the Confidentiality Agreement constitute the entire agreement
among the parties pertaining to the subject matter hereof and supersede all
prior agreements, understandings, negotiations and discussions, whether oral or
written of the parties except as otherwise provided herein. This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties hereto. No amendment, supplement, modification or waiver of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby. No waiver of any of the
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<PAGE> 21
provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
SECTION 9.6 MULTIPLE COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
SECTION 9.7 SUCCESSORS AND ASSIGNS; ASSIGNMENT. All covenants,
promises and agreements by or on behalf of the parties contained in this
Agreement shall inure to the successors and assigns of the parties; but nothing
in this Agreement, express or implied, is intended to confer on Purchaser or
Seller the right to assign its rights or obligations hereunder (other than to
an affiliate in the case of Purchaser).
SECTION 9.8 AMENDMENTS, SUPPLEMENTS, WAIVERS. No amendment, supplement
or waiver of any provision of this Agreement shall be effective unless the same
shall be in writing and signed by all parties hereto in the case of an
amendment or supplement and by the waiving party in the case of a waiver.
SECTION 9.9 SECTION HEADINGS. The descriptive headings contained
herein are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 9.10 SPECIFIC PERFORMANCE. Inasmuch as the irreparable damage
will result in the event that this Agreement is not specifically enforced and
the parties hereto agree that any damages available at law for a breach of this
Agreement would not be an adequate remedy, the provisions hereof and the
obligations of the parties hereunder shall be enforceable in a court of equity,
or other tribunal having jurisdiction, by a decree of specific performance, and
appropriate injunctive relief may be applied for and granted in connection
therewith. Such remedies and all other remedies provided for in this Agreement
shall, however, be cumulative and not exclusive and shall be in addition to any
other remedies which any party may have under this Agreement or otherwise.
SECTION 9.11 SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on their respective behalf, by their respective officers
thereunto duly authorized, all as of the day and year first above written.
TEMPE LIMITED
By:
----------------------------------------
Title: Martonmere Services Ltd., Director
-----------------------------------
SCOTTSDALE LIMITED
By:
----------------------------------------
Title: Martonmere Services Ltd., Director
-----------------------------------
SOUTH MOUNTAIN LIMITED
By:
----------------------------------------
Title: Martonmere Services Ltd., Director
-----------------------------------
CHANDLER LIMITED
By:
----------------------------------------
Title: Martonmere Services Ltd., Director
-----------------------------------
22
<PAGE> 23
GILA LIMITED
By:
----------------------------------------
Title: The Director Ltd., Director
-------------------------------------
INVESTCORP INVESTMENT EQUITY
LIMITED
By:
----------------------------------------
Title: The Director Ltd., Director
-------------------------------------
BALLET LIMITED
By:
----------------------------------------
Title:
-------------------------------------
DENARY LIMITED
By:
----------------------------------------
Title:
-------------------------------------
GILA LIMITED
By:
----------------------------------------
Title:
-------------------------------------
23
<PAGE> 24
INVESTCORP INVESTMENT EQUITY
LIMITED
By:
----------------------------------------
Title:
-------------------------------------
BALLET LIMITED
By:
----------------------------------------
Title: Authorized Representative
-------------------------------------
DENARY LIMITED
By:
----------------------------------------
Title: Authorized Representative
-------------------------------------
GLEAM LIMITED
By:
----------------------------------------
Title: Authorized Representative
-------------------------------------
24
<PAGE> 25
HIGHLANDS LIMITED
By:
----------------------------------------
Title: Authorized Representative
-------------------------------------
NOBLE LIMITED
By:
----------------------------------------
Title: Authorized Representative
-------------------------------------
OUTRIGGER LIMITED
By:
----------------------------------------
Title: Authorized Representative
-------------------------------------
QUILL LIMITED
By:
----------------------------------------
Title: Authorized Representative
-------------------------------------
RADIAL LIMITED
By:
----------------------------------------
Title: Authorized Representative
-------------------------------------
25
<PAGE> 26
SHORELINE LIMITED
By:
----------------------------------------
Title: Authorized Representative
-------------------------------------
ZINNIA LIMITED
By:
----------------------------------------
Title: Authorized Representative
-------------------------------------
CSK GROUP, LTD.
By:
----------------------------------------
Title: EVP
-------------------------------------
CSK HOLDINGS, LTD.
By:
----------------------------------------
Title: EVP
-------------------------------------
26
<PAGE> 27
THE CARMEL TRUST
By:
----------------------------------------
Title:
-------------------------------------
27
<PAGE> 1
EXHIBIT 3.01
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
NORTHERN AUTOMOTIVE CORPORATION
The Amended and Restated Articles of Incorporation of Northern Automotive
Corporation are hereby amended in their entirety to read as follows:
FIRST: The name of the corporation (hereinafter called the "Corporation")
is:
CSK AUTO, INC.
SECOND: The address, including street, number, city, and county, of the
known place of business of the Corporation in the State of Arizona is 645 E.
Missouri Avenue, Suite 400, City of Phoenix, County of Maricopa, and the name
of the statutory agent of the Corporation in the State of Arizona is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Arizona Business
Corporation Act ("ABCA").
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Three Hundred One Thousand Five
Hundred (301,500). There shall be three classes of stock of the Corporation.
The first class of stock of the Corporation shall have a par value of $.01 per
share and shall be designated as "Common Stock" and the number of shares
constituting such class shall be Twenty Thousand (20,000). The second class of
stock of the Corporation shall have a par value of $1,000 per share and shall
be designated as "Preferred Stock" and the number of shares constituting such
class shall be Seventy-Five Thousand (75,000). The third class of stock of the
Corporation shall have a par value of $.01 per share and shall be designated as
"Series A Cumulative Preferred Stock" and the number of shares constituting
such class shall be Two Hundred Six Thousand Five Hundred (206,500); said class
is sometimes referred to in these Articles as "Series A Preferred Stock." The
par value shall be paid in at such time as the Board of Directors of the
Corporation (the "Board") may designate, in cash, real or personal property,
services, lease, option to purchase, or any other valuable right or thing, for
the uses and purposes of the Corporation, and all shares of capital stock, when
issued in exchange therefor, shall thereupon and thereby become and be fully
paid, the same as though paid for in cash at par, and shall be non-assessable
forever, and the judgment of the Board as to the value of any property, right
or thing acquired in exchange for capital stock shall be conclusive.
<PAGE> 2
The designation, preferences, privileges, voting powers, restrictions and
qualifications of the shares of Common Stock, Preferred Stock and Series A
Preferred Stock are as follows:
(A) PREFERRED STOCK
1. Dividends.
(a) The holders (the "Preferred Stockholders") of outstanding shares of
Preferred Stock shall be entitled to receive, when and as declared by the
Board, out of any funds legally available therefor, cumulative dividends at the
rate of $140 per share per annum and no more. Such dividends on the shares of
Preferred Stock shall accrue from the date of issuance thereof and shall be
payable annually on the 1st day of June in each year (each, a "Payment Date").
All dividends accrued shall, at the Corporation's option, be paid in cash or
additional shares of Preferred Stock (at the rate of one share for each $1,000
of dividends so paid).
(b) No dividends shall be declared or paid or set aside for payment to any
holders of Common Stock (the "Common Stockholders"), and no such stock shall be
purchased, redeemed or otherwise acquired for any consideration by the
Corporation, unless and until the full cumulative dividends on all outstanding
shares of Preferred Stock shall have been, or contemporaneously are, declared
and paid or declared and a sum sufficient for the payment thereof set aside for
such payment.
2. Liquidation. In the event of any liquidation, dissolution or winding
up of the affairs of the Corporation, whether voluntary or involuntary
(collectively, a "Liquidation"), the Preferred Stockholders shall be entitled
to receive, out of the net assets of the Corporation, after payment or
provision for payment of the debts and other liabilities of the Corporation,
the amount of $1,000 per share, plus an amount equal to all accrued and unpaid
dividends (whether or not earned or declared) on each such share up to the date
fixed for distribution, before any distribution or payment shall be made to any
Common Stockholder. After payment to the Preferred Stockholders of the full
amounts to which they are entitled, they shall have no right or claim to any of
the balance of the net assets of the Corporation. Neither the consolidation
nor merger of the Corporation into or with any other corporation nor the sale
or transfer by the Corporation of all or any part of its assets shall be deemed
a Liquidation within the meaning of the provisions of this Section (A) 2.
3. Voting. Shares of Preferred Stock shall not entitle the holder thereof
to any voting power as to any matter, including the right to participate in any
meeting of stockholders, to have notice of any meeting of stockholders or to
take action without a meeting, except as otherwise provided by law. On any
matters on which the Preferred Stockholders are entitled to vote, each such
Preferred Stockholder shall be entitled to one vote for each share held.
The Preferred Stock shall be issuable in one or more series in such
designations, and with such relative rights and limitations, as may be fixed
from time to time by the Board.
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(B) SERIES A PREFERRED STOCK
The number of authorized shares of Series A Preferred Stock is Two Hundred
Six Thousand Five Hundred (206,500). The designations, preferences and
relative, participating optional and other special rights of the Series A
Preferred Stock, unless otherwise fixed by the Board of Directors, and the
qualifications, limitations and restrictions thereof, are as follows:
1. Dividend Rate.
(a) Dividends on the shares of Series A Preferred Stock (including
Additional Shares) shall accrue from the date on which each specific
share of Series A Preferred Stock is issued at a rate of twelve percent
(12%) per annum computed on the basis of the actual number of days
elapsed in a 360-day year of twelve 30-day months, and shall be paid in
cash when and as declared by the Board, to the extent the Corporation has
funds legally available to pay such dividends in cash and the use of such
funds would not violate any law or statute and would not directly or
indirectly (with the passage of time or giving of notice) cause a default
or event of default under any indebtedness or other contractual agreement
of the Corporation or any corporation or other entity directly or
indirectly controlled by the Corporation. To the extent that the
dividend payment due upon any Dividend Payment Date (as defined herein)
is not paid in full in cash the Corporation shall pay such dividend by
means of the issuance of Additional Shares (or fractions thereof), which
shares will be issued in such amount that the aggregate Liquidation
Preference of such shares is equal to the aggregate dollar value of
dividends that the Corporation is not paying in cash on such Dividend
Payment Date. A dividend payment paid in Additional Shares shall be
deemed to fully satisfy the Corporation's obligations with respect to
dividends for all purposes, provided that such payment is in accordance
with the provisions of this subsection. All Additional Shares issued as
a dividend with respect to the Series A Preferred Stock will thereupon be
duly authorized, validly issued, fully paid and nonassessable. All
dividends shall be cumulative and shall be payable semi-annually in
arrears on April 30 and October 31 of each year, commencing, in the case
of the first issuance of shares of Series A Preferred Stock, April 30,
1997 (each such date being hereinafter individually a "Dividend Payment
Date" and collectively the "Dividend Payment Dates"), except that if any
Dividend Payment Date is a Saturday, Sunday or legal holiday then such
dividend shall be paid on the next business day following such Dividend
Payment Date and no additional amount shall accrue as a result of such
delay. Holders of shares of Series A Preferred Stock shall not be
entitled to any dividends, whether payable in cash, Additional Shares,
property or stock, in excess of full cumulative dividends, as provided in
paragraphs (a) and (b) of this Section 1 on the Series A Preferred Stock.
For purposes of this Section (B) "Additional Shares" means any shares of
Series A Preferred Stock (or fractions thereof) issued in payment of
dividends in lieu of cash dividend payments.
(b) Each dividend shall be paid to the holders of record of shares
of Series A Preferred Stock as they appear on the books of the
Corporation on the record date, not exceeding 30 days prior to the
Dividend Payment Date thereof, as shall be fixed by the Board. Dividends
in arrears may be declared and paid at any time, without reference to
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any regular Dividend Payment Date, to holders of record on such date, not
exceeding 45 days preceding the payment date thereof, as may be fixed by
the Board.
(c) Each fractional share of Series A Preferred Stock outstanding
shall be entitled to a ratably proportionate amount of all dividends
accruing with respect to each outstanding share of Series A Preferred
Stock pursuant to paragraphs (a) and (b) of this Section 1, and all such
dividends with respect to such outstanding fractional shares shall be
cumulative and shall accrue (whether or not declared), and shall be
payable in the same manner and at such times as provided for in
paragraphs (a) and (b) of this Section 1 with respect to dividends on
each outstanding share of Series A Preferred Stock. Each fractional
share of Series A Preferred Stock outstanding shall also be entitled to a
ratably proportionate amount of any other distributions made with respect
to each outstanding share of Series A Preferred Stock, and all such
distributions shall be payable in the same manner and at the same time as
distributions on each outstanding share of Series A Preferred Stock.
(d) Except as hereinafter provided, no dividends (either in cash or
Additional Shares) shall be declared or paid or set apart for payment on
the shares of Series A Preferred Stock for any period if the Corporation
shall be in default in the payment of any dividends (including cumulative
dividends, if applicable) on any shares of preferred stock ranking, as to
dividends, prior to the Series A Preferred Stock, unless a dividend
sufficient to cure such default shall be contemporaneously declared and
paid.
(e) Except as hereinafter provided, no dividends shall be declared
or paid or set apart for payment on the preferred stock of any class or
series ranking, as to dividends, on a parity with or junior to the Series
A Preferred Stock for any period unless full cumulative dividends have
been or contemporaneously are declared and paid on the Series A Preferred
Stock through the last Dividend Payment Date. When dividends are not
paid in full in cash, as aforesaid, upon the shares of Series A Preferred
Stock and any other preferred stock ranking on a parity as to dividends
with the Series A Preferred Stock, all dividends declared upon shares of
the Series A Preferred Stock and any other preferred stock ranking on a
parity as to dividends with the Series A Preferred Stock shall be
declared pro rata so that the amount of cash dividends declared per share
on the Series A Preferred Stock and such other preferred stock shall in
all cases bear to each other the same ratio that accrued cash dividends
per share on the shares of the Series A Preferred Stock and such other
preferred stock bear to each other. Nothing herein shall limit or
prevent the distribution of dividends payable in the form of Additional
Shares. Such dividends paid in the form of Additional Shares shall not
be included in any calculation of accrued or pro rata dividends for
purposes of this paragraph (e) of Section 2.
(f) So long as any share of the Series A Preferred Stock is
outstanding, no dividend (other than (i) a dividend payable in Common
Stock or in any other stock of the Corporation ranking junior to the
Series A Preferred Stock as to dividends and upon liquidation or (ii) as
provided in paragraph (e) of this Section 1, shall be declared or paid or
set aside for payment, or other distribution declared or made, upon the
Common Stock or upon any other stock of the Corporation ranking junior to
or on a parity with the Series
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A Preferred Stock as to dividends or upon liquidation, nor shall any
Common Stock nor any other stock of the Corporation ranking junior to or
on a parity with the Series A Preferred Stock as to dividends or upon
liquidation be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking
fund for the redemption of any shares of any such stock) by the
Corporation (except by conversion into or exchange for stock of the
Corporation ranking junior to the Series A Preferred Stock as to
dividends and upon liquidation) unless, in each case, the full cumulative
dividends on all outstanding shares of the Preferred Stock shall have
been paid or contemporaneously are declared and paid through the last
Dividend Payment Date; provided, however, that nothing contained in this
paragraph (f) shall prevent the Corporation from repurchasing or
redeeming any of its capital stock pursuant to the terms of any
subscription agreement entered into with any officer, director or
employee of the Corporation or any of its subsidiaries.
2. Optional Redemption. The shares of Series A Preferred Stock are
redeemable on the terms and conditions set forth below, at any time or
from time to time, at the option of the Corporation expressed by
resolution of the Board, at a per share redemption price of One Thousand
and Ten Dollars ($1,010.00) plus, in each case, accrued and unpaid
dividends thereon to the date fixed for redemption. The shares of Series
A Preferred Stock may be redeemed in whole or in part in not more than
three partial redemptions, provided that in the first of such three
partial redemptions not 1ess than 20% of the number of shares of Series A
Preferred Stock then outstanding shall be redeemed, that in the second of
such three partial redemptions not less than 50% of the number of shares
of Series A Preferred Stock then outstanding shall be redeemed, and that
in the third of such three partial redemptions all of the shares of
Series A Preferred Stock then outstanding shall be redeemed.
3. Mandatory Redemption. On October 31, 2008, the Corporation shall
redeem all outstanding shares of Series A Preferred Stock at a per share
redemption price of One Thousand Dollars ($1,000.00) plus accrued and
unpaid dividends thereon to the date fixed for redemption.
4. Procedure for Redemption.
(a) If fewer than all the outstanding shares of Series A Preferred
Stock are to be redeemed, the number of shares to be redeemed shall be
determined by the Board, subject to the provisions of Sections 2 and 3
above, and the shares to be redeemed shall be determined by lot or pro
rata as may be determined by the Board or by any other method as may be
determined by the Board in its sole discretion to be equitable.
(b) Notice of a redemption shall be given by first class mail,
postage prepaid, mailed not less than 30 nor more than 60 days prior to
the redemption date, to each holder of record of the shares to be
redeemed, at such holder's address as the same appears on the books of
the Corporation. Each such notice shall state: (i) the redemption date;
(ii) the number of shares of Series A Preferred Stock to be redeemed and,
if fewer than all the shares held by such holder are to be redeemed, the
number of such shares to be
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redeemed from such holder; (iii) the redemption price; (iv) the place or
places where certificates for such shares are to be surrendered for
payment of the redemption price; (v) that dividends on the shares to be
redeemed will cease to accrue on such redemption date; and (vi) any other
information required by applicable laws or regulations.
(c) Notice having been mailed as aforesaid, from and after the
redemption date (unless default shall be made by the Corporation in
providing money for the payment of the redemption price of the shares
called for redemption) dividends on the shares of Series A Preferred
Stock so called for redemption shall cease to accrue, and said shares
shall no longer be deemed to be outstanding, and all rights of the
holders thereof as stockholders of the Corporation (except the right to
receive from the Corporation the redemption price plus accrued and unpaid
dividends to the date fixed for redemption) shall cease. Upon surrender
of the certificates for any shares so redeemed in accordance with said
notice (properly endorsed or assigned for transfer, if the Board shall so
require and the notice shall so state), such shares shall be redeemed by
the Corporation at the redemption price aforesaid. In case fewer than
all of the shares presented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares without
cost to the holder thereof.
(d) Any shares of Series A Preferred Stock which shall at any time
have been redeemed shall, after such redemption, have the status of
authorized but unissued shares of Series A Preferred Stock. No redeemed
shares of Series A Preferred Stock shall be reissued as shares of Series
A Preferred Stock.
(e) If the Corporation shall be in default in the payment of any
dividends on any shares of preferred stock ranking, as to dividends,
prior to the Series A Preferred Stock, then no shares of Series A
Preferred Stock shall be redeemed and the Corporation shall not purchase
or otherwise acquire any shares of Series A Preferred Stock.
(f) Notwithstanding the foregoing provisions of this Section 4,
unless the full cumulative dividends on all outstanding shares of Series
A Preferred Stock shall have been paid or contemporaneously are declared
and paid through the last Dividend Payment Date, no shares of Series A
Preferred Stock shall be redeemed unless all outstanding shares of Series
A Preferred Stock are simultaneously redeemed; provided, however, that
the foregoing shall not prevent the purchase or acquisition of shares of
Series A Preferred Stock pursuant to a purchase or exchange offer made on
the same terms to all holders of outstanding shares of Series A Preferred
Stock.
5. Voting. The shares of Series A Preferred Stock shall not have
any voting powers either general or special, except as required by law or
regulation and except that unless the vote or consent of the holders of a
greater number of shares shall then be required by law, the consent of
the holders of at least a majority of all of the shares of Series A
Preferred Stock, and all other classes and series of preferred stock
ranking on a parity with the Series A Preferred Stock either as to
dividends or upon liquidation and upon which like voting rights have been
conferred and are then exercisable, at the time outstanding, given in
person or by proxy, either in writing or by a vote at a meeting called
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for the purpose at which the holders of such shares shall vote together
as a single class without regard to series, shall be necessary for
authorizing, effecting or validating the amendment, alteration or repeal
of any of the provisions of the Articles of Incorporation or of any
amendatory Statement thereto (including any document relating to any
series of preferred stock) so as to affect materially and adversely the
rights, preferences, privileges or voting power of shares of Series A
Preferred Stock. In case the shares of Series A Preferred Stock would be
so affected in a materially different manner than any other class or
series of preferred stock then outstanding by any such action, the
holders of shares of Series A Preferred Stock shall be entitled to vote
as a separate class, and the Corporation shall not take such action
without the consent or affirmative vote, as above provided, of at least a
majority of the total number of shares of Series A Preferred Stock then
outstanding, in addition to or as a specific part of the consent or
affirmative vote hereinabove otherwise required. The increase of the
authorized amount of any preferred stock, or the creation, authorization
or issuance of any shares of any other class or series of stock of the
Corporation ranking (i) junior to the Series A Preferred Stock, or (ii)
on a parity with the shares of Series A Preferred Stock, as to dividends
or upon liquidation, or the reclassification of any authorized or
outstanding stock of the Corporation into any such junior or parity
shares, or the creation, authorization or issuance of any obligation or
security convertible into or evidencing the right to purchase any such
junior or parity shares shall not be deemed to affect materially and
adversely the rights, preferences, privileges or voting power of shares
of Series A Preferred Stock.
6. Liquidation Rights.
(a) Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares
of Series A Preferred Stock shall be entitled to receive out of the
assets of the Corporation available for distribution to stockholders,
before any payment or distribution shall be made on the Common Stock or
on any other class of stock ranking junior to Series A Preferred Stock
upon liquidation, the amount of One Thousand Dollars ($1,000.00) per
share (the "Liquidation Preference"), plus a sum equal to all dividends
(whether or not earned or declared) on such shares accrued and unpaid
thereon to the date of final distribution, subject only to the provisions
of this paragraph (a) of this Section 6. All shares of preferred stock
ranking in whole or in part prior to the shares of Series A Preferred
Stock as to liquidation shall be entitled to be paid to the extent of
such priority in full in cash, or money for the payment thereof set
apart, before any payment provided for in this Section 6 shall be made
with respect to the shares of Series A Preferred Stock.
(b) Neither the sale, lease or exchange (for cash, shares of stock,
securities or other consideration) of all or substantially all the
property and assets of the Corporation nor the merger or consolidation of
the Corporation into or with any other corporation or the merger or
consolidation of any other corporation into or with the Corporation shall
be deemed to be a dissolution, liquidation or winding up, voluntary or
involuntary, for the purposes of this Section 6.
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(c) After the payment to the holders of the shares of Series A
Preferred Stock of the full preferential amounts provided for in this
Section 6, the holders of shares of Series A Preferred Stock as such
shall have no right or claim to any of the remaining assets of the
Corporation.
(d) In the event the assets of the Corporation available for
distribution to the holders of shares of Series A Preferred Stock upon
any dissolution, liquidation or winding up of the Corporation, whether
voluntary or involuntary, shall be insufficient to pay in full all
amounts to which such holders are entitled pursuant to paragraph (a) of
this Section 6, no such distribution shall be made on account of any of
shares of any other class or series of preferred stock ranking in whole
or in part on a parity with the shares of Series A Preferred Stock upon
such dissolution, liquidation or winding up unless proportionate
distributive amounts shall be paid on account of the shares of Series A
Preferred Stock, ratably, in proportion to the full distributable parity
amounts for which holders of all such parity shares are respectively
entitled upon such dissolution, liquidation or winding up.
7. Priority. For purposes of this Article, any stock of any class
or classes of the Corporation shall be deemed to rank:
(a) Prior to the shares of the Series A Preferred Stock, either as
to dividends or upon liquidation, if the holders of such class or classes
shall be entitled to the receipt of dividends or of amounts distributable
upon dissolution, liquidation or winding up of the Corporation, whether
voluntary or involuntary, as the case may be, in preference or priority
to the holders of shares of Series A Preferred Stock. Each holder of any
share of Series A Preferred Stock, by such holder's acceptance thereof,
expressly covenants and agrees that the rights of the holders of any
shares of any other class or series of preferred stock of the Corporation
to receive dividends or amounts distributable upon dissolution,
liquidation or winding up of the Corporation, whether voluntary or
involuntary, shall be and hereby are expressly prior to such holder's
rights unless in the case of any particular class or series of preferred
stock the certificate or other instrument creating or evidencing the same
expressly provides that the rights of the holders of such series shall
not be prior to the shares of Series A Preferred Stock.
(b) On a parity with shares of Series A Preferred Stock, either as
to dividends or upon liquidation, whether or not the dividend rates,
dividend payment dates or redemption or liquidation prices per share or
sinking fund provisions, if any, be different from those of the Series A
Preferred Stock, if the holders of such stock shall be entitled to the
receipt of dividends or of amounts distributable upon dissolution,
liquidation or winding up of the Corporation, whether voluntary or
involuntary, as the case may be, in proportion to their respective
dividend rates or liquidation prices, without preference or priority, one
over the other, as between the holders of such stock and the holders of
shares of Series A Preferred Stock. The Preferred Stock shall be on a
parity with the Series A Preferred Stock.
(c) Junior to shares of Series A Preferred Stock, either as to
dividends or upon liquidation, if such class or classes shall be Common
Stock or if the holders of shares of
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Series A Preferred Stock shall be entitled to receipt of dividends or of
amounts distributable upon dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, as the case may be, in
preference to the holders of shares of such class or classes.
(d) All payments to a holder of Series A Preferred Stock shall be
made at the office or agency of the Corporation maintained for such
purpose in such coin or currency of the United States of America as at
the time of payment is legal tender for the payment of public and private
debts; provided, however, that at the option of the Corporation payment
may be made (i) by check mailed to such holder at such holder's address
appearing on the records of the Corporation, or (ii) at the request of
such holder, by wire transfer of immediately available funds to the
address designated by such holder in writing.
(C) COMMON STOCK
1. Dividends. Subject to the prior and superior right of the
Preferred Stock and the Series A Preferred Stock, the Common Stockholders
shall be entitled to receive dividends as, when and in the amount
declared by the Board, out of any funds legally available therefore.
2. Liquidation. In the event of any Liquidation, the Common
Stockholders shall be entitled to receive, out of the net assets of the
Corporation, after payment or provision for payment of the debts and
other liabilities of the Corporation and the amounts to be distributed to
the Preferred Stockholders and the holders of Series A Preferred Stock,
that portion of the remaining funds to be distributed. Such funds shall
be paid to the Common Stockholders on the basis of the number of shares
of Common Stock held by each of them. Neither the consolidation nor
merger of the Corporation into or with any other corporation nor the sale
or transfer by the Corporation of all or any part of its assets shall be
deemed a Liquidation within the meaning of the provisions of this Section
(C)2.
3. Voting. Shares of Common Stock shall entitle the holder thereof
to one vote for each share held with respect to all matters voted on by
the stockholders of the Corporation.
FIFTH: The names and mailing addresses of the original incorporators
were as follows:
NAME MAILING ADDRESS
John D. Borie 2503 San Andres Way, Claremont, CA
Jean Melton 231 Begonia Avenue, Ontario, CA
Margaret Main 11969 Del Mar, Chino, CA
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within
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the State of Arizona 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 the ABCA, order a meeting 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 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, such
compromise, arrangement or reorganization, as the case may be, shall, if
sanctioned by the court to which the said application has been made, be binding
on all the stockholders or class of stockholders, of this Corporation, as the
case may be, and also on this Corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation and
regulation of the powers of the Corporation and of its directors and its
stockholders or any class thereof, as the case may be, it is further provided:
(A) The management of the business and the conduct of the affairs of
the Corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be
fixed by, or in the manner provided in, the By-Laws. The phrase "whole
Board" and the phrase "total number of directors" shall be deemed to have
the same meaning, to wit, the total number of directors which the
Corporation has. No election of directors need be by written ballot.
(B) After the original or other By-Laws of the Corporation have been
adopted, amended, or repealed, as the case may be, in accordance with the
provisions of Section 10-1020 of the ABCA, and, after the Corporation has
received any payment for any of its stock, the power to adopt, amend, or
repeal the By-Laws of the Corporation may be exercised by the Board;
provided, however, that any provision for the classification of directors
of the Corporation
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for staggered terms pursuant to the provisions of Section 10-806 of the
ABCA shall be set forth in these Articles of Incorporation.
(C) Whenever the Corporation shall be authorized to issue only one
class of stock, each outstanding share shall entitle the holder thereof to
notice of, and the right to vote at, any meeting of stockholders. Whenever
the Corporation shall be authorized to issue more than one class of stock,
no outstanding share of any class of stock which is denied voting power
under the provisions of these Articles of Incorporation shall entitle the
holder thereof to the right to vote at any meeting of stockholders except
as the provisions of the ABCA shall otherwise require; provided, that no
share of any such class which is otherwise denied voting power shall
entitle the holder thereof to vote upon the increase or decrease in the
number of authorized shares of said class.
NINTH:
(A) The Corporation shall indemnify each Authorized Representative
to the fullest extent from time to time required or permitted by Article 5
of the ABCA. The Corporation shall make such indemnification to the
Authorized Representative within 30 days after receipt by the Corporation
of the written request of the Authorized Representative for such
indemnification unless, within that time, the Corporation has determined
(in accordancd with Section 10-855 of the ABCA) that the Authorized
Representative is not entitled to such indemnification.
(B) Expenses (including attorneys' fees and all other costs and
expenses reasonably related to a Proceeding) incurred by an Authorized
Representative or on such Authorized Representative's behalf in connection
with any such Proceeding shall be paid by the Corporation in advance of
the final disposition of such Proceeding, within 10 days after receipt by
the Corporation of the written request of the Authorized Representative
for such advance. The Corporation may condition such advance upon the
receipt of: (i) if required by said Article 5, a written affirmation as to
standards of conduct; (ii) whether or not required by said Article 5, the
written undertaking of such Authorized Representative or on such
Authorized Representative's behalf to repay such amount if it shall
ultimately be determined that the Authorized Representative is not
entitled to be indemnified by the Corporation. Such undertaking shall not
be required to be guaranteed by any other person or collateralized, and
shall be accepted by the Corporation without regard to the financial
ability of the person providing such undertaking to make such repayment.
(C) For all purposes of this Article and to the fullest extent
permitted by applicable law, there shall be a rebuttable presumption in
favor of the Authorized Representative that all requested indemnifications
and advancements of expenses are reasonable and that all conditions to
indemnification or expense advancements, whether required under this
Article or the ABCA, have been satisfied.
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(D) As used in this Article, "Authorized Representative" means,
collectively: (i) any person who is or was a "director" (as defined in
Section 10-850 of the ABCA); (ii) any person who is or was an officer of
the Corporation or of any subsidiary of the Corporation; and (iii) any
other person who may be designated by the Board from time to time as an
"authorized representative" for purposes of this Article. The provisions
of Section 10-850 of the ABCA shall apply to this Article.
(E) The Corporation may maintain, at its expense, the insurance
permitted by Section 10-857 of the ABCA.
(F) The rights to indemnification and to the advancement of expenses
conferred in this Article shall not be exclusive of any other right which
any Authorized Representative may have or hereafter acquire under any
statute, these Articles of Incorporation, any by-law, agreement, vote of
stockholders or disinterested directors, or otherwise. Nothing in this
Article shall affect the right of the Corporation to grant rights of
indemnification, and the advancement of expenses, to any other person or
in any other circumstance.
(G) Each Authorized Representative shall be deemed to have acted in
reliance upon the rights to indemnification and advancement of expenses
established in this Article. Unless applicable law requires otherwise, any
repeal or modification of this Article (other than a modification
expanding the right to indemnification and expense advancement in favor of
Authorized Representatives) shall be prospective only and shall not
adversely affect any right or benefit of an authorized Representative to
indemnification or expense advancement existing at the time of such repeal
or modification.
(H) If any portion of this Article shall be held to be illegal,
invalid or otherwise unenforceable by any court having appropriate
jurisdiction, then the Corporation nevertheless indemnify and advance
expenses to each Authorized Representative to the fullest extent permitted
by the applicable portions of this Article not so held to be illegal,
invalid or unenforceable, and otherwise to the fullest extent permitted by
law.
TENTH: For the purposes of determining whether a distribution to
shareholders may be made under the ABCA, the liquidation preference of the
Preferred Stock and the Series A Preferred Stock shall be excluded in the
calculation under Section 10-640 C.(20) of the ABCA.
ELEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in these Article of Incorporation, in the manner
now or hereafter prescribed herein and by the laws of the State of Arizona,
and all rights conferred upon stockholders herein are granted subject to this
reservation.
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IN WITNESS WHEREOF, we, the undersigned, have hereunto signed our names
this 29th day of October, 1996.
NORTHERN AUTOMOTIVE CORPORATION
/s/ JAMES BAZLEN
-------------------------------
James Bazlen, President
ATTEST:
By /s/ LON NOVATT
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Lon Novatt, Secretary
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EXHIBIT 3.02
AMENDED AND RESTATED
BY-LAWS
OF
NORTHERN AUTOMOTIVE CORPORATION
(An Arizona Corporation)
(As adopted by the Stockholder of the Corporation as of
October 29, 1996)
ARTICLE I
STOCKHOLDERS
1. Annual Meeting
A meeting of the stockholders shall be held annually at the office of this
Company in the City of Phoenix, Arizona1 or at any other place designated by
the directors hereof, on such date as shall be determined by the Board of
Directors. Such meeting of the stockholders shall be for the purpose of
electing directors and for the transaction of any other business that may come
before it.
2. Organization
The Chairman of the Board of Directors, or in his absence a chairman
appointed by the stockholders present, shall call meetings of stockholders to
order and shall act as chairman thereof.
The Secretary of the Company shall act as secretary of all meetings of the
stockholders. In his absence, the presiding officer may appoint any person to
act as secretary.
3. Quorum
A majority of the stock issued and outstanding and entitled to vote,
represented by the holders thereof either in person or by proxy appointed by an
instrument in writing, shall be a quorum at all meetings of stockholders.
4. Adjournment
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If at any annual or special meeting a quorum shall fail to attend in
person, or by proxy, a majority in interest of stockholders attending such
meeting, in person or by proxy, may adjourn the meeting from time to time,
without further notice, until a quorum shall attend, and thereupon any business
may be transacted which might have been transacted at the meeting as originally
called had the same been then held.
5. Voting
Each share of common stock shall entitle the holder thereof to one vote.
In the election of directors, a plurality of the votes cast shall elect. Any
other action shall be authorized by a majority of the votes cast except where
the Business Corporation Act prescribes a different percentage of votes and/or
a different exercise of voting power, and except as may be otherwise prescribed
by the provisions of the Articles of Incorporation and these By-Laws. In the
election of directors, and for any other action, voting need not be by ballot.
Shares of Preferred Stock shall not entitle the holder thereof to any
voting power as to any matter, including the right to participate in any
meeting of stockholders, to have notice of any meeting of stockholders or to
take action without a meeting, except as otherwise provided by law or the
Articles of Incorporation. On any matters on which the Preferred Stockholders
are entitled to vote, each such Holder shall be entitled to one vote for each
share held.
6. Special Meetings
Special meetings of the stockholders, for any purpose or purposes, shall
be held whenever called by the Board of Directors, either by written instrument
or by the vote of a majority, and shall be called whenever stockholders owning
one-fourth of the capital stock issued and outstanding shall, in writing, make
application therefor to the President, stating the object of such meeting.
7. List of Stockholders
At each meeting of stockholders, a full, true and correct list, in
alphabetical order, of all the stockholders entitled to vote at such meeting,
with the number of shares held by each, certified to by the Secretary, shall be
furnished.
8. Stockholder Action Without Meeting
Any action required by the Business Corporation Act to be taken at any
annual or special meeting of stockholders, may be taken without a meeting,
without prior notice and without a vote,
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if a consent in writing, setting forth the action so taken, shall be signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. Prompt notice
of the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
ARTICLE II
Board of Directors
1. Number
The business and affairs of the Company shall be managed and controlled by
a Board of Directors. The number of directors constituting the entire Board of
Directors of the Company shall be, upon the effectiveness of these Amended and
Restated By-Laws, set at nine directors.
2. Term
Each director shall serve for the term for which he shall have been
elected and until his successor shall have been duly elected and have
qualified.
3. First Meeting
Immediately after each annual election of directors, the newly elected
directors shall meet for the purpose of organization, the election of officers
and the transaction of other business.
4. Special Meetings
Special meetings of the Board shall be held whenever called by the
Chairman of the Board, or by one-third of the directors; however, a majority of
the directors must be present or have consented in writing to the waiver of
notice for the holding of such a meeting. Unless otherwise specified in the
notice thereof, any and all business may be transacted at a special meeting.
5. Notice
The Secretary shall give notice to each director of each special meeting
by mailing the same at least five days before the
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time of meeting, or by telegraphing or telephoning not less than one day prior
to the time of meeting.
6. Place of Meeting
The directors shall hold their meetings, and may have an office and keep
the books of the Company, at such place or places within or without the State
of Arizona as the Board from time to time may determine.
7. Quorum
A majority of the Board of Directors, at the time in office, shall
constitute a quorum for the transaction of business, but a majority of those
present at the time and place of any regular or special meeting, although less
than a quorum, may adjourn from time to time, without notice, until a quorum be
had.
8. Action at Meeting
At any meeting of the Board of Directors at which a quorum is present,
the vote of a majority of those present shall be sufficient to take any action.
9. Chairman
At all meetings of the Board of Directors the Chairman of the Board or, in
his absence, a chairman chosen by the directors present, shall preside.
10. Vacancies
In case of any vacancy among the directors, through death, resignation,
disqualification or other cause(1) the remaining directors, whether or not
constituting a quorum(1) may elect a successor to hold office for the unexpired
term of the director whose place shall be vacant and until the election of and
acceptance by his successor.
11. Committees
From time to time the board may appoint committees for any purpose or
purposes, which shall have such powers as shall be specified in the resolution
of appointment.
12. Compensation
The directors and officers of the Company, and all members of committees,
shall be paid such salaries as may be determined by a vote of a majority of all
of the directors.
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13. Action by Resolution
The Board of Directors shall have power to act in the following manner: A
resolution in writing, signed by all of the directors, shall be deemed to be
action by such Board to the effect therein expressed, with the same force and
effect as if the same had been duly passed by the same vote at a duly convened
meeting, and it shall be the duty of the Secretary of the Company to record
such resolution in the minute book of the Company under its proper date.
14. Hypothecation of Property
The Board of Directors may mortgage or hypothecate all or any portion of
the property of the Company without having first procured the consent of the
stockholders to such action, but they shall not dispose of all of the assets of
the Company until they are authorized to do so by the majority vote of the
stockholders.
ARTICLE III
Officers
1. Executive Officers
The Board of Directors shall elect, as executive officers, a Chairman of
the Board, a President, a Secretary, a Treasurer and a Controller, and in their
discretion one or more Vice Chairmen, Vice Presidents (one or more of which may
be designated Executive or Senior Vice Presidents or as otherwise determined by
the Board of Directors), and one or more Assistant Secretaries and Assistant
Treasurers.
2. Powers
The powers and duties of any office may be vested in and exercised and
performed by any one of the other officers to the extent expressly authorized
from time to time by the Board of Directors or the Chairman of the Board.
3. Voting Securities Owned by the Company
Powers of attorney, proxies, waivers of notice of meeting, consents and
other instruments relating to securities owned by the Company may be executed
in the name of and on behalf of the Company by the Chairman of the Board, any
Vice Chairman of the Board, the President or such one or more officers or other
persons as are from time to time authorized by the Board of Directors and any
such officer or other person who are from time to time so authorized by the
Board of Directors, may, in the name of and on behalf of the Company, take all
such action as any such
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officer or other person may deem advisable to vote in person or by proxy at any
meeting of security holders of any corporation in which the Company may own
securities and at any such meeting shall possess and may exercise any and all
rights and power incident to the ownership of such securities and which, as the
owner thereof, the Company might have exercised and possessed if present.
4. Subordinates
The Board may appoint such other officers as it deems necessary, who
shall have such authority and perform such duties as from time to time may be
prescribed by the Board.
5. Tenure of Officers
All officials and agents shall be subject to removal at any time, with or
without cause, by the affirmative vote of a majority of the whole Board.
6. Chairman of the Board
The Chairman of the Board shall be the chief executive officer of the
Company and shall be responsible for the general and active management of the
business of the Company and general and active supervision and direction over
the other officers, agents and employees. The Chairman of the Board shall, if
present, preside at each meeting of the shareholders and of the Board of
Directors and shall be an ex officio member of all committees of the Board of
Directors. He shall perform all duties incident to the office of Chairman of
the Board and such other duties as may from time to time be assigned to him by
the Board of Directors.
7. Vice Chairman of the Board
In the case of the absence or disability of the Chairman of the Board, the
duties and exercise of powers of that office may, upon direction of the Board
of Directors or the Chairman of the Board, be performed by any Vice Chairman of
the Board. In general, each Vice Chairman of the Board shall perform all
duties incident to the office of Vice Chairman of the Board and such other
duties as may from time to time be assigned to him by the Board of Directors or
the Chairman of the Board.
8. President
The President shall be the chief operating officer of the Company.
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He shall have such other duties as the Board of Directors or the Chairman
of the Board or any Vice Chairman of the Board shall assign.
9. Executive Vice President
In the case of the absence or disability of the President, the duties and
exercise of powers of that office may, upon direction of the Board of Directors
or of the Chairman of the Board, any Vice Chairman of the Board or the
President, be performed by any Executive Vice President. In general, each
Executive Vice President shall perform all duties incident to the office of
Executive Vice President and such other duties as may from time to time be
assigned to him by the Board of Directors, the Chairman of the Board, any Vice
Chairman of the Board or the President.
10. Senior Vice President
In the case of the absence or disability of any Executive Vice Presidents,
the duties and exercise of powers of that office may, upon direction of the
Board of Directors or of the Chairman of the Board, any Vice Chairman of the
Board or the President, be performed by any Senior Vice President. In
general, each Senior Vice President shall perform all duties incident to the
office of Senior Vice President and such other duties as may from time to time
be assigned to him by the Board of Directors, the Chairman of the Board, any
Vice Chairman of the Board or the President.
11. Vice President
In the case of the absence or disability of any Executive Vice President
or Senior Vice President, the duties of such office may be exercised by any
Vice President upon direction of the Board of Directors or of the Chairman of
the Board, any Vice Chairman of the Board or the President. In general, each
Vice President shall perform all duties incident to the offices of Vice
President and such other duties which may be assigned to him from time to time
by the Board of Directors, the 'Chairman. of the Board, the Vice Chairman of
the Board or the President.
12. Treasurer
The Treasurer shall have the custody of all the funds and securities of
the Company which may come into his hands; he shall endorse on behalf of the
Company, for collection, checks, notes and other obligations, and shall deposit
the same to the credit of the Company in such bank or banks or depositories as
the Board of Directors may designate; he may sign receipts and vouchers for
payments made to the Company; and he shall sign checks made by
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the Company and pay out and dispose of the same under the direction of the
Board, whenever required by the Board, he shall render a statement of his cash
accounts; he shall enter regularly in books of the Company, to be kept for that
purpose, full and accurate accounts of all moneys received and paid by him on
account of the Company; and he shall perform all duties incident to the
position of treasurer, subject to the control of the Board.
13. Secretary
The Secretary shall keep the minutes of all proceedings of the Board of
Directors and the minutes of all meetings of the stockholders; he shall attend
to the giving and serving of all notices for the Company; he shall have the
authority to sign with any other officer in the name of the Company all
contracts authorized by the Board, and shall affix the seal of the Company
thereto; he shall have charge of the certificate books and such other books and
papers as the Board may direct; he shall have the authority to sign, with the
President or any Vice President, certificates of stock and he shall perform all
duties incident to the office of secretary, subject to the control of the
Board. The Secretary shall, if directed by the Board of Directors, sign and
execute all authorized bonds, contracts or other obligations, in the name of
the Company.
14. Controller
The duties of the Controller shall be to maintain adequate records of all
assets, liabilities and transactions of this Company; to see that adequate
audits thereof are currently and regularly made; and, in conjunction with
other officers and department heads, to initiate and enforce measures and
procedures whereby the business of this Company shall be conducted with the
maximum safety, efficiency, and economy. In general, he shall perform all
duties incident to the office of Controller and such other duties as may from
tine to time be assigned to him by the Board of Directors, the Chairman of the
Board, any Vice Chairman of the Board or the President.
15. Assistant Treasurers and Assistant Secretaries
The Assistant Treasurers shall, respectively, if required by the Board of
Directors, give bonds for the faithful discharge of their duties in such sums
and with such sureties as the Board of Directors shall require. Assistant
Treasurers or Assistant Secretaries shall perform such duties as shall be
assigned to them by the Treasurer and by the Secretary, respectively, or by the
Board of Directors, the Chairman of the Board, any Vice Chairman of the Board
or the President. Assistant Treasurers and Assistant Secretaries may, at the
request or in the absence or
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disability of the Secretary, sign and attest certificates for stock of the
Company.
ARTICLE IV
Capital Stock
1. Certificates
The certificates for shares of stock of the Company shall be in such form
as shall be approved by the Board of Directors. The certificates shall be
signed by the President or any Vice President and by the Secretary or any
Assistant Secretary.
2. To be Entered
All certificates of stock shall be consecutively numbered, and the names
of the owners, the number of shares and date of issue shall be entered in the
Company's books.
3. Certificates Canceled
Except in cases where certificates are lost or destroyed and in that case
after the receipt of satisfactory bond, unless the giving of a bond be waived
by the Board, no new certificates shall be issued until the former certificates
for the shares represented thereby shall have been surrendered and canceled.
4. Transfer
Shares shall be transferred only on the books of the Company by the holder
thereof in person or by his attorney, upon the surrender and cancellation of
certificates for a like number of shares.
5. Regulations
The Board of Directors may make such rules and regulations as it may
deem expedient concerning the issue, transfer and registration of
certificates of stock 9f the Company.
6. Dividends
The Board of Directors may from time to time declare dividends upon the
capital stock from the surplus or net profits of the Company, and subject to
the provisions of the Articles of Incorporation, may fix and change the dates
for the declaration and payment of dividends.
ARTICLE V
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Seal
1. Design
The Board shall design a suitable seal containing the name of the Company
and the words "Incorporated Arizona 1969," which seal shall be in charge of the
Secretary to be used as directed by the Board of Directors.
ARTICLE VI
Waiver of Notice
Any stockholder, director or officer may waive any notice required to be
given pursuant to these By-Laws.
ARTICLE VII
The words "Board" and "directors," occurring in these By-Laws, mean "Board
of Directors.
ARTICLE VIII
Amendment
These By-Laws may be amended, repealed or altered by the Board of
Directors, subject to repeal or change by action of the stockholders.
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EXHIBIT 3.03
ARTICLES OF INCORPORATION
OF
KRAGEN AUTO SUPPLY CO.
ONE: The name of this corporation is KRAGEN AUTO SUPPLY CO.
TWO: The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California, other than banking business, the trust company business, or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
THREE: The name and address in this state of the corporation's initial
agent for service of process is Ivan Owen, 6300 Clark Avenue, Dublin,
California 94566.
FOUR: This corporation is authorized to issue only one class of shares,
which shall be designated as "common" shares. The total authorized number of
such shares which may be issued is 100,000 shares.
Dated: January 28, 1980
/s/ Christopher McBain
-------------------------------------
Christopher McBain
I declare that I am the person who executed the above Articles of
Incorporation, and such instrument is my act and deed.
/s/ Christopher McBain
-------------------------------------
Christopher McBain
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EXHIBIT 3.04
AMENDED AND RESTATED BYLAWS
OF
KRAGEN AUTO SUPPLY CO.
(A CALIFORNIA CORPORATION)
(ADOPTED BY THE SHAREHOLDERS OF THE CORPORATION AS OF OCTOBER 29, 1996)
ARTICLE I
OFFICES
Section 1. Principal Office.
The principal office for the transaction of business in this State shall
be located in the County of Alameda, State of California.
Section 2. Other Offices.
This corporation may also have offices at such other places, both within
and without the State of California, as the Board of Directors may from time to
time determine as the business of the corporation may require.
ARTICLE II
SHAREHOLDERS' MEETING
Section 1. Place of Meetings.
Meetings of shareholders may be held at such place within or without the
State of California as may be designated for that purpose from time to time by
the Board of Directors; provided, however, that if a meeting is a special
meeting that was not called by the Board of Directors or the Chairman of the
Board or the President, any other place other than the principal executive
office of the corporation must have been approved by the written consent of all
persons entitled to vote thereat and not present at the meeting, given either
before or after the meeting and filed with the Secretary of the corporation.
Section 2. Annual Meetings.
The annual meeting of the shareholders shall be held, each year, at the
time and on the day following:
Time of Meeting: 1:10 p.m.
Date of Meeting: Third Tuesday in March,
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or at such other time and/or date as the Board of Directors shall determine.
If this day shall be a legal holiday, then the meeting shall be held on the
next succeeding business day at the same hour. At the annual meeting, the
shareholders shall elect a Board of Directors, consider reports of the affairs
of the corporation and transact such other business as may properly be brought
before the meeting.
Section 3. Special Meetings.
Special meetings of the shareholders for any purpose or purposes may be
called at any time by the President, a Vice President, the Secretary, an
Assistant Secretary, the Board of Directors, or shareholders holding not less
than ten percent (10%) of the voting power of the corporation.
No business may be transacted at any meeting of shareholders, other than
business that is either (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors (or
any duly authorized committee thereof), as set forth in Section 4 of this
Article II below, (b) otherwise properly brought before the meeting by or at
the direction of the Board of Directors (or any duly authorized committee
thereof) or (c) otherwise properly brought before the meeting by any
shareholder of the corporation.
Section 4. Notice of Meetings.
Notices of meetings, annual or special, shall be given either personally
or in writing to shareholders entitled to vote by the Secretary or the
Assistant Secretary, or, if there be no such officer, or in the case of his
neglect or refusal by any director or shareholder.
Notices shall be sent to the shareholder's address appearing on the books
of the corporation, or supplied by him to the corporation for the purpose of
notice, not less than ten (10) days nor more than sixty (60) days before such
meeting, except in the case of a meeting for the purpose of approving a merger
or consolidation agreement, in which case the notice must be given not less
than twenty (20) days prior to the date of the meeting.
Notice of any meeting of shareholders shall specify the place, the day and
the hour of the meeting, and in case of special meetings, as provided by the
General Corporation Law of California, the general nature of the business to be
transacted, and no other business may be transacted. The notice of any meeting
at which directors are to be elected shall include the names of nominees
intended at the time of the notice to be presented by management for election.
It shall not be necessary to give any notice of the time and place of an
adjourned meeting or of the business to be transacted thereat, other than by
announcement at the meeting at which the adjournment is taken, provided,
however, when any shareholders' meeting is adjourned for more than forty-five
(45) days or, if after adjournment, a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting shall be given as in the
case of an original meeting.
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Section 5. Adjourned Meetings.
Any shareholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of a majority of the
shares, the holders of which are either present in person or represented by
proxy thereat, but in the absence of a quorum no other business may be
transacted at such meeting, except as provided in Section 8 of this Article II.
When a shareholders' meeting is adjourned to another time or place, except
as provided below, notice need not be given of the time and place of or of the
business to be conducted at the adjourned meeting if the time and place thereof
are announced at the meeting at which such adjournment is taken. When any
shareholders' meeting is adjourned for forty-five (45) days or more, or if
after adjournment a new record date is fixed for the adjourned meeting, notice
of the adjourned meeting shall be given to each shareholder of record entitled
to vote at the meeting.
At the adjourned meeting, provided that the quorum requirements of Section
8 of this Article II are satisfied, the corporation may transact any business
which might have been transacted at the original meeting.
Section 6. Consent to Shareholders' Meeting.
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted; provided that
directors may be elected by such written consent only if such consent is signed
by the holders of all outstanding shares entitled to vote for the election of
directors. All such consents shall be filed with the Secretary of the
corporation. Any shareholder giving a written consent may revoke the consent
by a writing received by the Secretary of the corporation prior to the time
that written consents of the number of shares required to authorize the
proposed action have been filed with the Secretary, but may not do so
thereafter; such revocation is effective upon its receipt by the Secretary of
the corporation. Unless the consents of all shareholders entitled to vote have
been solicited in writing, the Secretary of the corporation shall, within the
time required by law, give to those shareholders entitled to vote who have not
consented in writing notice of any shareholder approval by less than unanimous
written consent.
Section 7. Shareholders Acting Without a Meeting.
Except as provided in Article III, Section 3, any action which may be
taken at a meeting of the shareholders may be taken without a meeting, without
prior notice and without a vote, if authorized by a writing setting forth the
action so taken, signed by the holders of outstanding shares having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of corporate action without a
meeting by less than unanimous written consent shall be given to those
shareholders who have not consented in writing.
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Section 8. Quorum.
Except as otherwise provided by law or in the Articles of Incorporation,
the holders of a majority of the shares entitled to vote present in person or
represented by proxy shall be requisite and shall constitute a quorum at all
meetings of the shareholders for the transaction of business. In the absence
of a quorum, any meeting of shareholders may be adjourned from time to time by
the vote of a majority of the shares, the holders of which are either present
in person or represented by proxy, but no other business may be transacted. At
an adjourned meeting at which the requisite amount of voting shares is
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. The shareholders present at a duly called
or held meeting at which a quorum is present may continue to do business until
adjournment notwithstanding the withdrawal of enough shareholders to leave less
than a quorum.
Section 9. Voting Rights.
Only persons in whose names shares entitled to vote and stand on the stock
records of the corporation on the day of any meeting of shareholders, unless
some other day be fixed by the Board of Directors for the determination of
shareholders of record, and then on such other day, shall be entitled to vote
at such meeting.
Except as provided below, the affirmative vote of a majority of the shares
represented and voting at a duly held meeting at which a quorum is present
(which shares voting affirmatively also constitute at least a majority of the
required quorum) shall be the act of the shareholders, unless the vote of a
greater number or voting by classes is required for such act by the California
General Corporation Law or the Articles of Incorporation or these Bylaws.
The Board of Directors may fix a time in the future not exceeding thirty
(30) days preceding the date of any meeting of shareholders or the date fixed
for the payment of any dividend or distribution, or for the allotment of
rights, or when any change or conversion or exchange of shares shall go into
effect, as a record date for the determination of the shareholders entitled to
notice of and to vote at any meeting, or entitled to receive any dividend or
distribution, or any allotment of rights, or to exercise the rights in respect
to any change, conversion or exchange of shares. Only shareholders of record
on the date so fixed shall be entitled to notice of and to vote at such
meeting, or to receive such dividends, distribution or allotment of rights, or
to exercise such rights, notwithstanding any transfer of any shares on the
books of the company after the record date.
Section 10. Proxies.
Every person entitled to vote or execute consents shall have the right to
do so either in person or by one or more agents authorized by a written proxy
executed by such person or his duly authorized agent and filed with the
Secretary of the corporation. Any duly elected proxy shall continue in full
force and effect until revoked by the person executing it prior to the vote
pursuant thereto, which revocation may be effected by a written instrument
revoking it or by a subsequent proxy, filed with the Secretary of the
corporation, or by attendance at the meeting and voting in person.
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ARTICLE III
DIRECTORS; MANAGEMENT
Section 1. Powers.
Subject to the limitation of the Articles of Incorporation, of the Bylaws
and of the laws of the State of California as to action to be authorized or
approved by the shareholders, all corporate powers shall be exercised by or
under authority of, and the business and affairs of this corporation shall be
controlled by a Board of Directors.
Section 2. Number and Qualification.
The number of directors constituting the entire Board of Directors shall,
upon effectiveness of these Amended and Restated Bylaws be set at nine (9)
directors. The authorized number of directors may be changed by amendment to
this Section 2, Article III, of these Bylaws, adopted by a vote or written
assent of the shareholders entitled to exercise majority voting power;
provided, however, that a bylaw reducing the fixed number of directors to a
number less than five (5) cannot be adopted if the votes cast against its
adoption at a meeting, or the shares not consenting in the case of action by
written consent, are equal to more than 16-2/3 percent of the outstanding
shares entitled to vote.
Section 3. Election and Tenure of Office.
The directors shall be elected by ballot at the annual meeting of the
shareholders, to serve for one (1) year or until their successors are elected
and have qualified. Elections for directors need not be by ballot unless a
shareholder demands election by ballot at the election and before the voting
begins, or unless the Bylaws so require. The term of office of the directors
shall begin immediately after election.
Notwithstanding Section 7 of Article II of these Bylaws, no director may
be elected by written consent except by unanimous written consent of all shares
entitled to vote for the election of directors.
Section 4. Vacancies.
A vacancy on the Board of Directors shall be deemed to exist when any
authorized position of director is not then filled, whether caused by death,
resignation, removal, change in the authorized number of directors, or
otherwise, or if the shareholders fail, at any annual or special meeting of
shareholders at which any director or directors are to be elected, to elect the
full authorized number of directors to be elected at that meeting.
Unless otherwise provided in the Articles of Incorporation, vacancies in
the Board of Directors, except for a vacancy created by the removal of a
director, may be filled by a majority of the remaining directors, though less
than a quorum, or by a sole remaining director, and each director so elected
shall hold office until the expiration of the term for which elected and until
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such director's successor has been elected and qualified. Shareholders may
elect a director or directors at any time to fill any vacancy or vacancies not
filled by the directors.
Section 5. Removal of Directors.
The entire Board of Directors or any individual director may be removed
from office as provided by Section 303 of the California General Corporation
Law.
Section 6. Resignation of Directors.
Any director may resign effective upon giving written notice to the
Chairman of the Board, the President, the Secretary or the Board of Directors
of the corporation, or at any later time specified therein, and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective. If the resignation is effective at a future
time, a successor may be elected to take office when the resignation becomes
effective.
Section 7. Place of Meetings.
Meetings of the Board of Directors may be held at any place within or
without the state which has been designated in the notice of the meeting or, if
not stated in the notice or there is no notice, designated by resolutions of
the Board of Directors. Any meeting shall be valid, wherever held, if held by
the written consent of all members of the Board of Directors, given either
before or after the meeting and filed with the Secretary of the corporation.
Members of the Board of Directors may participate in a meeting of the
Board of Directors by means of conference telephone or other 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.
Section 8. Organization Meetings.
The organization meetings of the Board of Directors shall be held
immediately following the adjournment of the annual meetings of the
shareholders.
Section 9. Other Regular Meetings.
Regular meetings of the Board of Directors may be held at the corporate
offices, or such other place as may be designated by the Board of Directors, at
the time fixed in advance by the Board of Directors. Call and notice of such
regular meetings are hereby dispensed with.
Section 10. Special Meetings - Notices.
Special meetings of the Board of Directors for any purpose or purposes may
be called at any time by the Chairman of the Board, Vice Chairman, Chief
Executive Officer or the President on the written request of a majority of the
directors and shall be held at such place or places as may be determined by the
directors, or as shall be stated in the call of the meeting.
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<PAGE> 7
Written notice of the time and place of special meetings shall be
delivered personally to each director or sent to each director by letter,
telephone, facsimile or by telegram, charges prepaid, addressed to him at his
address as it is shown upon the records of the corporation, or if it is not
shown on such records or is not readily ascertainable, at the place in which
the meetings of the directors are regularly held. In case such notice is
mailed, it shall be deposited in the United States mail at least four (4) days
prior to the time of the holding of the meeting. In case such notice is
delivered personally, by telephone, by telegram or by facsimile, it shall be
delivered at least forty-eight (48) hours prior to the time of the holding of
the meeting.
Section 11. Waiver of Notice.
When all of the directors are present at any directors' meeting, however
called or noticed, and sign a written consent thereto on the records of such
meeting, or, if a majority of the directors are present, and if those not
present sign a written waiver of notice of such meeting, whether prior to or
after the holding of such meeting, which said waiver shall be filed with the
Secretary of the corporation, the transactions thereof are as valid as if had
at a meeting regularly called and noticed.
Section 12. Directors Acting Without a Meeting by Unanimous Written
Consent.
Any action required or permitted to be taken by the Board of Directors may
be taken without a meeting and with the same force and effect as if taken by a
unanimous vote of directors, if authorized by a writing signed by all members
of the Board of Directors. Such consent shall be filed with the regular
minutes of the Board of Directors.
Section 13. Notice of Adjournment.
Notice of the time and place of holding an adjourned meeting shall be
given to absent directors prior to the time of the meeting if the adjournment
is for more than twenty-four (24) hours.
Section 14. Quorum.
A majority of the number of directors as fixed by the Articles of
Incorporation or Bylaws shall be necessary to constitute a quorum for the
transactions of business, and the action of a majority of the directors present
at any meeting at which there is a quorum, when duly assembled, is valid as a
corporate act; provided that a minority of the directors, in the absence of a
quorum, may adjourn from time to time, but may not transact any business. A
duly called and noticed Board of Directors meeting at which a quorum is
initially present and assembled shall be able to continue the transaction of
business notwithstanding the withdrawal of a sufficient number of directors to
break a quorum provided that any action so taken is approved by at least a
majority of the required quorum for such a meeting.
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<PAGE> 8
Section 15. Compensation of Directors.
Compensation of directors and reimbursement of their expenses incurred in
connection with the business of the corporation, if any, shall be as determined
from time to time by resolution of the Board of Directors.
Section 16. Committees.
By resolution adopted by a majority of the authorized number of Directors,
the Board of Directors may designate one or more committees, each consisting of
two or more directors, to serve at the pleasure of the Board of Directors. The
appointment of members or alternate members of a committee shall be by a
majority vote of the authorized number of Directors.
The provisions of these Bylaws with respect to notice, conduct of meetings
of the board of directors and indemnification shall govern committees of the
Board of Directors and action by such committees, unless, to the extent
permitted by the General Corporation Law, the board of directors shall
otherwise prescribe.
Section 17. Participation at Meetings by Telephone.
Members of the Board of Directors may participate in a meeting through use
of conference telephone or similar communications equipment, so long as all
members participating in such meeting can hear one another. Participation in a
meeting as permitted in the preceding sentence constitutes presence in person
at such meeting.
ARTICLE IV
OFFICERS
Section 1. Officers.
The officers of the corporation shall be a President, a Vice President, a
Secretary and a Treasurer. The corporation may also have, at the discretion
of, the Board of Directors, a Chairman of the Board, one or more additional
Vice Presidents (one or more of which may be designated Executive or Senior
Vice Presidents or as otherwise determined by the Board of Directors), a
Controller, one or more Assistant Secretaries, one or more Assistant
Controllers, one or more Assistant Treasurers, and such other officers as may
be appointed in accordance with the provisions of Section 3 of this Article.
Any number of offices may be held by the same person.
Section 2. Election.
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Section 3 or Section 5 of this Article,
shall be chosen annually by the Board of Directors, and each shall hold his
office until he shall resign or shall be removed or otherwise disqualified to
serve, or his successor shall be elected and qualified.
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<PAGE> 9
Section 3. Subordinate Officers, etc.
The Board of Directors may appoint such other officers as the business of
the corporation may require, each of whom shall hold office for such period,
have such authority and perform such duties as are provided in the Bylaws or as
the Board of Directors may from time to time determine.
Section 4. Removal and Resignation.
Any officer may be removed, either with or without cause, by a majority of
the directors at the time in office, at any regular or special meeting of the
Board of Directors, or, except in case of an officer chosen by the Board of
Directors, by any officer upon whom such power of removal may be conferred by
the Board of Directors.
Any officer may resign at any time by giving written notice to the Board
of Directors, or to the President, or to the Secretary of the corporation. Any
resignation shall take effect at the date of the receipt of such notice or at
any later time specified therein. Unless otherwise specified therein, the
acceptance of the resignation shall not be necessary to make it effective.
Section 5. Vacancies.
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
the Bylaws for regular appointments to such office.
Section 6. Chairman of the Board.
The Chairman of the Board, if there shall be such an officer, shall, if
present, preside at all meetings of the Board of Directors, and shall exercise
and perform such other powers and duties as may be from time to time assigned
to him by the Board of Directors or prescribed by the Bylaws.
Section 7. Chief Executive Officer.
The Chief Executive Officer, if one be elected, shall, in the absence or
disability of the Chairman, preside at all meetings of the shareholders and at
all meetings of the Board of Directors, and shall have general supervision,
direction and control of the business and affairs of the corporation subject to
the authorization and control of the Board of Directors, and shall have such
other power and authority and perform such other duties as may be prescribed by
these Bylaws or as may be assigned from time to time by the Board of Directors.
In the absence or disability of the Chief Executive Officer, the
President, if available, and if the President is not available the Chief
Operating Officer, if available, shall have the authority, and shall perform
the duties, of the Chief Executive Officer.
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<PAGE> 10
Section 8. President.
The President shall, in the absence or disability of the Chairman and
Chief Executive Officer, preside at all meetings of the shareholders and at all
meetings of the Board of Directors, and shall have such other power and
authority and perform such other duties as may be prescribed by these Bylaws or
as may be assigned from time to time by the Board of Directors or the Chief
Executive Officer.
In the absence or disability of the Chief Executive Officer, the
President, if available, shall have the authority, and shall perform the
duties, of the Chief Executive Officer.
Section 9. Chief Operating Officer.
The Chief Operating Officer, if one be elected, shall have such power and
authority and perform such duties as may be prescribed by these Bylaws or as
may be assigned from time to time by the Board of Directors.
In the absence or disability of the President, the Chief Operating
Officer, if available, shall have the authority, and shall perform the duties,
of the President. In addition, in the absence or disability of the Chief
Executive Officer and the President, the Chief Operating Officer, if available,
shall have the authority and perform the duties of the Chief Executive Officer.
Section 10. Vice-President.
Each Vice-President shall have such power and authority and perform such
duties as may be prescribed by these Bylaws or as may be assigned from time to
time by the Board of Directors or the Chief Executive Officer.
The Board of Directors may designate one or more Vice-Presidents, in such
order of priority as shall be specified by the Board of Directors, to have the
authority, and to perform the duties, of the Chief Executive Officer in the
absence or disability of the Chief Executive Officer, the President and the
Chief Operating Officer; provided, however, that no Vice-President shall have
such authority or perform such duties unless specifically designated for that
purpose by the Board of Directors.
Section 11. Chief Financial Officer.
The Chief Financial Officer shall have the custody of the corporate funds
and securities, shall keep full and accurate account of receipts and
disbursements in books belonging to the corporation and shall deposit all
moneys and other valuables in the name and to the credit of the corporation in
such depositaries as may be designated by the Board of Directors.
The Chief Financial Officer shall disburse the funds of the corporation as
may be ordered by the Board of Directors, or the Chief Executive Officer,
taking proper vouchers for such disbursements. He shall render to the Chief
Executive Officer and Board of Directors at the regular meetings of the Board
of Directors, or whenever they may request it, an account of all his
transactions as Chief Financial Officer and of the financial condition of the
corporation. If
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<PAGE> 11
required by the Board of Directors, he shall give the corporation a bond for
the faithful discharge of his duties in such amount and with such surety as the
Board of Directors shall prescribe.
Section 12. Secretary.
The Secretary shall give, or cause to be given, notice of all meetings of
shareholders and directors, and all other notices required by law or by these
Bylaws, and in case of his absence or refusal or neglect so to do, any such
notice may be given by any person thereunto directed by the Chief Executive
Officer, the President, the Chairman or by the Board of Directors or
shareholders, upon whose requisition the meeting is called as provided in these
Bylaws.
The Secretary shall record all the proceedings of the meetings of the
corporation and of the directors in a book to be kept for that purpose, and
shall perform such other duties as may be assigned to him by the Chief
Executive Officer or the Board of Directors. He shall have custody of the seal
of the corporation and shall affix the same to all instruments requiring it,
when authorized by the Chief Executive Officer or the Board of Directors, and
attest the same.
Section 13. Assistants.
Assistant Chief Financial Officers, if any shall be elected, shall, in the
absence of the Chief Financial Officer, have the authority, and perform the
duties, of the Chief Financial Officer, and shall have such other power and
authority and perform such other duties as may be prescribed by these Bylaws or
as may be assigned from time to time by the Board of Directors or the Chief
Executive Officer.
Assistant Secretaries, if any shall be elected, shall, in the absence of
the Secretary, have the authority and perform the duties, of the Secretary, and
shall have such other power and authority and perform such other duties as may
be prescribed by these Bylaws or as may be assigned from time to time by the
Board of Directors or the Chief Executive Officer.
ARTICLE V
CORPORATE RECORDS AND REPORTS --- INSPECTION
Section 1. Records.
The corporation shall maintain adequate and correct accounts, books and
records of its business and properties at its principal place of business in
the State of California, as fixed by the Board of Directors from time to time.
Section 2. Inspection of Books and Records.
All books and records provided for in Sections 1600 through 1602 of the
California General Corporation Law shall be open to inspection of the directors
and shareholders from time to time and in the manner provided in Sections 1600
through 1602.
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<PAGE> 12
Section 3. Certification and Inspection of Bylaws.
The original or a copy of these Bylaws, as amended or otherwise altered to
date, certified by the Secretary, shall be open to inspection by the
shareholders of the corporation, as provided in Section 213 of the California
General Corporation Law.
Section 4. Checks.
All checks, drafts or other orders for payment of money, notes or other
evidences of indebtedness, issued in the name of or payable to the corporation,
shall be signed or endorsed by such person or persons and in such manner as
shall be determined from time to time by resolution of the Board of Directors.
Section 5. Contracts.
The Board of Directors may authorize any officer or officers, agent or
agents, to enter into any contract or execute any instrument in the name of and
on behalf of the corporation. Such authority may be general or confined to
specific instances. Unless so authorized by the Board of Directors, no
officer, agent or employee shall have any power or authority to bind the
corporation in any material matter by any contract or engagement, or to pledge
its credit to any significant extent or to render it liable for any material
purposes or to any significant amount.
ARTICLE VI
CERTIFICATES AND TRANSFER OF SHARES
Section 1. Certificates for Shares.
Certificates for shares shall be of such form and device as the Board of
Directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of shares
for which it is issued; a statement of the rights, privileges, preferences and
restrictions, if any; a statement as to the redemption or conversion, if any; a
statement of liens or restrictions upon transfer or voting if any; if the
shares be assessable or, if assessments are collectible by personal action, a
plain statements of such facts.
Every certificate for shares must be signed by the President or a Vice
President and the Secretary or an Assistant Secretary or by facsimiles of the
signatures of the President and Secretary.
Section 2. Transfer on the Books.
Upon surrender to the Secretary or transfer agent of the corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment 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.
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<PAGE> 13
Section 3. Lost or Destroyed Certificates.
Where the holder of a share certificate claims that the certificate has
been lost, destroyed or wrongfully taken, the holder shall make an affidavit or
affirmation of that fact and advertise the same in such manner as the Board of
Directors may require, and shall, if the directors so require, give the
corporation a bond of indemnity, in form and with one or more sureties
satisfactory to the Board, in at least double the value of the stock
represented by said certificate, whereupon a new certificate shall be issued in
the same tenor and for the same number of shares as the one alleged to be lost,
destroyed or wrongfully taken if the owner so requests before the corporation
has notice that the share has been acquired by a bona fide purchaser.
Where a share certificate has been lost, apparently destroyed or
wrongfully taken and the owner fails to notify the corporation of that fact
within a reasonable time after he has notice of it, and the corporation
registers a transfer of the shares represented by the certificate before
receiving such a notification, the owner is precluded from asserting against
the corporation any claim to a new certificate.
If after the issue of a new certificate as a replacement for a lost,
destroyed or wrongfully taken certificate, a bona fide purchaser of the
original certificate presents it for registration of transfer, the corporation
must register the transfer unless registration would result in overissue. In
addition to any rights on the indemnity bond, the corporation may recover the
new certificate from the person to whom it was issued or any person taking
under him except a bona fide purchaser.
Section 4. Transfer Agents and Registrars.
The Board of Directors may appoint one or more transfer agents or transfer
clerks, and one or more registrars which shall be an incorporated bank or trust
company, either domestic or foreign, and which shall be appointed at such times
and places as the requirements of the corporation may necessitate and the Board
of Directors may designate.
Section 5. Closing Stock Transfer Books.
The Board of Directors may close the transfer books in its discretion for
a period not exceeding thirty (30) days preceding any meeting, annual or
special, of the shareholders, or the day appointed for the payment of a
dividend.
Section 6. Legend Condition.
In the event any shares of this corporation are issued pursuant to a
permit or exemption therefrom requiring the imposition of a legend condition,
the person or persons issuing or transferring such shares shall make sure the
legend appears on the certificate and on the stub relating thereto in the stock
record book and shall not be required to transfer any shares free of such
legend unless an amendment to the permit or a new permit is issued authorizing
such a deletion.
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<PAGE> 14
ARTICLE VII
CORPORATE SEAL
The corporate seal shall be circular in form, and shall have inscribed
thereon the name of the corporation, the date of its incorporation and the word
"California".
ARTICLE VIII
INDEMNIFICATION
Section 1. Indemnification.
The corporation shall indemnify any person who is or was an agent (as such
term is defined in Section 317 of the California General Corporation Law) of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or other agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise, or was a
director, officer, employee or other agent of a foreign or domestic corporation
which was a predecessor corporation of the corporation or of another enterprise
at the request of such predecessor corporation, to the full extent permitted by
Section 317 of the California General Corporation Law and applicable law.
Section 2. Advancing Expenses.
Expenses incurred in defending any proceeding may be advanced by this
corporation prior to the final disposition of such proceeding upon receipt of
an undertaking by or on behalf of the agent to repay such amount if it shall be
determined ultimately that the agent is not entitled to be indemnified as
authorized in this Article VIII.
Section 3. Liability Insurance.
This corporation may purchase and maintain insurance on behalf of any
agent of this corporation against any liability asserted against or incurred by
the agent in such capacity or arising out of the agent's status as such,
whether or not this corporation would have the power to indemnify the agent
against such liability under the provisions of this Article VIII.
ARTICLE IX
AMENDMENTS TO BYLAWS
Section 1. By Shareholders.
New Bylaws may be adopted or these Bylaws may be repealed or amended at
the annual meeting, or any other meeting of the shareholders called for that
purpose, by a vote of shareholders entitled to exercise a majority of the
voting power of the corporation, or by written assent of such shareholders.
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Section 2. Powers of Directors.
Subject to the right of the shareholders to adopt, amend or repeal Bylaws,
as provided in Section 1 of this Article IX, the Board of Directors may adopt,
amend or repeal any of these Bylaws, except as provided in Section 2, Article
III of these Bylaws or as provided by applicable law.
Section 3. Record of Amendments.
Whenever an amendment or new Bylaw is adopted, it shall be copied in the
book of Bylaws with the original Bylaws in the appropriate place. If any Bylaw
is repealed, the fact of repeal with the date of the meeting at which the
repeal was enacted or written assent was filed shall be stated in said book.
ARTICLE X
INCORPORATION BY REFERENCE
Whenever any reference is made in these Bylaws to any legislative
enactment, whether law, statute or ordinance, such enactment shall be deemed
incorporated by reference herein.
ARTICLE XI
LOANS TO OFFICERS OR DIRECTORS
The Board of Directors (without shareholder approval) may approve any loan
of money or property to, or guarantee the obligation of any director or officer
of the corporation or of its parent as provided by Section 315 of the
California General Corporation Law.
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<PAGE> 1
EXHIBIT 3.05
ARTICLES OF INCORPORATION
OF
SCHUCK'S DISTRIBUTION CO.
Pursuant to the provisions of RCW 23B.02.020, the undersigned, for the
purpose of forming a corporation under the Washington Business Corporation Act,
hereby adopts the following Articles of Incorporation:
ARTICLE I.
NAME
The name of this corporation shall be "Schuck's Distribution Co."
ARTICLE II.
CAPITAL STOCK
The total number of shares of stock authorized and which may be issued by
this corporation is fifty thousand (50,000) shares, all of which shall be no
par value common shares of the same class.
If a vote of the shareholders is required to authorize any of the
following matters, such matters need be approved only by a majority of all
votes of each voting group entitled to be cast on the matter:
a. Amendment to Articles of Incorporation;
b. Plan of merger or plan or share exchange;
c. Sale, lease, exchange, or other disposition of all or
substantially all of the property of the corporation, other than in
the usual and regular course of business;
<PAGE> 2
d. Dissolution of the corporation.
ARTICLE III.
PREEMPTIVE RIGHTS
The holders of shares of the corporation shall have no preemptive rights
to subscribe or purchase from the corporation any shares authorized but
unissued, or any newly authorized shares.
ARTICLE IV.
CUMULATIVE VOTING
The right to cumulate votes in the election of directors shall not exist
with respect to shares of stock of this corporation.
ARTICLE V.
DIRECTORS
The names and post office addresses of the first directors of the
corporation, who shall hold office until the first annual meeting of
shareholders or until their successors shall have been elected and qualified,
are as follows:
<TABLE>
<CAPTION>
Name Address
- ---- -------
<S> <C>
Eddie Trump P.O. Box 6030
Phoenix, AZ 85005
Julius Trump P.O. Box 6030
Phoenix, AZ 85005
James G. Bazlen P.O. Box 6030
Phoenix, AZ 85005
</TABLE>
2
<PAGE> 3
ARTICLE VI.
REGISTERED OFFICE AND AGENT
The location and post office address of the initial registered office of
the corporation in this state shall be 1201 Third Avenue, Suite 3400, Seattle,
WA 98101-3034, and the initial registered agent of the corporation shall be RSC
Corporation.
ARTICLE VII.
INDEMNIFICATION
The corporation agrees to indemnify and save harmless any and all officers
or directors of the corporation against any and all liabilities, judgments,
sums of money and expenses (including herein any and all amount or amounts paid
in settlement) reasonably incurred by them or any of them in connection with
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether in law, equity or
otherwise, to which they or any of them may be a party, or may be threatened by
reason of being or having been an officer or director of the corporation, or by
reason of serving or having served at the request of the corporation as a
director, trustee, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise to the full extent
permitted by the Washington Business Corporation Act; except that the
corporation shall not be required to indemnify a director against liability,
damage or expense resulting from the director's gross negligence.
No amendment or repeal of this Article shall apply to or have any effect
on any right to indemnification provided hereunder with respect to acts or
omissions occurring prior to such amendment or repeal.
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<PAGE> 4
ARTICLE VIII.
LIABILITY OF DIRECTORS
A director of this corporation shall not be personally liable to the
corporation or its shareholders for monetary damages for conduct as a director,
except for liability of the director (i) for acts or omissions that involve
intentional misconduct by the director or a knowing violation of law by the
director, (ii) for conduct violating Section 23B.08.310 of the Washington
Business Corporation Act or (iii) for any transaction from which the director
will personally receive a benefit in money, property, or services to which the
director is not legally entitled. If the Washington Business Corporation Act
is amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
corporation shall be eliminated or limited to the fullest extent permitted by
the Washington Business Corporation Act, as so amended. Any repeal or
modification of this Article by the shareholders of the corporation shall not
adversely affect any right or protection of a director of the corporation
existing at the time of such repeal or modification.
ARTICLE IX.
INCORPORATOR
The name and post office address of the incorporator are Kevin J.
Collette, Ryan, Swanson & Cleveland, 1201 Third Avenue, Suite 3400, Seattle,
Washington 98101-3034.
IN WITNESS WHEREOF, the incorporator has hereunto set his hand on January
22, 1992.
/s/ Kevin J. Collette
----------------------------------------
Kevin J. Collette, Incorporator
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<PAGE> 5
CONSENT TO SERVE AS REGISTERED AGENT
RSC Corporation hereby consents to serve as Registered Agent in the State
of Washington for Schuck's Distribution Co. It understands that as agent for
the corporation, it will be its responsibility to receive service of process in
the name of the corporation; to forward all mail to the corporation; and to
immediately notify the office of the Secretary of State in the event of its
resignation, or of any changes in the registered office address of the
corporation for which it is agent.
RSC CORPORATION
DATED: January 23, 1992 By /s/ Kevin J. Collette
--------------------------------------
Kevin J. Collette, President
Address:
1201 Third Avenue, Suite 3400
Seattle, Washington 98101-3034
5
<PAGE> 1
EXHIBIT 3.06
AMENDED AND RESTATED
BYLAWS
OF
SCHUCK'S DISTRIBUTION CO.
(A WASHINGTON CORPORATION)
(AS ADOPTED BY THE STOCKHOLDERS OF THE CORPORATION AS OF OCTOBER 29, 1996)
ARTICLE I
Stockholders
1. Annual Meeting
A meeting of the stockholders shall be held annually in the City of
Phoenix, Arizona, or at any other place designated by the directors hereof, at
8.30 a.m., on the last Friday of May of each year; such meeting of the
stockholders shall be for the purpose of electing directors and for the
transaction of any other business that may come before it.
2. Organization
The Chairman of the Board, or in his absence a chairman appointed by the
stockholders present, shall call meetings of stockholders to order and shall
act as chairman thereof.
The Secretary of the Corporation shall act as secretary of all meetings of
the stockholders. In his absence, the presiding officer may appoint any person
to act as secretary.
3. Quorum
A majority of the stock issued and outstanding represented by the holders
thereof, either in person or by proxy, appointed by an instrument in writing,
shall be a quorum at all meetings of stockholders.
4. Adjournment
If at any annual or special meeting a quorum shall fail to attend in
person, or by proxy, a majority in interest of stockholders attending such
meeting, in person or by proxy, may adjourn the meeting from time to time,
without further notice, until a quorum shall attend, and thereupon any business
may be transacted which might have been transacted by the meeting as originally
called had the same been then held.
<PAGE> 2
5. Special Annual Meetings
Whenever, from any cause, an annual meeting of stockholders cannot be held
on the day provided, a special annual meeting may be called by the directors in
the manner and at such place as is prescribed for the holding of annual
meetings of stockholders, at which special annual meeting, directors shall be
elected in accordance with such provisions, and shall hold office until their
successors are elected and have qualified in their stead. Notice of such
meeting shall be given as required for other meetings.
6. Voting
Each share of common stock shall entitle the holder thereof to one vote in
the election of directors, a plurality of the votes cast shall elect. Any
other action shall be authorized by a majority of the votes cast except where
the Washington Business Corporation Act prescribes a different percentage of
votes and/or a different exercise of voting power, and except as may be
otherwise prescribed by the provisions of the Articles of Incorporation or
these Bylaws. In the election of directors, and for any other action, voting
need not be by ballot.
7. Special Meetings
Special meetings of the stockholders, for any purpose or purposes, shall
be held whenever called by the Board of Directors, either by written instrument
or by the vote of a majority, and shall be called whenever stockholders owning
10% of the capital stock issued and outstanding shall, in writing, make
application therefor to the President, stating the object of such meeting.
8. Order of Business
The stockholders may determine the order of business at the meetings. If
no order of business be designated, the following shall apply:
1. Roll Call
A quorum being present:
2. Reading of minutes of preceding meeting and action thereon
3. Reports of officers
4. Reports of committees
5. Election of directors
6. Unfinished business
7. New business
9. List of Stockholders
At each meeting of stockholders, a full, true and correct list, in
alphabetical order, of all the stockholders entitled to vote at such meeting,
with the number of shares held by each, certified to by the Secretary, shall be
furnished.
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<PAGE> 3
10. Stockholder Action Without Meeting
Any action required by the Washington Business Corporation Act to be taken
at any annual or special meeting of stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of all of the
outstanding stock entitled to vote thereon.
ARTICLE II
Board of Directors
1. Number
The business affairs of the Corporation shall be managed and controlled by
a Board of Directors. The number directors constituting the entire Board of
Directors of the Corporation shall, upon the effectiveness of these Amended and
Restated Bylaws be set at nine directors, who need not be stockholders of the
Corporation.
2. Term
Each director shall serve for the term for which he shall have been
elected and until his successor shall have been duly elected and have
qualified.
3. First Meeting
Immediately after each annual election of directors, the newly elected
directors shall meet for the purpose of organization, the election of officers
and the transaction of other business.
4. Special Meetings
Special meetings of the Board of Directors shall be held whenever called
by the Chairman of the Board, or by a majority of the directors; however, a
majority of the directors must be present or have consented in writing to the
waiver of notice for the holding of such a meeting. Unless otherwise specified
in the notice thereof, any and all business may be transacted at a special
meeting.
5. Notice
The Secretary shall give notice to each director of each special meeting
by mailing the name at least ten days before the time of meeting, or by
telegraphing or telephoning not less than five days prior to the time of
meeting.
6. Place of Meeting
The directors shall hold their meetings, and may have an office and kept
the books of the Corporation, at such place or places within or without the
State of Washington as the Board of Directors from time to time may determine.
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7. Quorum
A majority of the Board of Directors, if no vacancy at the time in office,
shall constitute a quorum for the transaction of business. The vote of a
majority of the directors present at any meeting in favor of or against any
proposition shall prevail, except as herein otherwise provided.
8. Chairman
At all meetings of the Board of Directors the Chairman of the Board or, in
his absence, a chairman chosen by the directors present, shall preside.
9. Vacancies
In case of any vacancy among the directors, through death, resignation,
disqualification or other cause, the remaining directors, whether or not
constituting a quorum, may elect a successor to hold office for the unexpired
term of the director whose place shall be vacant and until the election of and
acceptance by his successor.
10. Committees
From time to time the Board of Directors may appoint committees for any
purpose or purposes, who shall have such powers as shall be specified in the
resolution of appointment.
11. Compensation
The directors and officers of the Corporation, and all members of
committees, shall be paid such salaries as may be determined by a vote of a
majority of all of the directors.
12. Action by Resolution
The Board of Directors shall have power to act in the following manner. A
resolution in writing, signed by all of the Board of Directors, shall be deemed
to be action by such Board of Directors to the effect therein expressed, with
the same force and effect as if the same had been duly passed by the same vote
at a duly convened meeting, and it shall be the duty of the Secretary of the
Corporation to record such resolution in the minute book of the Corporation
under its proper date.
13. Hypothecation of Property
The Board of Directors may mortgage or hypothecate all or any portion of
the property of the Corporation without having first procured the consent of
the stockholders to such action, but they shall not dispose of all of the
assets of the Corporation until they are authorized to do so by the majority
vote of the stockholders.
14. Indemnification
The Corporation may indemnify any and all of its directors and officers or
former directors and officers, against expenses incurred by them, including
legal fees or judgments or penalties
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rendered or levied against any such person in a legal action brought against
any such person for actions or omissions alleged to have been committed by any
such person while acting within the scope of his employment as a director or
officer of the Corporation, provided that the Board of Directors shall
determine in good faith that such person did not act, fail to act, or refuse to
act willfully or with gross negligence or with fraudulent or criminal intent in
regard to the matter involved in the action.
ARTICLE III
Officers
1. Executive Officers
The Board of Directors shall elect, as executive officers, a Chairman of
the Board, a President, an Executive Vice President, a Secretary, and a
Controller and in their discretion one or more Vice Presidents, and one or more
Assistant Secretaries and Assistant Treasurers. Any number of offices may be
held by the same person.
2. Powers
The powers and duties of any office may be vested in and exercised and
performed by any one of the other officers to the extent expressly authorized
from time to time by the Board of Directors or the Chairman of the Board.
3. Voting Securities Owned by the Corporation
Powers of attorney, proxies, waivers of notice of meeting, consents and
other instruments relating to securities owned by the Corporation may be
executed in the name of and on behalf of the Corporation by such one or more
officers or other persons as are from time to time authorized by the Board of
Directors and any such officer or other person who are from time to time so
authorized by the Board of Directors, may, in the name of and on behalf of the
Corporation, take all such action as any such officer or other person may deem
advisable to vote in person or by proxy at any meeting of security holders of
any corporation in which the Corporation may own securities and at any meeting
of security holders of any corporation in which the corporation may own
securities and at any such meeting shall possess and may exercise any and all
rights and power incident to the ownership of such securities and which, as the
owner thereof, the Corporation might have exercised and possessed if present.
4. Subordinates
The Board of Directors may appoint such other officers as it deems
necessary, who shall have such authority and perform such duties as from time
to time may be prescribed by the Board of Directors.
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5. Tenure of Officers
All officials and agents shall be subject to removal at any time, with or
without cause, by the affirmative vote of a majority of the whole Board of
Directors.
6. Chairman of the Board
The Chairman of the Board shall be the chief executive officer of the
Corporation and shall have the general and active management of the business of
the Corporation and general and active supervision and direction over the other
officers, agents and employees and shall see that their duties are properly
performed. He shall, if present, preside at each meeting of the shareholders
and of the Board of Directors and shall be an ex officio member of all
committees of the Board of Directors. He shall perform all duties incident of
the office of Chairman of the Board and chief executive officer and such other
duties as may from time to time be assigned to him by the Board of Directors.
7. Vice Chairman of the Board
In the case of absence or disability of the Chairman of the Board, the
duties and the exercise of powers of that office may be performed by the Vice
Chairman of the Board. In general, he shall perform all duties incident to the
office of Vice Chairman of the Board and such other duties as may from time to
time be assigned to him by the Board of Directors or, subject to the control of
the Board of Directors, the Chairman of the Board.
8. President
The President shall be the chief operating officer of the Corporation. He
shall have such other duties as the Board of Directors or the Chairman of the
Board shall assign.
9. Executive Vice President
In the case of the absence or disability of the President, the duties and
exercise of powers of that office may, upon direction of the Board of Directors
or of the Chairman of the Board, be performed by the Executive Vice President.
In general, he shall perform all duties incident to the office of Executive
Vice President and such other duties as may from time to time be assigned to
him by the Board of Directors, the President or the Chairman of the Board.
10. Senior Vice President
In the case of the absence or disability of the Executive Vice President,
the duties and exercise of powers of that office may, upon direction of the
Board of Directors or of the Chairman of the Board, be performed by the Senior
Vice President. In general, he shall perform all duties incident to the office
of Senior Vice President and such other duties as may from time to time be
assigned to him by the Board of Directors, the President or Chairman of the
Board.
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11. Vice President
In the case of the absence or disability of the Executive Vice President
or Senior Vice President or of any office that they might then be entitled to
occupy, the duties of such office may be exercised by the Vice President upon
direction of the Board of Directors or of the Chairman of the Board. In
general, he shall perform all duties incident to the offices of Vice President
and such other duties which may be assigned to him from time to time by the
Board of Directors.
12. Controller
The Controller shall have custody of all the funds and securities of the
Corporation which may come into his hands; he shall endorse for collection, on
behalf of the Corporation, checks, notes and other obligations, and shall
deposit the same to the credit of the Corporation in such bank or banks or
depositories as the Board of Directors may designate; he may sign receipts and
vouchers for payments made to the Corporation, and he shall sign checks made by
the Corporation and pay out and dispose of the same under the direction of the
Board of Directors, whenever required by the Board of Directors, he shall
render a statement of his cash accounts; he shall enter regularly in books of
the Corporation, to be kept for that purpose, full and accurate accounts of all
moneys received and paid by him on account of the Corporation; and he shall
perform all duties incident to the position of controller, subject to the
control of the Board of Directors.
The duties of the Controller shall also be to maintain adequate records of
all assets, liabilities and transactions of this Corporation; to see that
adequate audits thereof are currently regularly made; and, in conjunction with
other officers and department heads, to initiate and enforce measures and
procedures whereby the business of this Corporation shall be conducted with the
maximum safety, efficiency, and economy. In general, he shall perform all
duties incident to the office of Controller and such other duties as may from
time to time be assigned to him by the Board of Directors or by any duly
authorized committee of the directors, or by the President.
13. Secretary
The Secretary shall keep the minutes of all proceedings of the Board of
Directors and the minutes of all meetings of the stockholders; he shall attend
to the giving and serving of all notices for the Corporation; he shall have
authority to sign with any other officer in the name of the Corporation all
contracts authorized by the Board of Directors, and shall affix the seal of the
Corporation, if any, thereto; he shall have charge of the certificate books and
such other books and papers as the Board of Directors may direct; he shall have
authority to sign, with the President or any Vice President, certificates of
stock and he shall perform all duties incident to the office of secretary,
subject to the control of the Board of Directors. The Secretary shall, if
directed by the Board of Directors, sign and execute all authorized bonds,
contracts or other obligations, in the name of the Corporation.
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14. Assistant Treasurers and Assistant Secretaries
The Assistant Treasurers shall, respectively, if required by the Board of
Directors, give bonds for the faithful discharge of their duties in such sums
and with such sureties as the Board of Directors shall require. Assistant
Treasurers or Assistant Secretaries shall perform such duties as shall be
assigned to them by the Treasurer and by the Secretary, respectively, or by the
Board of Directors, or any duly authorized committee of Directors, or the
President. Assistant Treasurers and Assistant Secretaries may, at the request
or in the absence or disability of the Secretary, sign and attest certificates
for stock of the Corporation.
ARTICLE IV
Capital Stock
1. Certificates
The certificates for shares of stock of the Corporation shall be in such
form as shall be approved by the Board of Directors. The certificates shall be
signed by the President or any vice President and by the Secretary or any
Assistant Secretary.
2. To be Entered
All certificates of stock shall be consecutively numbered, and the names
of the owners, the number of shares and date of issue shall be entered in the
Corporation's books.
3. Certificate Canceled
Except in cases where certificates are lost or destroyed and in that case
after the receipt of satisfactory bond, unless the giving of a bond be waived
by the Board of Directors, no new certificates shall be issued until the former
certificates for the shares represented thereby shall have been surrendered and
cancelled.
4. Transfer
Shares shall be transferred only on the books of the Corporation by the
holder thereof in person or by his attorney, upon the surrender and
cancellation of certificates for a like number of shares.
5. Regulations
The Board of Directors may make such rules and regulations as it may deem
expedient concerning the issue, transfer and registration of certificates of
stock of the Corporation.
6. Dividends
The Board of Directors may from time to time declare dividends upon the
capital stock from the surplus or net profits of the Corporation and, subject
to the provisions of the Articles of
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Incorporation, may fix and change the dates for the declaration and payment of
dividends; provided, however, that any such declaration of dividends is not in
conflict with the terms of any stockholder's agreement in effect at such time.
ARTICLE V
Seal
The Board of Directors may, but need not, design and have a suitable seal,
which seal shall be in charge of the Secretary to be used as directed by the
Board of Directors.
ARTICLE VI
Waiver of Notice
Any stockholder, director or officer may waive any notice required to be
given to these Bylaws.
ARTICLE VII
The word "directors," occurring in these Bylaws, means "Board of
Directors."
ARTICLE VIII
Amendment
These Bylaws may be amended, repealed or altered by the Board of
Directors, subject to repeal or change by action of the stockholders.
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EXHIBIT 4.01
EXECUTION COPY
CSK AUTO, INC.
AS ISSUER
THE SUBSIDIARY GUARANTORS
NAMED HEREIN
AND
WELLS FARGO BANK, N.A.
AS TRUSTEE
$125,000,000
11% SENIOR SUBORDINATED NOTES DUE 2006
INDENTURE
Dated as of October 30, 1996
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TABLE OF CONTENTS
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ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE
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SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Other Definitions . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 1.03. Incorporation by Reference of TIA . . . . . . . . . . . . . . . 16
SECTION 1.04. Rules of Construction . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 2 THE NOTES
SECTION 2.01. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.02. Execution and Authentication; Authentication Agent . . . . . . . 18
SECTION 2.03. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . 19
SECTION 2.04. Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . 19
SECTION 2.05. Holder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.06. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.07. Book-entry Provisions for Global Notes . . . . . . . . . . . . . 21
SECTION 2.08. Special Transfer Provisions . . . . . . . . . . . . . . . . . . 22
SECTION 2.09. Replacement Notes . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 2.10. Outstanding Notes . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 2.11. Treasury Notes . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 2.12. Temporary Notes . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 2.13. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.14. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.15. Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.16. CUSIP and CINS Numbers . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 3 REDEMPTIONS AND OFFERS TO PURCHASE
SECTION 3.01. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 3.02. Selection of Notes to Be Redeemed or Purchased . . . . . . . . . 26
SECTION 3.03. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 3.04. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . 27
SECTION 3.05. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . 27
SECTION 3.06. Notes Redeemed in Part . . . . . . . . . . . . . . . . . . . . . 27
SECTION 3.07. Redemption Provisions . . . . . . . . . . . . . . . . . . . . . 27
SECTION 3.08. Mandatory Offers . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 4 COVENANTS
SECTION 4.01. Payment of Notes . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.02. Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.03. Compliance Certificate . . . . . . . . . . . . . . . . . . . . . 30
SECTION 4.04. Stay, Extension and Usury Laws . . . . . . . . . . . . . . . . . 30
SECTION 4.05. Limitation on Restricted Payments . . . . . . . . . . . . . . . 31
SECTION 4.06. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 4.07. Limitation on Incurrence of Indebtedness and on
Issuance of Preferred Stock . . . . . . . . . . . . . . . . . . 34
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SECTION 4.08. Limitation on Transactions with Affiliates . . . . . . . . . . . . . . . . . 36
SECTION 4.09. Limitations on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 4.10. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 4.11. Dividends and Other Payment Restrictions Affecting Subsidiaries . . . . . . 37
SECTION 4.12. Maintenance of Office or Agencies . . . . . . . . . . . . . . . . . . . . . 38
SECTION 4.13. Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 4.14. Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 4.15. Additional Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 4.16. Senior Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE 5 SUCCESSORS
SECTION 5.01. Limitation on Merger, Consolidation and Sale of Assets . . . . . . . . . . . 40
ARTICLE 6 DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 6.02. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 6.03. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 6.04. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 6.05. Control by Majority of Holders . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.06. Limitations on Suits by Holders . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.07. Rights of Holders to Receive Payment . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.08. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.09. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE 7 TRUSTEE
SECTION 7.01. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 7.02. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 7.03. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 7.04. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 7.05. Notice to Holders of Defaults and Events of Default . . . . . . . . . . . . 47
SECTION 7.06. Reports by Trustee to Holders . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 7.07. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 7.08. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 7.09. Successor Trustee by Merger, Etc . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 7.11. Preferential Collection of Claims Against Company . . . . . . . . . . . . . 48
ARTICLE 8 DISCHARGE OF INDENTURE
SECTION 8.01. Discharge of Liability on Notes; Defeasance . . . . . . . . . . . . . . . . 49
SECTION 8.02. Conditions to Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 8.03. Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 8.04. Repayment to Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
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SECTION 8.05. Indemnity for Government Securities . . . . . . . . . . . . . . . . . . . . . 51
SECTION 8.06. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE 9 AMENDMENTS
SECTION 9.01. Amendments and Supplements Permitted without Consent of Holders . . . . . . . 51
SECTION 9.02. Amendments and Supplements Requiring Consent of Holders . . . . . . . . . . . 51
SECTION 9.03. Compliance with TIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 9.04. Revocation and Effect of Consents . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 9.05. Notation or Exchange of Notes . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 9.06. Trustee Protected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 9.07. Amendments Requiring Consent of Holders of Senior Debt . . . . . . . . . . . . 53
ARTICLE 10 SUBORDINATION
SECTION 10.01. Agreement to Subordinate . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 10.02. Liquidation; Dissolution; Bankruptcy . . . . . . . . . . . . . . . . . . . . 53
SECTION 10.03. Default on Senior Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 10.04. Acceleration of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 10.05. When Distributions Must Be Paid Over . . . . . . . . . . . . . . . . . . . . 55
SECTION 10.06. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 10.07. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 10.08. Relative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 10.09. The Company and Holders May Not Impair Subordination . . . . . . . . . . . . 56
SECTION 10.10. Distribution or Notice to Representative . . . . . . . . . . . . . . . . . . 57
SECTION 10.11. Rights of Trustee and Paying Agent . . . . . . . . . . . . . . . . . . . . . 57
SECTION 10.12. Authorization to Effect Subordination . . . . . . . . . . . . . . . . . . . . 57
SECTION 10.13. Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE 11 SUBSIDIARY GUARANTEE
SECTION 11.01. Subsidiary Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 11.02. Trustee to Include Paying Agent . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 11.03. Subordination of Subsidiary Guarantee . . . . . . . . . . . . . . . . . . . . 58
SECTION 11.04. Senior Subordinated Debt of Subsidiary Guarantor . . . . . . . . . . . . . . 59
SECTION 11.05. Limits of Subsidiary Guarantee . . . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE 12 MISCELLANEOUS
SECTION 12.01. Trustee Indenture Act Controls . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 12.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 12.03. Communication by Holders with Other Holders . . . . . . . . . . . . . . . . . 60
SECTION 12.04. Certificate and Opinion As to Conditions Precedent . . . . . . . . . . . . . 61
SECTION 12.05. Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . 61
SECTION 12.06. Rules by Trustee and Agents . . . . . . . . . . . . . . . . . . . . . . . . . 61
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SECTION 12.07. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 12.08. No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 12.09. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 12.10. Initial Appointments, Compliance Certificates . . . . . . . . . . . . . . . . . 61
SECTION 12.11. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 12.12. No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . 61
SECTION 12.13. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 12.14. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 12.15. Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 12.16. Table of Contents, Headings, Etc . . . . . . . . . . . . . . . . . . . . . . . 62
</TABLE>
EXHIBIT A Form of Note
EXHIBIT B Form of Accredited Investor Letter
EXHIBIT C Form of Regulation S Certificate
<PAGE> 6
THIS INDENTURE, dated as of October 30, 1996, is by and among CSK
AUTO, INC., an Arizona corporation, the issuer of the Notes referred to below,
KRAGEN AUTO SUPPLY CO., a California corporation and SCHUCK'S DISTRIBUTION CO.,
a Washington corporation, as Subsidiary Guarantors, and WELLS FARGO BANK, N.A.,
as Trustee.
The Company, the Subsidiary Guarantors and the Trustee agree as
follows for the benefit of each other and for the equal and ratable benefit of
the holders of the Notes:
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
"Acquired Person" means, with respect to any specified Person, any
other Person acquired by such specified Person, whether by purchase, merger,
consolidation, other business combination or otherwise.
"Acquired Indebtedness" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness Incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person and existing at the
time such asset is so acquired.
"Acquisition" means the acquisition by the Initial Investcorp Group
from Carmel Trust of a 51% interest in Holdings, as contemplated under the
Stock Purchase Agreement.
"Additional Assets" means (i) any property or assets to be used by the
Company or a Subsidiary in a Related Business, (ii) the Capital Stock of a
Person that becomes a Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Subsidiary or (iii) Capital Stock constituting
a minority of interest in any Person that at such time is a Subsidiary;
provided that, in the case of clauses (ii) and (iii), such Subsidiary is
engaged in a Related Business.
"Affiliate" of any specified Person means (i) any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person and (ii) any Person who is a director
or officer (A) of such Person, (B) of any Subsidiary of such Person or (C) of
any Person described in clause (i) above. For purposes of this
<PAGE> 7
definition, "control" (including, with correlative meanings, the terms
"controlling", "controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by agreement
or otherwise; provided that beneficial ownership of 10% or more of the voting
securities of a Person shall be deemed to be control.
"Agent" means any Registrar, Paying Agent, or co-registrar appointed
pursuant to Section 2.03.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition that does not constitute a Restricted Payment or an Investment by
such Person of any of its non-cash assets (including, without limitation, by
way of a sale and leaseback and including the issuance, sale or other transfer
of any of the Capital Stock of any Subsidiary of such Person (other than
directors' qualifying shares)) other than to the Company or to any of its
Wholly Owned Subsidiaries that is a Subsidiary Guarantor and (ii) the issuance
of Equity Interests in any Subsidiary or the sale of any Equity Interests of
any Subsidiary (other than directors' qualifying shares), in each case, in one
or a series of related transactions of or with respect to assets or Equity
Interests that have a fair market value of $1.5 million or more.
Notwithstanding the foregoing, the term "Asset Sale" shall not include: (A) the
sale, lease, conveyance, disposition or other transfer of all or substantially
all of the assets of the Company, as permitted pursuant to Section 5.01, (B)
the sale or lease of equipment, inventory, accounts receivable or other assets
in the ordinary course of business, (C) a transfer of assets by the Company to
a Wholly Owned Subsidiary that is a Subsidiary Guarantor or by a Wholly Owned
Subsidiary to the Company or to another Wholly Owned Subsidiary that is a
Subsidiary Guarantor or by a Wholly Owned Subsidiary that is not a Subsidiary
Guarantor to another Wholly Owned Subsidiary that is not a Subsidiary
Guarantor, (D) an issuance of Equity Interests by a Wholly Owned Subsidiary to
the Company or to another Wholly Owned Subsidiary that is a Subsidiary
Guarantor, or by a Wholly Owned Subsidiary that is not a Subsidiary Guarantor
to another Wholly Owned Subsidiary that is not a Subsidiary Guarantor, (E) the
surrender or waiver of contract rights or the settlement, release or surrender
of contract, tort or other claims of any kind, (F) the grant in the ordinary
course of business of any non-exclusive license of patents, trademarks,
registrations therefor and other similar intellectual property or (G) Permitted
Investments.
"Bankruptcy Code" means Title 11 of the United States Code, as
amended.
"Bankruptcy Law" means the Bankruptcy Code or any similar federal or
state law for the relief of debtors.
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<PAGE> 8
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person, or any authorized committee of the Board of Directors
of such Person.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital
lease that would at such time be required to be capitalized on a balance sheet
in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person, but
in each case excluding any debt securities convertible into such stock,
interests or other equivalents.
"Carmel Trust" means The Carmel Trust, a trust governed by the laws of
Canada, so long as the beneficiaries of such Trust are the named beneficiaries
of the Trust on the Closing Date or the beneficiaries that may be designated as
such pursuant to the terms of the agreement pursuant to which the Trust was
established, as such agreement is in effect as of the Closing Date.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States or any agency or instrumentality
thereof (provided that the full faith and credit of the United States is
pledged in support thereof) having maturities not more than twelve months from
the date of acquisition, (ii) U.S. dollar denominated (or foreign currency
fully hedged) time deposits, certificates of deposit, Eurodollar time deposits
or Eurodollar certificates of deposit of (A) any domestic commercial bank of
recognized standing having capital and surplus in excess of $500 million or (B)
any bank whose short-term commercial paper rating from S&P is at least A-1 or
the equivalent thereof or from Moody's is at least P-1 or the equivalent
thereof (any such bank being an "Approved Lender"), in each case with
maturities of not more than twelve months from the date of acquisition, (iii)
commercial paper and variable or fixed rate notes issued by any Approved Lender
(or by the parent company thereof) or any variable rate notes issued by, or
guaranteed by, any domestic corporation rated A-2 (or the equivalent thereof)
or better by S&P or P-2 (or the equivalent thereof) or better by Moody's and
maturing within twelve months of the date of acquisition, (iv) repurchase
agreements with a bank or trust company or recognized securities dealer having
capital and surplus in excess of $500 million for direct
3
<PAGE> 9
obligations issued by or fully guaranteed by the United States on which the
Company shall have a perfected first priority security interest (subject to no
other Liens) and having, on the date of purchase thereof, a fair market value
of at least 100% of the amount of repurchase obligations and (v) interests in
money market mutual funds which invest solely in assets or securities of the
type described in subparagraphs (i), (ii), (iii) or (iv) hereof.
"Change of Control" means such time as (i) any "person" (as such term
is used in Sections 13(d) and 14(d) of the Exchange Act), other than the
Initial Control Group, is or becomes the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all shares that any such person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than 35% of the
total voting power of the voting Capital Stock of the Company or Holdings, as
the case may be; provided that the Initial Control Group "beneficially owns"
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, in the aggregate a lesser percentage of the total voting power of
the voting Capital Stock of the Company or Holdings, as the case may be, than
such other person and does not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the
board of directors of the Company or Holdings, as the case may be (for purposes
of this definition, such other person shall be deemed to beneficially own any
voting Capital Stock of a specified corporation held by a parent corporation,
if such other person "beneficially owns" (as defined in this definition),
directly or indirectly, more than 35% of the voting power of the voting Capital
Stock of such parent corporation and the Initial Control Group "beneficially
owns" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, in the aggregate a lesser percentage of the voting power of the
voting Capital Stock of such parent corporation and does not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the board of directors of such parent corporation) or
(ii) any Person (other than the Initial Control Group) (A) nominates one or
more individuals for election to the board of directors of the Company or
Holdings, as the case may be, (B) solicits proxies, authorizations or consents
in connection therewith and (C) such number of nominees of such Person elected
to serve on the board of directors in such election and all previous elections
after the Closing Date and which are still serving on such board of directors
Date represents a majority of the board of directors of the Company or
Holdings, as the case may be, following such election.
"Closing Date" means the date on which the Notes are originally issued
under this Indenture.
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<PAGE> 10
"Company" means CSK Auto, Inc., an Arizona corporation, unless and
until a successor replaces it in accordance with Article 5 and thereafter means
such successor.
"Consolidated EBITDA" means, for any period, the sum, without
duplication, of (i) Consolidated Net Income of the Company for such period,
plus (ii) Fixed Charges of the Company for such period, plus (iii) provision
for taxes based on income or profits for such period (to the extent such income
or profits were included in computing such Consolidated Net Income for such
period), plus (iv) consolidated depreciation, amortization and other non-cash
charges of the Company and its Subsidiaries required to be reflected as
expenses on the books and records of the Company, plus (v) to the extent
deducted in determining such Consolidated Net Income for such period, expenses
during such period consisting of internal software development costs that are
expensed by the Company but that could have been capitalized during such period
in accordance with GAAP and minus (vi) cash payments with respect to any
non-recurring, non-cash charges previously added back pursuant to clause (iv);
provided that Consolidated Net Income shall exclude the impact of foreign
currency translations. Notwithstanding the foregoing, the provision for taxes
based on the income or profits of, and the depreciation and amortization and
other non-cash charges of, a Subsidiary of a Person shall be added to
Consolidated Net Income to compute Consolidated EBITDA only to the extent (and
in the same proportion) that the Net Income of such Subsidiary was included in
calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Subsidiary without prior approval (that has
not been obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockbrokers.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Wholly Owned Subsidiary thereof, (ii) Net
Income of any Subsidiary shall be excluded to the extent that the declaration
or payment of dividends or similar distributions by that Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (which has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
that Subsidiary or its stockholders, (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the
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<PAGE> 11
date of such acquisition shall be excluded, (iv) the cumulative effect of a
change in accounting principles (effected either through cumulative effect
adjustment or a retroactive application) shall be excluded, (v) the Net Income
of, or any dividends or other distributions from, any Unrestricted Subsidiary,
to the extent otherwise included, shall be excluded, except to the extent
actually distributed to the Company or one of its Subsidiaries, (vi) all other
extraordinary gains and extraordinary losses shall be excluded and (vii) any
payments (net of tax benefits related thereto) made by the Company under
clauses (vii) (A) through (F) of section 4.05(b), to the extent that such
payments are for items which are accounted for as expenses by Holdings
(including, without limitation, all payments of federal, state and local income
taxes), shall be included.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that
by its terms is not entitled to the payment of dividends unless such dividends
may be declared and paid only out of net earnings in respect of the year of
such declaration and payment, but only to the extent of any cash received by
such Person upon issuance of such preferred stock, less (A) all write-ups
(other than write-ups resulting from foreign currency translations and
write-ups of tangible assets of going concern business made within 12 months
after the acquisition of such business) subsequent to the Closing Date in the
book value of any asset owned by such Person or a consolidated Subsidiary of
such Person, (B) all investment as of such date in unconsolidated Subsidiaries
and in Persons that are not Subsidiaries (except, in each case, Permitted
Investments), and (C) all unamortized debt discount and expense and unamortized
deferred charges as of such date, all of the foregoing determined in accordance
with GAAP.
"Corporate Trust Office" shall be at the address of the Trustee
specified in Section 12.02 or such other address as the Trustee may give notice
to the Company.
"Credit Facility Agent" means The Chase Manhattan Bank in its
capacity as agent for the lenders who are party to the Senior Credit Facility,
or any successor or successors thereto of whom the Trustee has received notice.
"Custodian" means any custodian, receiver, trustee, assignee,
liquidator or similar official under any Bankruptcy Law.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
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<PAGE> 12
"Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, The Depository Trust Company, until a
successor shall have been appointed and become such Depositary pursuant to the
applicable provisions hereof, and, thereafter, "Depositary" shall mean or
include such successor.
"Designated Senior Indebtedness" means (i) so long as the Senior Bank
Debt is outstanding, the Senior Bank Debt and (ii) thereafter, any other Senior
Indebtedness permitted under this Indenture the principal amount of which is
$10 million or more and that has been designated by the Company in the
instrument or agreement governing such Senior Indebtedness as "Designated
Senior Indebtedness".
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the Holder thereof, in whole or in part, on or prior to the
date on which the Notes mature.
"DLJ" means Donaldson, Lufkin & Jenrette Securities Corporation.
"Dollars" and "$" means lawful money of the United States of America.
"Domestic Subsidiary" means a subsidiary of the Company (i)
substantially all of whose assets are located in the United States or (ii) that
conducts substantially all of its business in the United States.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means an underwritten public offering of Equity
Interests of the Company other than Disqualified Stock pursuant to a
registration statement filed with the SEC in accordance with the Securities
Act.
"Exchange Act" means the Notes Exchange Act of 1934, as amended.
"Exchange Offer" means the offer that may be made by the Company
pursuant to the Registration Rights Agreement to exchange New Notes for the
Notes.
"Exchange Offer Registration Statement" shall mean a registration
statement relating to an Exchange Offer on an appropriate form and all
amendments and supplements to such
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<PAGE> 13
registration statement, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"Existing Indebtedness" means the Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Senior Credit Facility) in
existence on the Closing Date, until such amounts are repaid.
"Existing Preferred Stock" means the 12% preferred stock of the
Company issued and outstanding on the Closing Date, and any extensions,
refinancings, renewals or replacements thereof (the "Refinancing Preferred
Stock"); provided that (i) the aggregate liquidation preference of such
Refinancing Preferred Stock does not exceed the aggregate liquidation
preference of the Existing Preferred Stock and (ii) the dividend rate per annum
of such Refinancing Preferred Stock does not exceed the dividend rate per annum
of the Existing Preferred Stock.
"Fixed Charges" means, for any period, the sum, without duplication,
of (i) the consolidated interest expense of the Company and its Subsidiaries
for such period, whether paid or accrued (including, without limitation,
amortization or original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financing, and net payments (if any) pursuant to Hedging
Obligations (but excluding commitment fees and other periodic bank charges)),
(ii) the consolidated interest expense of the Company and its Subsidiaries that
was capitalized during such period, (iii) the interest expense on Indebtedness
of another Person that is Guaranteed by the Company or one of its Subsidiaries
or secured by a Lien on assets of the Company or one of its Subsidiaries
(whether or not such Guarantee or Lien is called upon) and (iv) the product of
(A) all cash dividend payments (and non-cash dividend payments in the case of a
Person that is a Subsidiary) on any series of preferred stock (other than the
Existing Preferred Stock) of such Person payable to a party other than the
Company or a Wholly Owned Subsidiary, times (B) a fraction, the numerator of
which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of such Person, expressed
as a decimal, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means, for any period, the ratio of (i)
Consolidated EBITDA to (ii) Fixed Charges, each determined for such period. In
the event that the Company or any of its Subsidiaries incurs, assumes,
Guarantees or redeems any Indebtedness (other than revolving credit borrowings)
or issues preferred stock subsequent to the commencement of the four-quarter
reference period for which the Fixed Charge Coverage Ratio is being calculated
but prior to the date on which the
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<PAGE> 14
event for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), which Indebtedness or preferred stock remains outstanding
on the Calculation Date, then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, Guarantee or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
and to the discharge of any other Indebtedness or preferred stock repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new
Indebtedness or preferred stock, as if the same had occurred at the beginning
of the applicable four-quarter reference period. For purposes of making the
computation referred to above, (A) acquisitions that have been made by the
Company or any of its Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have occurred on the first day of the
four-quarter reference period, and (B) the Consolidated EBITDA attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded and
(C) the Fixed Charges attributable to discontinued operations, as determined in
accordance with GAAP, and operations or business disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the
obligations giving rise to such Fixed Charges will not be obligations of the
Company or any of its Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles, as in effect
from time to time, set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as have been
approved by a significant segment of the accounting profession. All ratios and
computations based on GAAP contained in this Indenture shall be computed in
conformity with GAAP as in effect on the Closing Date.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States of America is
pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor Senior Indebtedness" means (i) any Guarantees by the
Subsidiary Guarantors of the Senior Bank Debt and (ii) any other Indebtedness
permitted to be Incurred by the Subsidiary Guarantors under the terms of this
Indenture, unless the
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<PAGE> 15
instrument under which such Indebtedness is Incurred expressly provides that it
is on a parity with or subordinated in right of payment to the Subsidiary
Guarantees. Notwithstanding anything to the contrary in the foregoing,
Guarantor Senior Indebtedness will not include (A) any liability for federal,
state, local, or other taxes owed or owing by the Subsidiary Guarantors, (B)
any Indebtedness of the Subsidiary Guarantors to any of their Subsidiaries or
other Affiliates, (C) any trade payables or (D) any Indebtedness that is
Incurred in violation of this Indenture.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Holder" means a Person in whose name a Note is registered on the
Registrar's books.
"Holdings" means CSK Group, Ltd., a Delaware corporation, and its
successors.
"Holdings Notes" means the 12% senior subordinated notes of Holdings
due 2008, issued pursuant to (i) an indenture dated on or about the Closing
Date, between Holdings and AIBC Services, N.V., as trustee, and (ii) an
indenture dated on or about the Closing Date, between Holdings and
Transatlantic, as trustee, as the same may be refinanced, extended or renewed
from time to time without increasing the principal amount thereof or interest
rate with respect thereto.
"Incur" means, with respect to any Indebtedness or other Obligation,
directly or indirectly, to create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable for such Indebtedness or other Obligation.
For this definition, the terms "Incurring", "Incurrence" and "Incurred" have
meanings correlative to the foregoing.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of such Person (whether
or not such indebtedness is assumed by such Person) and, to the extent not
otherwise
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<PAGE> 16
included, the Guarantee by such Person of any indebtedness of any other Person.
"Indenture" means this Indenture as amended or supplemented from time
to time.
"Initial Control Group" means (i) Investcorp, (ii) members of the
Management Group, (iii) any Person to the extent acting in the capacity of an
underwriter in connection with a public or private offering of the Company's or
Holding's Capital Stock and (iv) any Affiliate of Investcorp.
"Initial Investcorp Group" means Investcorp and the other entities
listed as "purchasers" on the Stock Purchase Agreement.
"Insolvency or Liquidation Proceeding" means, with respect to any
Person, (i) any insolvency or bankruptcy or similar case or proceeding, or any
reorganization, receivership, liquidation, dissolution or winding up of such
Person, whether voluntary or involuntary, or (ii) any assignment for the
benefit of creditors or any other marshalling of assets and liabilities of such
Person.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act.
"Interest Differential" means, with respect to any Insolvency or
Liquidation Proceeding involving the Company, the difference between the rate
of interest on the Notes and the rate of interest on the Senior Bank Debt
immediately prior to the commencement of such Insolvency or Liquidation
Proceeding, excluding in each case any increase in the rate of interest
resulting from any Default or Event of Default.
"Interest Payment Date" shall have the meaning set forth in the Notes.
"Investcorp" means INVESTCORP S.A., a Luxembourg corporation.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the form of direct or
indirect loans including Guarantees and other Indebtedness, advances or capital
contributions (excluding commission, payroll, travel, loans and similar
advances to officers and employees, accounts receivable and bank demand
deposits, in each case made or arising in the ordinary course of business),
transfers of assets outside the ordinary course of business (other than Asset
Sales), purchases, redemptions or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities issued by any other Person
(including, without limitation, any Indebtedness, Equity Interest or other
securities of the direct or indirect
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<PAGE> 17
parent of the Company or other Affiliate of the Company) and all other items
that are or would be classified as investments on a balance sheet prepared in
accordance with GAAP; provided that an acquisition of assets, Equity Interests
or other securities by the Company for consideration consisting of common
equity securities of the Company shall not be deemed to be an Investment.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York, the State of Arizona or at a place of
payment are authorized by law, regulation or executive order to remain closed.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease
in the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Liquidated Damages" means all liquidated damages then owing pursuant
to the Registration Rights Agreement.
"Management Group" means any Officer of the Company or Holdings.
"Merrill" means Merrill Lynch, Pierce, Fenner & Smith Incorporated.
"Net Income" means for any period with respect to any Person, the net
income (loss) of such Person for such period, determined in accordance with
GAAP and before any reduction in respect of preferred stock dividends, plus, in
each case, to the extent deducted in determining net income for such period,
any expenses incurred in connection with the Acquisition and any payments made
under the equity participation program resulting from the Acquisition,
excluding, however, (i) any gain (but not loss), together with any related
provision for taxes on such gain (but not loss), realized in connection with
(A) any Asset Sale (including, without limitation, dispositions pursuant to
sale and leaseback transactions) or (B) the disposition of any securities by
such Person or any of its Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Subsidiaries and (ii) any
extraordinary or nonrecurring gain (but not loss), together with any related
provision for taxes on such extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received
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in any Asset Sale and any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only
as and when received, and excluding any other consideration received in the
form of assumption by the acquiring person of Indebtedness or other obligations
relating to the assets that are the subject of such Asset Sale or received in
any other non-cash form), net of the direct costs relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees,
title and recording tax expenses and other fees and expenses Incurred and sales
commissions) and any relocation expenses Incurred as a result thereof, all
Federal, state, local and foreign taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements), all payments made on any Indebtedness that is secured by
any assets subject to such Asset Sale, in accordance with the terms of any Lien
upon such assets, or that must by its terms, or in order to obtain a necessary
consent to such Asset Sale, or by application of law be repaid out of the
proceeds from such Asset Sale, all distributions and other payments required to
be made to minority interest holders in Subsidiaries or joint ventures as a
result of such Asset Sale and any reserve for adjustment in respect of the sale
price of such asset or assets established in accordance with GAAP.
"New Notes" means any notes of the Company to be offered to Holders in
exchange for Notes pursuant to the Exchange Offer or otherwise pursuant to a
Registration of Notes containing terms identical to the Notes for which they
are exchanged (except as set forth in the form of Note attached hereto).
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any of its Subsidiaries (A) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (B) is directly or indirectly liable (as a guarantor or
otherwise), or (C) constitutes the lender, (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity and (iii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Subsidiaries.
"Non-U.S. Person" means a person that is not a U.S. person, as
defined in Regulation S.
"Notes" means the Company's 11% Senior Subordinated Notes due 2006
issued under this Indenture, and includes the New Notes.
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"Obligations" means, with respect to any Indebtedness, any principal,
interest, penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing such Indebtedness.
"Offer" means a Change of Control Offer or an Asset Sale Offer, as the
context requires. "Offer Period" means a Change of Control Offer Period as an
Asset Sale Offer Period, as the context requires.
"Offering Memorandum" means the Offering Memorandum dated October 23,
1996, in the form used in connection with the original sale of the Notes.
"Officer" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller,
the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed by two Officers of
the Company that complies with the requirements of this Indenture.
"Opinion of Counsel" means a written opinion from legal counsel (such
counsel may be an employee of or counsel to the Company or the Trustee) that
complies with the requirements of this Indenture.
"Permitted Investments" means (i) any Investments in the Company or in a
Subsidiary of the Company that is a Subsidiary Guarantor and that is engaged in
a Related Business, (ii) any Investment in Cash Equivalents, (iii) Investments
by the Company or any Subsidiary of the Company in a Person if as a result of
such Investment (A) such Person becomes a Subsidiary of the Company that is
engaged in a Related Business or (B) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Subsidiary of the Company
that is a Subsidiary Guarantor and that is engaged in a Related Business, (iv)
Investments made as a result of the receipt of non- cash consideration from an
Asset Sale that was made pursuant to and in compliance with Section 4.14, (v)
Investments outstanding as of the Closing Date, (vi) Investments in the form of
promissory notes of members of the Company's or Holdings' management in
consideration of the purchase by such members of Equity Interests (other than
Disqualified Stock) in the Company or Holdings; provided that such Investments
made under this clause (vi) do not exceed $8 million at any time outstanding,
(vii) Investments which constitute Indebtedness permitted by Section 4.07,
(viii) stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to the Company or any Subsidiary or
in satisfaction of judgments and
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(ix) other Investments in any Person that do not exceed $5 million at any time
outstanding.
"Permitted Liens" means (i) Liens securing Senior Indebtedness in an
aggregate principal amount at any time outstanding not to exceed amounts
permitted under Section 4.07, (ii) Liens in favor of the Company, (iii) Liens
on property of a Person existing at the time such Person is merged into or
consolidated with the Company or any Subsidiary of the Company; provided that
such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company, (iv) Liens on property existing
at the time of acquisition thereof by the Company or any Subsidiary of the
Company; provided that such Liens were in existence prior to the contemplation
of such acquisition, (v) Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other obligations of
a like nature Incurred in the ordinary course of business, (vi) Liens existing
on the Closing Date, (vii) Liens for taxes, assessments or governmental charges
or claims that are not yet delinquent or that are being contested in good faith
by appropriate proceedings promptly instituted and diligently concluded;
provided that any reserve or other appropriate provision as shall be required
in conformity with GAAP shall have been made therefor, (viii) carriers',
warehousemen's, mechanics', landlords', materialmen's, repairmen's or other
like Liens arising in the ordinary course of business in respect of obligations
that are not yet due or that are bonded or that are being contested in good
faith and by appropriate proceedings if adequate reserves with respect thereto
are maintained on the books of the Company or such Subsidiary, as the case may
be, in accordance with GAAP, (ix) Liens Incurred or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security, (x) easements,
rights- of-way, restrictions, minor defects or irregularities in title and
other similar charges or encumbrances not interfering in any material respect
with the business of the Company or any of its Subsidiaries, (xi) Purchase
Money Liens (including extensions and renewals thereof), (xii) Liens securing
reimbursement obligations with respect to letters of credit which encumber only
documents and other property relating to such letters of credit and the
products and proceeds thereof, (xiii) judgment and attachment Liens not giving
rise to an Event of Default, (xiv) Liens encumbering deposits made to secure
obligations arising from statutory, regulatory, contractual or warranty
requirements, (xv) Liens arising out of consignment or similar arrangements for
the sale of goods, (xvi) any interest or title of a lessor in property subject
to any capital lease obligation or operating lease, (xvii) Liens arising from
filing Uniform Commercial Code financing statements regarding leases, (xviii)
leases or subleases to third parties, (xix) Liens on assets of Subsidiaries
with respect to Acquired Indebtedness and (xx) any condemnation or eminent
domain proceedings affecting any real property.
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"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries; provided that: (i) the
principal amount of such Permitted Refinancing Indebtedness does not exceed the
principal amount of the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses Incurred
in connection therewith), (ii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is pari passu or subordinated in right
of payment to the Notes, such Permitted Refinancing Indebtedness has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded, (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Notes, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is subordinated in
right of payment to, the Notes on terms at least as favorable to the Holders of
Notes as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded and (iv) such
Indebtedness is Incurred either by the Company or by the Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof (including any subdivision or ongoing business of any such
entity or substantially all of the assets of any such entity, subdivision or
business).
"Post-Petition Interest" means, with respect to any Indebtedness of
any Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person in
accordance with and at the rate specified in such Indebtedness, whether or not
such interest is an allowed claim enforceable against such Person in a
bankruptcy case under Title 11 of the United States Code.
"Preferred Stock" as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) that is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Private Placement Legend" means the legend initially set forth on the
Notes in the form set forth in Section 2.01(a).
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"Purchase Date" means the Change of Control Purchase Date or the Asset
Sale Purchase Date, as the context requires.
"Purchase Money Lien" means a Lien granted on an asset or property to
secure a Purchase Money Obligation permitted to be Incurred under this
Indenture and Incurred solely to finance the acquisition of such asset or
property; provided that such Lien encumbers only such asset or property and is
granted within 180 days of such acquisition.
"Purchase Money Obligations" of any Person means any obligations of
such Person to any seller or any other Person Incurred or assumed to finance
the acquisition of real or personal property to be used in the business of such
Person or any of its Subsidiaries in an amount that is not more than 100% of
the cost of such property, and Incurred within 180 days after the date of such
acquisition (excluding accounts payable to trade creditors Incurred in the
ordinary course of business).
"QIB" means a "qualified institutional buyer" as defined in Rule
144A.
"Record Date" has the meaning set forth in the Notes.
"Registration" means a registered exchange offer for the Notes by the
Company or other registration of the Notes under the Securities Act pursuant to
and in accordance with the terms of the Registration Rights Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Closing Date, by and among the Company, the
Subsidiary Guarantors, DLJ and Merrill, as such agreement may be amended,
modified or supplemented from time to time.
"Registration Statement" means the Registration Statement pursuant to
and as defined in the Registration Rights Agreement.
"Regulation S" means Regulation S under the Securities Act.
"Related Business" means those businesses in which the Company or any
of its Subsidiaries are engaged on the Closing Date, any businesses incidental
thereto and any reasonable extensions or expansions thereof.
"Reorganization Securities" means, with respect to any Insolvency or
Liquidation Proceeding involving the Company, Capital Stock or any other
securities of the Company as reorganized or readjusted (or Capital Stock or any
other securities of any other Person provided for by a plan of reorganization
or readjustment) that are subordinated, at least to the same extent as the
Notes, to the payment of all outstanding Senior Indebtedness after giving
effect to such plan of reorganization or readjustment; provided, however, that
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(i) the Notes shall not be treated in any case or proceeding or other event
described above as part of the same class of claims as the Senior Indebtedness
or any class of claim on a parity with or senior to the Senior Indebtedness for
any payment or distribution, (ii) such securities are subordinated at least to
the same extent as the Notes to Senior Indebtedness of the Company and any
securities issued in exchange for such Senior Indebtedness and (iii) such
securities are authorized by an order or decree of a court of competent
jurisdiction in a reorganization proceeding under any applicable bankruptcy,
insolvency or similar law which gives effect to the subordination of the Notes
to Senior Indebtedness in a manner and with an effect which would be required
if this proviso were not included in this paragraph; provided further that the
Senior Indebtedness is assumed by the new corporation, if any, resulting from
any such reorganization or readjustment and issuing such securities.
"Representative" means, with respect to any Senior Indebtedness, the
indenture trustee or other trustee, agent or other representative(s), if any,
of holders of such Senior Indebtedness.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Rule 144A" means Rule 144A under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Bank Debt" means the Indebtedness outstanding under the Senior
Credit Facility as such agreement may be restated, further amended,
supplemented or otherwise modified, waived or replaced from time to time
hereafter, together with any refunding or replacement of such Indebtedness.
"Senior Credit Facility" means the Senior Credit Facility dated on or
about the Closing Date among the Company, the lenders referred to therein and
The Chase Manhattan Bank, as administrative agent, including any related notes,
Guarantees, collateral documents, instruments and agreements executed in
connection therewith and in each case as amended, modified, waived, renewed,
refunded, replaced or refinanced from time to time.
"Senior Indebtedness" means (i) the Senior Bank Debt and (ii) any
other Indebtedness permitted to be Incurred by the Company under the terms of
this Indenture, unless the instrument under which such Indebtedness is Incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Notes. Notwithstanding anything to the contrary in the
foregoing, Senior Indebtedness shall not include (A) any
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<PAGE> 24
liability for federal, state, local or other taxes owed or owing by the
Company, (B) any Indebtedness of the Company to any of its Subsidiaries or
other Affiliates, (C) any trade payables or (D) any Indebtedness that is
Incurred in violation of this Indenture.
"Senior Revolving Debt" means revolving credit borrowings and letters
of credit under the Senior Credit Facility and/or any successor facility or
facilities.
"Senior Term Debt" means term loans under the Senior Credit Facility
and/or any successor facility or facilities.
"Shelf Registration Statement" shall mean a Shelf Registration
Statement of the Company pursuant to the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof; provided that "Significant Subsidiary" shall include any two or more
Subsidiaries which, if considered as a whole, would constitute a Significant
Subsidiary.
"Stock Purchase Agreement" means the Stock Purchase Agreement dated as
of September 29, 1996 among CSK Holdings, Ltd., Holdings, Carmel Trust and the
Initial Investcorp Group.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof). Unrestricted
Subsidiaries shall not be included in the definition of Subsidiary for any
purposes of this Indenture (except, as the context may otherwise require, for
purposes of the definition of "Unrestricted Subsidiary").
"Subsidiary Guarantee" means each of the Guarantees under Article 11
hereof of the Company's obligations under the Notes and related obligations
entered into by a Subsidiary Guarantor, either by way of being a party to this
Indenture on the Closing Date or by becoming a party hereto in accordance with
Section 4.15 or 5.01(b)(i).
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"Subsidiary Guarantors" means Kragen Auto Supply Co., a California
corporation and Schuck's Distribution Co., a Washington corporation and each
other Subsidiary that executes a Subsidiary Guarantee in accordance with the
provisions hereof, and their respective successors and assigns.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the Closing Date (except as otherwise provided in
Section 1.03 hereof).
"Transatlantic" means Transatlantic Finance, Ltd., an affiliate of
Carmel Trust.
"Trustee" means Wells Fargo Bank, N.A. until a successor replaces it
in accordance with the applicable provisions of this Indenture and thereafter
means such successor.
"Trust Officer" when used with respect to the Trustee means the
chairman or vice chairman of the board of directors, the chairman or vice
chairman of the executive committee of the board of directors, the president,
any vice president, the secretary, any assistant secretary, the treasurer, any
assistant treasurer, the cashier, any assistant cashier, any trust officer or
assistant trust officer, the controller and any assistant controller or any
other officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter
is referred because of his knowledge of and familiarity with the particular
subject.
"Unrestricted Subsidiary" means any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (A) has no
Indebtedness other than Non-Recourse Debt, (B) is not party to any agreement,
contract, arrangement or understanding with the Company or any Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Subsidiary than
those that might be obtained at the time from Persons who are not Affiliates of
the Company, (C) is a Person with respect to which neither the Company nor any
of its Subsidiaries has any direct or indirect obligation (x) to subscribe for
additional Equity Interests or (y) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results and (D) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any
of its Subsidiaries. Any such designation by the Board of Directors shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted under this Indenture. If, at any time, any
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Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary shall be deemed to be Incurred by a Subsidiary of the Company as of
such date (and, if such Indebtedness is not permitted to be Incurred as of such
date under this Indenture, the Company shall be in Default under this
Indenture). The Board of Directors of the Company may at any time designate
any Unrestricted Subsidiary to be a Subsidiary; provided that such designation
shall be deemed to be an Incurrence of Indebtedness by a Subsidiary of the
Company of any outstanding Indebtedness of such Unrestricted Subsidiary and
such designation shall only be permitted if (i) such Indebtedness is permitted
under this Indenture, and (ii) no Default or Event of Default would be in
existence following such designation.
"U.S. Person" has the meaning ascribed to it in Regulation S.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (A) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (B) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person.
Unrestricted Subsidiaries shall not be included in the definition of Wholly
Owned Subsidiary for any purposes of this Indenture (except, as the context may
otherwise require, for purposes of the definition of "Unrestricted
Subsidiary").
SECTION 1.02. Other Definitions.
Defined
Term in Section
"Affiliate Transaction" 4.08
"Agent Members" 2.07
"Asset Sale Offer" 4.14
"Asset Sale Offer Amount" 4.14
"Asset Sale Offer Period" 4.14
"Asset Sale Payment" 4.14
"Asset Sale Purchase Date" 4.14
"Asset Sale Trigger Date" 4.14
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"Certificated Note" 2.01(a)
"Change of Control Offer" 4.13
"Change of Control Offer Period" 4.13
"Change of Control Payment" 4.13
"Change of Control Purchase Date" 4.13
"Change of Control Trigger Date" 4.13
"Covenant Defeasance" 8.01
"Event of Default" 6.01
"Excess Proceeds" 4.14
"Global Note" 2.01(a)
"International" 4.05
"Legal Defeasance" 8.01
"Notice of Default" 6.01
"Offshore Certificated Note" 2.01(a)
"Offshore Securities Exchange Date 2.01(a)
"Paying Agent" 2.03
"Payment Blockage Notice" 10.03 and 11.03
"Payment Default" 6.01
"Real Estate Agreement" 4.08
"Regulation S Global Note" 2.01(a)
"Restricted Certificated Note" 2.01(a)
"Restricted Global Note" 2.01(a)
"Registrar" 2.03
"Restricted Payment" 4.05
"Trustee Expenses" 6.08
SECTION 1.03. Incorporation by Reference of TIA. Whenever this
Indenture refers to a provision of the TIA, the portion of the provision
required to be incorporated herein in order for this Indenture to be qualified
under the TIA is incorporated by reference in, and made a part of, this
Indenture. Any terms incorporated by reference in this Indenture that are
defined by the TIA, defined by the TIA by reference to another statute or
defined by the SEC in a rule under the TIA have the meanings so assigned to
them therein.
SECTION 1.04. Rules of Construction. Unless the context otherwise
requires: (1) a term has the meaning assigned to it in this Indenture; (2) an
accounting term not otherwise defined herein has the meaning assigned to it
under GAAP; (3) "or" is not exclusive; (4) words in the singular include the
plural, and in the plural include the singular; (5) provisions apply to
successive events and transactions; and (6) any reference to a Section or
Article refers to such Section or Article of this Indenture.
ARTICLE 2
THE NOTES
SECTION 2.01. Form and Dating. (a) The Notes and the certificate of
authentication of the Trustee or an authenticating agent appointed on its
behalf pursuant to Section 2.02 shall be
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substantially in the form of Exhibit A hereto, bearing such legends as are
required pursuant to this Section 2.01. The Notes may have notations, legends
or endorsements required by law, stock exchange rule or usage. Each Note shall
be dated the date of its authentication. The Notes shall be in denominations
of $1,000 principal amount and multiples thereof; provided that Notes will
initially be issued to Institutional Accredited Investors only in denominations
of $250,000 and any integral multiple of $1,000 in excess thereof.
The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and to the extent
applicable, the Company, the Subsidiary Guarantors and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A shall be issued
initially in the form of a single permanent Global Note in definitive, fully
registered form, without interest coupons, substantially in the form of Exhibit
A hereto, bearing such legends as are required pursuant to this Section 2.01
(the "Restricted Global Note"), deposited with the Trustee, as custodian for
the Depositary, duly executed by the Company and authenticated by the Trustee
as herein provided. The aggregate principal amount of the Restricted Global
Note may from time to time be increased or decreased by adjustments made on the
records of the Trustee, as custodian for the Depositary or its nominee, as
hereinafter provided.
Notes sold in offshore transactions in reliance on Regulation S under
the Securities Act will initially be represented by one or more permanent
global Notes in definitive, fully registered form without interest coupons
(each a "Regulation S Global Note") and will be deposited with the Trustee as
custodian for, and registered in the name of, the Depositary for the Global
Notes or a nominee of such Depositary, for the accounts of Euroclear and Cedel.
Prior to the commencement of the Exchange Offer or the effectiveness of the
Shelf Registration Statement with respect to the Notes, beneficial interests in
the Regulation S Global Note may only be held through Euroclear or Cedel, and
any resale or transfer of such interests to U.S. Persons shall not be permitted
during such period unless such resale or transfer is made pursuant to Rule 144A
or Regulation S under the Securities Act. The aggregate principal amount of the
Regulation S Global Note may from time to time be increased or decreased by
adjustments made on the records of the Trustee, as custodian for the nominee of
the Depositary for the Global Notes, for the accounts of Euroclear and Cedel,
as hereinafter provided.
Notes offered and sold to Institutional Accredited Investors shall be
issued in the form of permanent certificated Notes in definitive, fully
registered form, without interest coupons, in
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<PAGE> 29
substantially the form of Exhibit A hereto, bearing such legends as are
required pursuant to this Section 2.01 (the "Restricted Certificated Notes").
Notes issued pursuant to Sections 2.06, 2.07 and 2.08 in exchange for interests
in the Regulation S Global Note following the date that is 41 days after the
Closing Date (the "Offshore Securities Exchange Date") shall be in the form of
permanent certificated Notes in registered form substantially in the form of
Exhibit A hereto, bearing such legends as are required pursuant to this Section
2.01 (the "Offshore Certificated Notes").
The Offshore Certificated Notes and Restricted Certificated Notes are
sometimes collectively herein referred to as the "Certificated Notes". The
Restricted Global Note and the Regulation S Global Note are sometimes referred
to herein as the "Global Notes".
Unless and until a Note is exchanged for a New Note in connection with
an effective Registration pursuant to the Registration Rights Agreement, (i)
the Restricted Global Note and each Restricted Certificated Note shall bear the
following legend on the face thereof and (ii) the Regulation S Global Note
shall bear the legend set forth below on the face thereof until the Offshore
Securities Exchange Date:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT), (B) IT IS AN "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS
NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE
TRANSACTION, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD
REFERRED TO IN RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT WITH
RESPECT TO SUCH TRANSFER, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT
(A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED
STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER,
FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER
OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
TRUSTEE) AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE
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PRINCIPAL AMOUNT OF NOTES AT THE TIME OF TRANSFER OF LESS THAN
$250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER OF THIS NOTE
THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON
TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT
OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN
THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE
APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER
OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE
PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER
MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE ISSUER OF
THIS NOTE SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS
EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS
BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS
USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND
"U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE
TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF
THE FOREGOING RESTRICTIONS.
(b) Each Global Note, whether or not a New Note, shall also bear the
following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
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TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTIONS 2.06, 2.07 AND 2.08 OF THE
INDENTURE.
SECTION 2.02. Execution and Authentication; Authentication Agent.
Two Officers of the Company shall sign each Note for the Company by manual or
facsimile signature. If an Officer whose signature is on a Note no longer
holds that office at the time the Note is authenticated, the Note shall
nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature
of the Trustee, and the Trustee's signature shall be conclusive evidence that
the Note has been authenticated under this Indenture. The form of Trustee's
certificate of authentication to be borne by the Notes shall be substantially
as set forth in Exhibit A. The Trustee may appoint an authenticating agent
acceptable to the Company to authenticate the Notes. Unless limited by the
terms of such appointment, an authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company
or any of its Affiliates. If an appointment of an authenticating agent is made
pursuant to this Section 2.02, the Notes may have endorsed thereon, in lieu of
the Trustee's certificate of authentication, an alternative certificate of
authentication substantially in the form set forth in Exhibit A.
The Trustee shall, upon receipt of a written order signed by two
Officers of the Company, authenticate Notes for issuance on the Closing Date in
the aggregate principal amount of up to $125,000,000 (notwithstanding anything
to the contrary contained in this Indenture, the Notes or otherwise, the
aggregate principal amount of outstanding Notes may not exceed that amount at
any time, except as provided in Section 2.09).
SECTION 2.03. Registrar and Paying Agent. The Company shall maintain
an office or agency (the "Registrar") where Notes may be presented for
registration of transfer or for exchange (subject to Sections 2.06, 2.07 and
2.08) and an office or agency (the "Paying Agent") where Notes may be presented
for payment and an office or agency where notices to or upon the Company in
respect of the Notes or this Indenture may be served. The Registrar shall keep
a register of the Notes and of their transfer and exchange. The Company may
appoint one or more co-registrars and one or more additional paying agents.
The term "Paying Agent" includes any additional paying agent. The Company may
change the Paying Agent, Registrar or co-registrar without prior notice to any
Holder. The Company shall notify the Trustee and the Trustee
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shall notify the Holders of the name and address of any Agent not a party to
this Indenture. The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture, and such agreement shall
incorporate the provisions of the TIA and implement the provisions of this
Indenture that relate to such Agent.
The Company initially appoints the Trustee as Registrar (subject to
Section 2.06), Paying Agent and agent for service of notices and demands in
connection with the Notes. The Company or any of its Affiliates may act as
Paying Agent, Registrar or co-registrar. If the Company fails to appoint or
maintain a Registrar and/or Paying Agent, subject to Section 2.06, the Trustee
shall act as such, and shall be entitled to appropriate compensation in
accordance with Section 7.07.
SECTION 2.04. Paying Agent to Hold Money in Trust. The Company shall
require each Paying Agent other than the Trustee to agree in writing that the
Paying Agent will hold in trust for the Holders' benefit or the Trustee all
money the Paying Agent holds for the redemption or purchase of the Notes or for
the payment of principal of, or premium, if any, or interest on, the Notes, and
will notify the Trustee of any default by the Company in providing the Paying
Agent with sufficient funds to redeem or purchase Notes or make any payment on
the Notes as and to the extent required to be redeemed, purchased or paid under
the term of this Indenture. While any such default continues, the Trustee may
require the Paying Agent to pay all money it holds to the Trustee and account
for any funds disbursed. The Company at any time may require the Paying Agent
to pay all money it holds to the Trustee. Upon payment over to the Trustee,
the Paying Agent (if other than the Company or any of its Affiliates) shall
have no further liability for the money it delivered to the Trustee. If the
Company or any of its Subsidiaries acts as Paying Agent, it shall segregate and
hold in a separate trust fund for the Holders' benefit all money it holds as
Paying Agent.
SECTION 2.05. Holder Lists. The Trustee shall preserve in as current
a form as is reasonably practicable the most recent list available to it of the
names and addresses of Holders and shall otherwise comply with section 312(a)
of the TIA. If the Trustee is not the Registrar, the Company shall furnish to
the Trustee, at least 7 Business Days before each interest payment date and at
such other times as the Trustee may request in writing, a list in such form and
as of such date as the Trustee may reasonably require that sets forth the names
and addresses of, and the aggregate principal amount of Notes held by, each
Holder, and the Company shall otherwise comply with section 312(a) of the TIA.
SECTION 2.06. Transfer and Exchange. (a) The Company appoints the
Trustee as transfer and exchange agent for the purpose of any transfer or
exchange of the Notes.
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(b) None of the Company, the Trustee or the Registrar shall be
required to issue, register the transfer of or exchange any Note (i) during a
period beginning at the opening of business on the day that the Trustee
receives notice of any redemption from the Company pursuant to Section 3.03 and
ending at the close of business on the day the notice of redemption is sent to
Holders, (ii) selected for redemption, in whole or in part, except the
unredeemed portion of any Note being redeemed in part may be transferred or
exchanged, or (iii) during an Offer if such Note is tendered pursuant to such
Offer and not withdrawn.
(c) No service charge shall be made for any registration of
transfer or exchange (except as otherwise expressly permitted herein), but the
Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than any
such transfer tax or similar governmental charge payable upon exchanges
pursuant to Section 2.12, 3.06 or 9.05, which the Company shall pay).
(d) Prior to due presentment for registration of transfer of any
Note to the Trustee, the Trustee, any Agent and the Company shall deem and
treat the Person in whose name any Note is registered as the absolute owner of
such Note (whether or not such Note shall be overdue and notwithstanding any
notation of ownership or other writing on such Note made by anyone other than
the Company, the Registrar, or any co-registrar) for the purpose of receiving
payment of principal of, premium, if any, interest and Liquidated Damages, if
any, on such Note and for all other purposes, and notice to the contrary shall
not affect the Trustee, any Agent or the Company.
(e) A Holder may transfer a Note only by written application to
the Registrar stating the name of the proposed transferee and otherwise
complying with the terms of this Indenture. No such transfer shall be effected
until, and such transferee shall succeed to the rights of a Holder only upon,
final acceptance and registration of the transfer by the Registrar. Prior to
the registration of any transfer by a Holder as provided herein, the Company,
the Trustee, and any agent of the Company shall treat the person in whose name
the Note is registered as the absolute owner thereof for all purposes whether
or not the Note shall be overdue, and neither the Company, the Trustee, nor any
such agent shall be affected by notice to the contrary. Furthermore, any Holder
of a Global Note shall, by acceptance of such Global Note, agree that transfers
of beneficial interests in such Global Note may be effected only through a book
entry system maintained by the Holder of such Global Note (or its agent) and
that ownership of a beneficial interest in the Note shall be required to be
reflected in a book entry. When Notes are presented to the Registrar or a
co-registrar with a request to register the transfer or to exchange them for an
equal principal amount of Notes of other authorized denominations (including an
exchange of Notes for New Notes), the Registrar or co-registrar, as relevant,
shall register the
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transfer or make the exchange as requested if the requirements for such
transactions set forth herein are met; provided that no exchanges of Notes for
New Notes shall occur until a Registration Statement shall have been declared
effective by the SEC and provided further that any Notes that are exchanged for
New Notes shall be cancelled by the Trustee. To permit registrations of
transfers and exchanges, the Company shall execute and the Trustee shall
authenticate Notes at the Registrar's request.
All Notes issued upon any transfer or exchange of Notes shall be valid
obligations of the Company, evidencing the same debt, and entitled to the same
benefits under this Indenture, as the Notes surrendered upon such transfer or
exchange.
SECTION 2.07. Book-entry Provisions for Global Notes. (a) The
Restricted Global Note and Regulation S Global Note initially shall (i) be
registered in the name of the Depositary for such Global Notes or the nominee
of such Depositary, (ii) be delivered to the Trustee as custodian for such
Depositary and (iii) bear legends as set forth in Section 2.01.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depositary, or the Trustee as its custodian, or under the
Global Note, and the Depositary may be treated by the Company, the Trustee and
any agent of the Company or the Trustee as the absolute owner of such Global
Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any agent of the Company or the
Trustee, from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or shall impair, as between the
Depositary and its Agent Members, the operation of customary practices
governing the exercise of the rights of a Holder of any Note.
(b) Transfers of a Global Note shall be limited to transfers of
such Global Note in whole, but not in part, to the Depositary, its successors
or their respective nominees. Interests of beneficial owners in a Global Note
may be transferred in accordance with the rules and procedures of the
Depositary and the provisions of Section 2.08. In addition, Restricted
Certificated Notes and Offshore Certificated Notes shall be transferred to all
beneficial owners in exchange for their beneficial interests in the Restricted
Global Note or the Regulation S Global Note, respectively, if (i) the
Depositary notifies the Company that it is unwilling or unable to continue as
Depositary for the Restricted Global Note or the Regulation S Global Note, as
the case may be, and a successor depositary is not appointed by the Company
within 90 days of such notice or (ii) an Event of Default of which the Trustee
has actual notice has occurred and is continuing and the Registrar has received
a request from the Depositary to issue such Certificated Notes.
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(c) Any beneficial interest in one of the Global Notes that is
transferred to a person who takes delivery in the form of an interest in the
other Global Note will, upon transfer, cease to be an interest in such Global
Note and become an interest in the other Global Note and, accordingly, will
thereafter be subject to all transfer restrictions, if any, and other
procedures applicable to beneficial interests in such other Global Note for as
long as it remains such an interest.
(d) In connection with any transfer of a portion of the beneficial
interests in the Restricted Global Note to beneficial owners pursuant to
paragraph (b) of this Section and Section 2.08(a)(ii), the Registrar shall
reflect on its books and records the date and a decrease in the principal
amount of the Restricted Global Note in an amount equal to the principal amount
of the beneficial interest in the Restricted Global Note to be transferred, and
the Company shall execute, and the Trustee shall authenticate and deliver, one
or more Restricted Certificated Notes of like tenor and amount.
(e) In connection with the transfer of the entire Restricted
Global Note or Regulation S Global Note to beneficial owners pursuant to
paragraph (b) of this Section, the Restricted Global Note or Regulation S
Global Note, as the case may be, shall be deemed to be surrendered to the
Trustee for cancellation, and the Company shall execute, and the Trustee shall
authenticate and deliver, to each beneficial owner identified by the Depositary
in exchange for its beneficial interest in the Restricted Global Note or
Regulation S Global Note, as the case may be, an equal aggregate principal
amount of Restricted Certificated Notes or Offshore Certificated Notes, as the
case may be, of authorized denominations.
(f) Any Restricted Certificated Notes delivered in exchange for an
interest in the Restricted Global Note pursuant to paragraph (b) or (d) of this
Section shall, except as otherwise provided by paragraph (e) of Section 2.08,
bear the legend regarding transfer restrictions applicable to the Restricted
Certificated Notes set forth in Section 2.01.
(g) Any Offshore Certificated Note delivered in exchange for an
interest in the Regulation S Global Note pursuant to paragraph (b) of this
Section shall, except as otherwise provided by paragraph (e) of Section 2.08,
bear the legend regarding transfer restrictions applicable to the Offshore
Certificated Note set forth in Section 2.01.
(h) The registered holder of a Global Note may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
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SECTION 2.08. Special Transfer Provisions. Unless and until a Note
is exchanged for a New Note in connection with an effective Registration
pursuant to the Registration Rights Agreement, the following provisions shall
apply:
(a) TRANSFERS TO NON-QIB INSTITUTIONAL ACCREDITED INVESTORS. The
following provisions shall apply with respect to the registration of any
proposed transfer of a Note to any Institutional Accredited Investor which is
not a QIB (excluding Non-U.S. Persons):
(i) The Registrar shall register the transfer of any
Note, whether or not such Note bears the Private Placement Legend, if
(x) the requested transfer is after the time period referred to in
Rule 144(k) under the Securities Act as in effect with respect to such
transfer or (y) the proposed transferee has delivered to the Registrar
(A) a certificate substantially in the form of Exhibit B hereto and
(B) if the principal amount of the Notes being transferred is less
than $250,000 at the time of such transfer, an Opinion of Counsel
acceptable to the Company that such transfer is in compliance with the
Securities Act.
(ii) If the proposed transferor is an Agent Member holding
a beneficial interest in the Restricted Global Note, upon receipt by
the Registrar of (x) the documents, if any, required by paragraph (i)
and (y) instructions given in accordance with the Depositary's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and a decrease in the principal amount of the
Restricted Global Note in an amount equal to the principal amount of
the beneficial interest in the Restricted Global Note to be
transferred and the Company shall execute, and the Trustee shall
authenticate and deliver, one or more Restricted Certificated Notes of
like tenor and amount.
(b) TRANSFERS TO QIBS. The following provisions shall apply with respect
to the registration of any proposed transfer of a Restricted Certificated Note
or an interest in the Restricted Global Note to a QIB (excluding Non-U.S.
Persons):
(i) If the Note to be transferred consists of (x)
Restricted Certificated Notes, the Registrar shall register the
transfer, if such transfer is being made by a proposed transferor who
has checked the box provided for on the form of Note stating, or has
otherwise advised the Company and the Registrar in writing, that the
sale has been made in compliance with the provisions of Rule 144A to a
transferee who has signed the certification provided for on the form
of Note stating, or has otherwise advised the Company and the
Registrar, that it is purchasing the Note for its own account or an
account with respect to which it exercises sole investment discretion
and that it and any
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such account is a QIB within the meaning of Rule 144A, and is aware
that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the
Company as it has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the
transferor is relying upon its foregoing representation in order to
claim the exemption from registration provided for by Rule 144A or (y)
an interest in the Restricted Global Note, the transfer of such
interest may be effected only through the book entry system maintained
by the Depositary.
(ii) If the proposed transferee is an Agent Member, and
the Note to be transferred consists of Restricted Certificated Notes,
upon receipt by the Registrar of the documents referred to in clause
(i) and instructions given in accordance with the Depositary's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and an increase in the principal amount of the
Restricted Global Note in an amount equal to the principal amount of
the Restricted Certificated Notes to be transferred and the Trustee
shall cancel the Restricted Certificated Notes so transferred.
(c) TRANSFERS OF INTERESTS IN THE REGULATION S GLOBAL NOTE OR
OFFSHORE CERTIFICATED NOTES TO U.S. PERSONS. The following provisions shall
apply with respect to any transfer of interests in the Regulation S Global Note
or Offshore Certificated Notes to U.S. Persons:
(i) prior to the removal of the Private Placement Legend
from the Regulation S Global Note or Offshore Certificated Notes in
accordance with Section 2.01, the Registrar shall refuse to register
such transfer; and
(ii) after such removal, the Registrar shall register the
transfer of any such Note without requiring any additional
certification.
(d) TRANSFERS TO NON-U.S. PERSONS AT ANY TIME. The following
provisions shall apply with respect to any transfer of a Note to a Non-U.S.
Person:
(i) Prior to the Offshore Securities Exchange Date, the
Registrar shall register any proposed transfer of a Note to a Non-U.S.
Person upon receipt of a certificate substantially in the form of
Exhibit C hereto from the proposed transferor.
(ii) On and after the Offshore Securities Exchange Date,
the Registrar shall register any proposed transfer to any Non-U.S.
Person if the Note to be transferred is a Restricted Certificated Note
or an interest in the Restricted Global Note, upon receipt of a
certificate
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substantially in the form of Exhibit C from the proposed transferor.
(iii) (A) If the proposed transferor is an Agent Member
holding a beneficial interest in the Restricted Global Note, upon
receipt by the Registrar of (x) the documents, if any, required by
paragraph (ii) and (y) instructions in accordance with the
Depositary's and the Registrar's procedures, the Registrar shall
reflect on its books and records the date and a decrease in the
principal amount of the Restricted Global Note in an amount equal to
the principal amount of the beneficial interest in the Restricted
Global Note to be transferred, and (B) if the proposed transferee is
an Agent Member, upon receipt by the Registrar of instructions given
in accordance with the Depositary's and the Registrar's procedures,
the Registrar shall reflect on its books and records the date and an
increase in the principal amount of the Regulation S Global Note in an
amount equal to the principal amount of the Restricted Certificated
Notes or the Restricted Global Note, as the case may be, to be
transferred, and the Trustee shall cancel the Certificated Note, if
any, so transferred or decrease the amount of the Restricted Global
Note, as the case may be.
(e) PRIVATE PLACEMENT LEGEND. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Registrar
shall deliver Notes that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Notes bearing the Private Placement
Legend, the Registrar shall deliver only Notes that bear the Private Placement
Legend unless either (i) the circumstances contemplated by paragraphs (a)(i)(x)
or (d)(ii) of this Section 2.08 exists or (ii) there is delivered to the
Registrar an Opinion of Counsel reasonably satisfactory to the Company and the
Trustee to the effect that neither such legend nor the related restrictions on
transfer are required in order to maintain compliance with the provisions of
the Securities Act.
(f) GENERAL. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture. The Registrar shall not register a transfer of any Note unless such
transfer complies with the restrictions on transfer of such Note set forth in
this Indenture. In connection with any transfer of Notes, each Holder agrees
by its acceptance of the Notes to furnish the Registrar or the Company such
certifications, legal opinions or other information as either of them may
reasonably require to confirm that such transfer is being made pursuant to an
exemption from, or a transaction not subject to, the registration requirements
of the Securities Act; provided that the Registrar shall not be required to
determine (but may rely on
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a determination made by the Company with respect to) the sufficiency of any
such certifications, legal opinions or other information.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.07 or this Section 2.08.
The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon
the giving of reasonable written notice to the Registrar.
SECTION 2.09. Replacement Notes. Holders shall surrender mutilated
Notes to the Trustee. If any mutilated Note is surrendered to the Trustee, or
if the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Note, the Company shall issue and the Trustee
shall authenticate, a replacement Note if the Trustee's requirements are met,
and each such replacement Note shall be an additional obligation of the
Company. If the Trustee or the Company requires, the Holder must supply an
indemnity bond that is sufficient, in the judgment of the Trustee and the
Company, to protect the Company, the Trustee, any Agent or any authenticating
agent from any loss that any of them may suffer if a Note is replaced. The
Company and the Trustee may charge for its reasonable expenses in replacing a
Note.
SECTION 2.10. Outstanding Notes. The Notes outstanding at any time
are all the Notes the Trustee has authenticated except for those it has
cancelled, those delivered to it for cancellation, and those described in this
Section 2.10 as not outstanding. If a Note is replaced pursuant to Section
2.09, it ceases to be outstanding unless the Trustee receives proof
satisfactory to it that a bona fide purchaser holds the replaced Note. If the
entire principal of, premium, if any, and accrued interest and Liquidated
Damages on, any Note is considered paid under Section 4.01, it ceases to be
outstanding and interest on it ceases to accrue. Subject to Section 2.11, a
Note does not cease to be outstanding because the Company or any Affiliate of
the Company holds such Note.
SECTION 2.11. Treasury Notes. In determining whether the Holders of
the required principal amount of Notes have concurred in any direction, waiver
or consent, Notes owned by the Company or any Affiliate of the Company shall be
considered as though they are not outstanding; provided, however, that for the
purposes of determining whether the Trustee shall be protected in relying on
any such direction, waiver or consent, only Notes that the Trustee knows are so
owned shall be so disregarded. Notwithstanding the foregoing, Notes that the
Company or any Affiliate of the Company offers to purchase or acquires pursuant
to an exchange offer, tender offer or otherwise shall not be deemed to be owned
by the Company or any Affiliate of the Company until legal title to such Notes
passes to the Company or such Affiliate, as the case may be.
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SECTION 2.12. Temporary Notes. Until definitive Notes are ready for
delivery, the Company may prepare and the Trustee on its behalf shall
authenticate temporary Notes. Temporary Notes shall be substantially in the
form of definitive Notes but may have variations that the Company considers
appropriate for temporary Notes. Without unreasonable delay, the Company shall
prepare and the Trustee on its behalf, upon receipt of a written order signed
by two Officers of the Company, shall authenticate definitive Notes in exchange
for temporary Notes. Until such exchange, temporary Notes shall be entitled to
the same rights, benefits and privileges as definitive Notes.
SECTION 2.13. Cancellation. Holders shall surrender Notes for
cancellation to the Trustee. The Company at any time may deliver Notes to the
Trustee for cancellation. The Registrar, any co-registrar, the Paying Agent,
the Company and its Subsidiaries shall forward to the Trustee any Notes
surrendered to them for registration of transfer, exchange, replacement,
payment (including all Notes called for redemption and all Notes accepted for
payment pursuant to an Offer) or cancellation, and the Trustee shall cancel all
such Notes and shall destroy all cancelled Notes (subject to the record
retention requirements of the Exchange Act) and deliver upon the written
request of the Company a certificate of their destruction to the Company
unless, by written order signed by two Officers of the Company, the Company
shall direct that cancelled Notes be returned to it. The Company may not issue
new Notes to replace any Notes that have been cancelled by the Trustee or that
have been delivered to the Trustee for cancellation. If the Company or any
Affiliate of the Company acquires any Notes (other than by redemption pursuant
to Section 3.07 or an Offer pursuant to Section 4.13 or 4.14), such acquisition
shall not operate as a redemption or satisfaction of the Indebtedness
represented by such Notes unless and until such Notes are delivered to the
Trustee for cancellation.
SECTION 2.14. Defaulted Interest. If the Company defaults in a
payment of interest on the Notes, it shall pay the defaulted interest in any
lawful manner plus, to the extent lawful, interest payable on the defaulted
interest, to Holders on a subsequent special record date, in each case at the
rate provided in the Notes and Section 4.01. The Company shall, with the
Trustee's consent, fix or cause to be fixed each such special record date and
payment date. At least 15 days before the special record date, the Company
(or, at the request of the Company, the Trustee in the name of, and at the
expense of, the Company) shall mail a notice that states the special record
date, the related payment date and the amount of interest to be paid.
SECTION 2.15. Record Date. The record date for purposes of
determining the identity of holders of Notes entitled to vote or consent to any
action by vote or consent authorized or permitted under this Indenture shall be
determined as provided for in section 316(c) of the TIA.
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SECTION 2.16. CUSIP and CINS Numbers. A "CUSIP" or "CINS" number
will be printed on the Notes and the Trustee shall use CUSIP or CINS numbers,
as the case may be, in notices of redemption, purchase or exchange as a
convenience to Holders, provided that any such notice may state that no
representation is made as to the correctness or accuracy of such numbers
printed in the notice or on the Notes and that reliance may be placed only on
the other identification numbers printed on the Notes. The Company will
promptly notify the Trustee of any change in the CUSIP or CINS number, as the
case may be.
ARTICLE 3
Redemptions and Offers to Purchase
SECTION 3.01. Notices to Trustee. If the Company elects to redeem
Notes pursuant to Section 3.07, it shall furnish to the Trustee, at least 15
but not more than 30 days before notice of any redemption is to be mailed to
Holders (or such shorter time as may be satisfactory to the Trustee), (x) an
Officers' Certificate stating (i) that the Company has elected to redeem Notes
pursuant to Section 3.07(a) or (b), as the case may be, (ii) the date notice of
redemption is to be mailed to Holders, (iii) the redemption date, (iv) the
aggregate principal amount of Notes to be redeemed, (v) the redemption price
for such Notes, (vi) the amount (if any) of accrued and unpaid interest and
Liquidated Damages, if any, on such Notes as of the redemption date and (vii)
the manner in which Notes are to be selected for redemption if less than all
outstanding Notes are to be redeemed and (y) an Opinion of Counsel that the
Company is entitled to redeem the Notes pursuant to Section 3.07. If the
Trustee is not the Registrar, the Company shall, concurrently with delivery of
its notice to the Trustee of a redemption, cause the Registrar to deliver to
the Trustee a certificate (upon which the Trustee may rely) setting forth the
name of, and the aggregate principal amount of the Notes held by, each Holder.
If the Company is required to offer to purchase Notes pursuant to
Section 4.13 or 4.14, it shall furnish to the Trustee, at least 2 Business Days
before notice of the Offer is to be mailed to Holders, an Officers' Certificate
setting forth (i) that the Offer is being made pursuant to Section 4.13 or
4.14, as the case may be, (ii) the Purchase Date, (iii) the maximum principal
amount of Notes the Company is offering to purchase pursuant to the Offer, (iv)
the purchase price for such Notes and (v) the amount (if any) of accrued and
unpaid interest and Liquidated Damages, if any, on such Notes as of the
Purchase Date.
The Company will also provide the Trustee with any additional
information that the Trustee reasonably requests in connection with any
redemption or Offer.
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SECTION 3.02. Selection of Notes to Be Redeemed or Purchased. If
less than all outstanding Notes are to be redeemed or if less than all Notes
tendered pursuant to an Offer are to be accepted for payment, the Trustee shall
select the outstanding Notes to be redeemed or accepted for payment on a pro
rata basis, by lot or by any other method that the Trustee deems fair and
appropriate. If the Company elects to mail notice of a redemption to Holders,
the Trustee shall at least 5 days prior to the date notice of redemption is to
be mailed (i) select the Notes to be redeemed from Notes outstanding not
previously called for redemption in the manner specified by the Trustee and
(ii) notify the Company of the names of each Holder of Notes selected for
redemption, the principal amount of Notes held by each such Holder and the
principal amount of such Holder's Notes that are to be redeemed. If less than
all Notes tendered pursuant to an Offer are to be accepted for payment, the
Trustee shall select on or prior to the Purchase Date for such Offer the Notes
to be accepted for payment. The Trustee shall select for redemption or
purchase Notes or portions of Notes in principal amounts at maturity of $1,000
or integral multiples thereof; except that if all of the Notes of a Holder are
selected for redemption or purchase, the aggregate principal amount of the
Notes held by such Holder, even if not an integral multiple of $1,000, may be
redeemed or purchased. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption or
tendered pursuant to an Offer also apply to portions of Notes called for
redemption or tendered pursuant to an Offer. The Trustee shall notify the
Company promptly of the Notes or portions of Notes to be called for redemption
or selected for purchase.
SECTION 3.03. Notice of Redemption. (a) At least 30 days but not
more than 60 days before any redemption date the Company shall mail by first
class mail a notice of redemption to the Trustee and each Holder of Notes or
portions thereof that are to be redeemed. With respect to any redemption of
Notes, the notice shall identify the Notes or portions thereof to be redeemed
and shall state: (1) the redemption date; (2) the redemption price for the
Notes and the amount (if any) of unpaid and accrued interest on such Notes as
of the date of redemption and the premium (if any) and Liquidated Damages (if
any) on the Notes as of the date of redemption; (3) the section of this
Indenture pursuant to which the Notes called for redemption are being redeemed;
(4) if any Note is being redeemed in part, the portion of the principal amount
of such Note to be redeemed and that, after the redemption date, upon surrender
of such Note, a new Note or Notes in principal amount equal to the unredeemed
portion will be issued; (5) the name and address of the Paying Agent; (6) that
Notes called for redemption must be surrendered to the Paying Agent to collect
the redemption price for, and any accrued and unpaid interest and Liquidated
Damages on, such Notes as of the date of redemption; (7) that, unless the
Company defaults in making such redemption payment, interest on Notes called
for redemption ceases to accrete or accrue, as the case may be, on,
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and after the redemption date; and (8) that no representation is made as to the
correctness or accuracy of the CUSIP or CINS number (as applicable) listed in
such notice and printed on the Notes.
(b) At the Company's request, the Trustee shall (at the Company's
expense and in the Company's name) give the notice of any redemption to
Holders; provided, however, that the Company shall deliver to the Trustee, at
least 45 days prior to the date of redemption and at least 10 days prior to the
date that notice of the redemption is to be mailed to Holders, an Officers'
Certificate that (i) requests the Trustee to give notice of the redemption to
Holders, (ii) sets forth the information to be provided to Holders in the
notice of redemption, as set forth in the preceding paragraph, and (iii) sets
forth the aggregate principal amount of Notes to be redeemed and the amount (if
any) of accrued and unpaid interest and Liquidated Damages (if any) thereon as
of the date of redemption. If the Trustee is not the Registrar, the Company
shall, concurrently with any such request, cause the Registrar to deliver to
the Trustee a certificate (upon which the Trustee may rely) setting forth the
name of, the address of, and the aggregate principal amount of Notes held by,
each Holder; provided further that any such Officers' Certificate may be
delivered to the Trustee on a date later than permitted under this Section
3.03(b) if such later date is acceptable to the Trustee.
SECTION 3.04. Effect of Notice of Redemption. Once notice of
redemption is mailed, Notes called for redemption become due and payable on the
redemption date at the price set forth in the Note.
SECTION 3.05. Deposit of Redemption Price. (a) At least one Business
Day prior to any redemption date, the Company shall deposit with the Paying
Agent money sufficient to pay the redemption price of, and any accrued interest
on, all Notes to be redeemed in immediately available funds on that date and
the Liquidated Damages (if any) on the Notes as of the date of redemption.
After any redemption date, the Paying Agent shall promptly return to the
Company any money that the Company deposited with the Paying Agent in excess of
the amounts necessary to pay the redemption price of, and any accrued interest
on, and the Liquidated Damages (if any) on all Notes to be redeemed.
(b) If the Company complies with the preceding paragraph, interest
on the Notes to be redeemed will cease to accrete or accrue, as the case may
be, on such Notes on the applicable redemption date, whether or not such Notes
are presented for payment. If a Note is redeemed on an interest payment date,
then any accrued and unpaid interest shall be paid to the Person in whose name
such Note was registered at the close of business on the related interest
record date, in all other circumstances, such interest shall be paid to the
Holder of such Note. If any
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Note called for redemption shall not be so paid upon surrender for redemption
because of the failure of the Company to comply with the preceding paragraph,
interest will be paid on the unpaid principal, premium (if any), Liquidated
Damages (if any) and unpaid interest, if any, which has accrued to the
redemption date, from the redemption date until such amounts are paid, at the
rate of interest provided in the Notes and Section 4.01.
SECTION 3.06. Notes Redeemed in Part. Upon surrender of a Note that
is redeemed in part, the Company shall issue and the Trustee shall authenticate
for the Holder at the Company's expense a new Note equal in principal amount to
the unredeemed portion of the Note surrendered.
SECTION 3.07. Redemption Provisions. (a) The Notes will not be
redeemable at the Company's option prior to November 1, 2001 except as
described below, with the proceeds of an Equity Offering. Thereafter, the Notes
will be subject to redemption at the option of the Company, in whole or in
part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the
applicable redemption date, if redeemed during the twelve-month period
beginning on November 1 of the years indicated below:
YEAR PERCENTAGE
2001 105.500
2002 103.667
2003 101.833
2004 and thereafter 100.000%
(b) In addition to the Company's right to redeem the Notes as set
forth in subsection (a), above, at any time prior to November 1, 1999, the
Company may (but will not have the obligation to) redeem up to 35% of the
original aggregate principal amount of the Notes at a redemption price of 110%
of the principal amount thereof, in each case plus accrued and unpaid interest
and Liquidated Damages thereon, if any, to the redemption date, with the net
proceeds of an Equity Offering; provided that at least 65% of the original
aggregate principal amount of Notes remain outstanding immediately after the
occurrence of such redemption; and provided, further that such redemption will
occur within 60 days of the date of the closing of such Equity Offering.
SECTION 3.08. Mandatory Offers. (a) Within 30 days after any Change
of Control Trigger Date or Asset Sale Trigger Date, the Company shall mail a
notice to each Holder stating: (1) that an Offer is being made pursuant to
Section 4.13 or 4.14, as the case may be, and the length of time the Offer
shall remain open and the maximum aggregate principal amount of Notes that the
Company is offering to purchase pursuant to such Offer; (2) the
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purchase price for the Notes (as set forth in Section 4.13 or 4.14, as the case
may be), the amount (if any) of accrued and unpaid interest on such Notes as of
the Purchase Date, and the Purchase Date; (3) that any Note not accepted for
payment will continue to accrue interest; (4) that, unless the Company defaults
in making such payment, any Note accepted for payment pursuant to the Offer
will cease to accrue interest after the relevant Purchase Date; (5) that
Holders may tender all or any portion of the Notes registered in the name of
such Holder and that any portion of a Note tendered must be tendered in a
principal amount of $1,000 or an integral multiple thereof; (6) that Holders
electing to tender any Note or portion thereof will be required to surrender
their Note, with the form therein entitled "Option of Holder to Elect Purchase"
completed, or transfer by book-entry transfer, to the Company, a Depositary,
if appointed by the Company, or a Paying Agent at the address specified in the
notice at least three days prior to the Purchase Date; (7) that Holders will be
entitled to withdraw their election to tender Notes if the Company, the
Depositary or the Paying Agent, as the case may be, receives, not later than
the close of business on the last day of the relevant Offer Period, a telegram,
telex, facsimile transmission or letter setting forth the name of the Holder,
the principal amount of Notes delivered for purchase, and a statement that such
Holder is withdrawing his election to have such Note purchased; (8) that
Holders whose Notes are accepted for payment in part will be issued new Notes
equal in principal amount to the unpurchased portion of Notes surrendered,
provided that only Notes in a principal amount of $1,000 or integral multiples
thereof will be accepted for payment in part; and (9) in the case of an Asset
Sale, that, if the aggregate principal amount of Notes surrendered by Holders
exceeds the Asset Sale Offer Amount, the Company will select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000, or
integral multiples thereof, will be purchased).
(b) On the Purchase Date for any Offer, the Company will (i) to
the extent lawful, (x) in the case of an Offer resulting from a Change of
Control, accept for payment all Notes or portions thereof properly tendered
pursuant to such Offer and (y) in the case of an Offer resulting from one or
more Asset Sales, accept for payment, on a pro rata basis to the extent
necessary, the Asset Sale Offer Amount of Notes or portions thereof pursuant to
the Asset Sale Offer, or if less than the Asset Sale Offer Amount has been
tendered, all Notes tendered, and will deliver to the Trustee an Officers'
Certificate stating that such Notes or portions thereof were accepted for
payment by the Company in accordance with the terms of Sections 3.08 and 4.14,
(ii) deposit with the Paying Agent in immediately available funds the aggregate
purchase price of all Notes or portions thereof accepted for payment any
accrued and unpaid interest on such Notes as of the Purchase Date, and (iii)
deliver, or cause to be delivered, to the Trustee all Notes or portions thereof
so
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accepted together with an Officers' Certificate setting forth the name of each
Holder that tendered Notes and the principal amount of the Notes, as the case
may be, or portions thereof tendered by each such Holder.
(c) With respect to any Offer, (i) if less than all of the Notes
tendered pursuant to an Offer are to be accepted for payment by the Company for
any reason, the Trustee shall select on or prior to the Purchase Date the Notes
or portions thereof to be accepted for payment pursuant to Section 3.02, and
(ii) if the Company deposits with the Paying Agent on the Purchase Date an
amount sufficient to purchase all Notes accepted for payment, interest shall
cease to accrue on such Notes on the Purchase Date; provided, however, that if
the Company fails to deposit an amount sufficient to purchase all Notes
accepted for payment, the deposited funds shall be used to purchase on a pro
rata basis all Notes accepted for payment and interest shall continue to
accrue, as the case may be, on all Notes not purchased.
(d) Promptly after consummation of an Offer, (i) the Paying Agent
shall mail to each Holder of Notes or portions thereof accepted for payment an
amount equal to the Change of Control Payment or Asset Sale Payment, as the
case may be, (ii) with respect to any tendered Note not accepted for payment in
whole or in part, the Trustee shall return such Note to the Holder thereof, and
(iii) with respect to any Note accepted for payment in part, the Company shall
issue and the Trustee shall authenticate and mail to each such Holder a new
Note equal in principal amount to the unpurchased portion of the tendered Note.
(e) The Company will (i) publicly announce the results of the
Offer to Holders on or as soon as practicable after the Purchase Date, and (ii)
comply with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations to the extent such laws and regulations are applicable to any
Offer.
(f) If any of this Section 3.08, Section 4.13 or Section 4.14
conflict with duties imposed upon the Company or the Subsidiary Guarantors by
virtue of any applicable United States securities laws or regulations, the
Company or such Subsidiary Guarantor, as the case may be, shall comply with
such securities laws or regulations and will not be deemed to have breached its
obligations under this Indenture.
ARTICLE 4
Covenants
SECTION 4.01. Payment of Notes. Subject to the provisions of Article
10, the Company shall pay the principal of, and premium, if any, and interest
and Liquidated Damages (if any) on, the Notes on the dates and in the manner
provided in the Notes. Holders must surrender their Notes to the Paying Agent
to collect principal payments. Principal, premium, interest or Liquidated
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Damages (if any) shall be considered paid on the date due if, by 3 p.m. Eastern
Standard Time on the Business Day immediately preceding such date, the Company
has deposited with the Paying Agent money in immediately available funds
designated for and sufficient to pay such principal, premium, interest and
Liquidated Damages (if any); provided, however, that principal, premium,
interest or Liquidated Damages (if any) shall not be considered paid within the
meaning of this Section 4.01 if money intended to pay such principal, premium,
interest or Liquidated Damages (if any) is held by the Paying Agent for the
benefit of holders of Senior Indebtedness of the Company pursuant to the
provisions of Article 10. The Paying Agent shall return to the Company, no
later than five days following the date of payment, any money that exceeds the
amount then due and payable on the Notes.
To the extent lawful, the Company shall pay interest (including
Post-Petition Interest) on demand on overdue principal, premium, interest and
Liquidated Damages, if any, (without regard to any applicable grace period) at
the rate of 11% per annum, compounded semi-annually.
SECTION 4.02. Reports. Whether or not required by the rules and
regulations of the SEC, so long as any Notes are outstanding, the Company will
furnish to the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the SEC on
Forms 10-Q and 10-K if the Company were required to file such Forms, including
a "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the SEC on Form 8-K if the Company were
required to file such reports. In addition, whether or not required by the
rules and regulations of the SEC, at any time after the Company files a
Registration Statement with respect to the Exchange Offer, the Company will
file a copy of all such information and reports with the SEC for public
availability (unless the SEC will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, for so long as any Notes remain outstanding, the Company
and the Subsidiary Guarantors shall furnish to the Holders and to securities
analysts and prospective investors, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
SECTION 4.03. Compliance Certificate. The Company shall deliver to
the Trustee, within 120 days after the end of each fiscal year of the Company,
an Officers' Certificate stating that (i) a review of the activities of the
Company and its Subsidiaries during the preceding fiscal year has been made to
determine whether the Company has kept, observed, performed and fulfilled all
of its obligations under this Indenture and the
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Notes, (ii) such review was supervised by the Officers of the Company signing
such certificate, and (iii) that to the best knowledge of each Officer signing
such certificate, (a) the Company has kept, observed, performed and fulfilled
each and every covenant contained in this Indenture and is not in default in
the performance or observance of any of the terms, provisions and conditions of
this Indenture (or, if a Default or Event of Default occurred, describing all
such Defaults or Events of Default of which each such Officer may have
knowledge and what action the Company has taken or proposes to take with
respect thereto), and (b) no event has occurred and remains in existence by
reason of which payments on account of the principal of, or premium, if any, or
interest or Liquidated Damages, if any, on, the Notes are prohibited or if such
event has occurred, a description of the event and what action the Company is
taking or proposes to take with respect thereto.
So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the annual financial
statements delivered pursuant to Section 4.02 shall be accompanied by a written
statement of the Company's independent public accountants (who shall be a firm
of established national reputation) that in making the examination necessary
for certification of such financial statements nothing has come to their
attention that would lead them to believe that the Company has violated any
provisions of Sections 4.01, 4.05, 4.07, 4.08, 4.09, 4.11, 4.13, 4.14, 4.15,
4.16 or Article 5 or, if any such violation has occurred, specifying the nature
and period of existence thereof, it being understood that such accountants
shall not be liable directly or indirectly to any Person for any failure to
obtain knowledge of any such violation.
The Company will, so long as any of the Notes are outstanding, deliver
to the Trustee, promptly after any Officer of the Company becomes aware of (i)
any Default or Event of Default, or (ii) any default or event of default under
any other mortgage, indenture or instrument that could result in an Event of
Default under Section 6.01(v), an Officers' Certificate specifying such
Default, Event of Default or default and what action the Company is taking or
proposes to take with respect thereto.
SECTION 4.04. Stay, Extension and Usury Laws. Each of the Company
and the Subsidiary Guarantors covenant (to the extent that they may lawfully do
so) that they will not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or
usury law wherever enacted, now or at any time hereafter in force, that might
affect the covenants or the performance of their obligations under this
Indenture and Notes; and each of the Company and the Subsidiary Guarantors (to
the extent they may lawfully do so) hereby expressly waive all benefit or
advantage of any such law, and covenant that they will not, by resort to any
such law, hinder, delay or impede the execution of any power
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granted to the Trustee pursuant to this Indenture, but will suffer and permit
the execution of every such power as though no such law has been enacted.
SECTION 4.05. Limitation on Restricted Payments. (a) The Company
will not, and will not permit any of its Subsidiaries to directly or
indirectly: (i) declare or pay any dividend or make any distribution on account
of the Company's or any of its Subsidiaries' Equity Interests (including,
without limitation, any payment in connection with any merger or consolidation
involving the Company) (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company or dividends or
distributions payable to the Company or any Subsidiary of the Company (and, if
such Subsidiary is not a Wholly Owned Subsidiary, to its other shareholders on
a pro rata basis)), (ii) purchase, redeem or otherwise acquire or retire for
value any Equity Interests of the Company or any Subsidiary of the Company
(other than any such Equity Interests owned by the Company or any Wholly Owned
Subsidiary of the Company that is a Subsidiary Guarantor), (iii) make any
principal payment on, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is subordinated to the Notes, prior to
scheduled maturity, or applicable scheduled repayment or scheduled sinking fund
payment date with respect thereto and in the applicable amounts so required
(other than any of the foregoing with respect to such Indebtedness in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case, due within one year of the date of such
transaction and in the applicable amounts so required), other than through the
purchase or acquisition by the Company of Indebtedness through the issuance in
exchange therefor of Equity Interests (other than Disqualified Stock) or (iv)
make any Restricted Investment (all such payments and other actions set forth
in clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
(1) no Default or Event of Default will have occurred and
be continuing or would occur as a consequence thereof;
(2) the Company would, at the time of such Restricted
Payment and after giving pro forma effect thereto as if such
Restricted Payment has been made at the beginning of the applicable
four-quarter period, have been permitted to Incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of Section 4.07; and
(3) such Restricted Payment, together with the aggregate
of all other Restricted Payments made by the Company and its
Subsidiaries after the Closing Date (excluding Restricted Payments
permitted by any of clauses (ii), (iii), (iv), (v), (vi) and (vii)(B)
of subsection 4.05(b)), is less than the sum of
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(A) 50% of the Consolidated Net Income of the Company for
the period (taken as one accounting period) from the beginning of the
fiscal quarter in which the Closing Date occurred to the end of the
Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus
(B) 100% of the aggregate net cash proceeds received by the
Company from the issue or sale since the Closing Date of Equity
Interests of the Company and 100% of the amount by which Indebtedness
of the Company or its Subsidiaries is reduced on the Company's balance
sheet upon the conversion or exchange thereof subsequent to the Closing
Date into such Equity Interests (other than Equity Interests (or
convertible debt securities) sold to a Subsidiary or an Unrestricted
Subsidiary of the Company and other than Disqualified Stock or debt
securities that have been converted into Disqualified Stock), plus
(C) 100% of any dividends received by the Company or a
Wholly Owned Subsidiary that is a Subsidiary Guarantor after the
Closing Date from an Unrestricted Subsidiary of the Company, plus
(D) 100% of the cash proceeds realized upon the sale of any
Unrestricted Subsidiary (less the amount of any reserve established for
purchase price adjustments and less the maximum amount of any
indemnification or similar contingent obligation for the benefit of the
purchaser, any of its Affiliates or any other third party in such sale,
in each case as adjusted for any permanent reduction in any such amount
on or after the date of such sale, other than by virtue of a payment
made to such Person) following the Closing Date, plus
(E) to the extent not otherwise included in (iv) above, to
the extent that any Restricted Investment that was made after the
Closing Date is sold for cash or otherwise liquidated or repaid for
cash, the amount of cash proceeds received with respect to such
Restricted Investment, plus
(F) $10 million.
(b) The foregoing subsection 4.05(a) will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of this Indenture;
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(ii) the making of any Restricted Investment in exchange for,
or out of the proceeds of the substantially concurrent sale (other than
to a Subsidiary of the Company) of Equity Interests of the Company
(other than Disqualified Stock); provided that any net cash proceeds
that are utilized for such Restricted Investment, and any Net Income
resulting therefrom, will be excluded from clauses (3)(A) and (3)(B) of
subsection 4.05(a);
(iii) the redemption, repurchase, retirement or other
acquisition of any Equity Interest of the Company in exchange for, or
out of the proceeds of, the substantially concurrent sale (other than
to a Subsidiary of the Company) of other Equity Interests of the
Company (other than any Disqualified Stock); provided that any net
cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition, and any Net Income resulting
therefrom, will be excluded from clauses (3)(A) and (3)(B) of
subsection 4.05(a);
(iv) the defeasance, redemption or repurchase of
Indebtedness that is subordinated to the Notes with the net cash
proceeds from an Incurrence of Permitted Refinancing Indebtedness
which was Incurred to refinance such subordinated Indebtedness or the
substantially concurrent sale (other than to a Subsidiary of the
Company) of Equity Interests of the Company (other than Disqualified
Stock); provided that any net cash proceeds that are utilized for any
such defeasance, redemption or repurchase, and any Net Income
resulting therefrom, will be excluded from clauses (3)(A) and (3)(B)
of subsection 4.05(a);
(v) the repurchase, redemption or other acquisition or
retirement for value of any subordinated Indebtedness from Net
Proceeds to the extent permitted by Section 4.14; provided that any
Net Proceeds that are utilized for any such defeasance, redemption or
repurchase and any Net Income resulting therefrom will be excluded
from clauses (3)(A) and (3)(B) of subsection 4.05(a);
(vi) the payment by the Company of (A) certain standby
commitment fees to Invifin S.A. in connection with the Senior Credit
Facility in an aggregate amount not to exceed $1,575,000, (B) certain
advisory fees to Investcorp International Inc. ("International") in
connection with the Acquisition in an aggregate amount not to exceed
$1,275,000, (C) certain management advisory and consulting fees to
International pursuant to a management agreement entered into in
connection with the Acquisition between International and the Company
(x) in an aggregate amount not to exceed $5,000,000 for the first five
years after the Closing Date and (y) in an aggregate amount not to
exceed $1,000,000 in any fiscal year thereafter, (D) certain
arrangement fees to International in connection with the
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Senior Credit Facility in an aggregate amount not to exceed $3,150,000
and (E) certain fees to Transatlantic in connection with a loan made
to the Company prior to the Acquisition in an aggregate amount not to
exceed $1,000,000;
(vii) the payment of dividends, other distributions or
other amounts by the Company to Holdings (A) in amounts equal to the
amounts required for Holdings to pay franchise taxes and other fees
required to maintain its corporate existence and provide for other
operating costs; provided that the aggregate amount of such payments,
dividends and distributions pursuant to this (vii)(A) shall not exceed
$250,000 in any fiscal year, (B) in amounts equal to amounts required
for Holdings to pay federal, state and local income taxes to the
extent such income taxes are attributable to the income of the Company
and its Subsidiaries (and, to the extent of amounts actually received
from its Unrestricted Subsidiaries, in amounts required to pay such
taxes to the extent attributable to the income of such Unrestricted
Subsidiaries), (C) in amounts equal to amounts expended by Holdings to
redeem, or otherwise acquire or retire for value any Equity Interest
of Holdings held by any member of Holdings' or the Company's
management pursuant to any management agreement or stock option
agreement and amounts loaned or advanced by Holdings to any member of
Holdings' or the Company's management to enable such person to
purchase any Equity Interests of Holdings; provided that the aggregate
amounts distributed to Holdings pursuant to this clause (vii)(C) will
not exceed $8,000,000 in the aggregate (net of cash proceeds received
by Holdings from subsequent reissuances of Equity Interests of Equity
Interests to new members of management, except to the extent such
proceeds are contributed by Holdings to the Company), (D) representing
a portion of the proceeds of any Equity Offering that occurs pursuant
to the sale by the Company of its Equity Interests other than
Disqualified Stock; provided that the aggregate amount of such
dividend may not exceed the amount expended by Holdings to redeem the
Holdings Notes, (E) in an aggregate amount not to exceed $4,000,000 to
enable Holdings to pay certain fees to Southwest Finance Limited in
connection with the issuance of the Holdings Notes and (F) to
reimburse Holdings for costs, fees and expenses incident to a
registration of any of the Capital Stock of Holdings for a primary
offering under the Securities Act, so long as (x) the net proceeds of
such offering (if it is completed) are contributed to, or otherwise
used for the benefit of, the Company and (y) the costs, fees and
expenses are allocated among Holdings and any selling shareholders in
such proportion as is required by an applicable shareholders
agreement, or to the extent no applicable shareholders agreement
exists, as is appropriate to reflect the relative proceeds received by
Holdings and such selling shareholders; and
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(viii) the payment by the Company to members of management
of the Company in connection with the termination of an equity
participation program as a result of the Acquisition, provided that
such payments do not exceed $19,900,000 in the aggregate, of which the
last $5,966,000 may be paid by the Company under this clause (viii)
only to the extent payment of such amount is received by the Company
from Carmel Trust or an affiliate thereof;
provided that in the case of clauses (iv), (v), (vi) and (vii)(F) of this
subsection 4.05(b), no Default or Event of Default shall have occurred and be
continuing and, in the case of clauses (vii)(C), (vii)(D) and (viii) of this
subsection 4.05(b), no Default referred to in clauses (i) or (ii) of Section
6.01(a) shall have occurred and be continuing, at the time of such Restricted
Payment or would occur as a consequence thereof.
(c) The Board of Directors may designate any Subsidiary to be an
Unrestricted Subsidiary if no Default or Event of Default would be in existence
following such designation. For purposes of making such determination, all
outstanding Investments by the Company and its Subsidiaries (except to the
extent repaid in cash) in the Subsidiary so designated will be deemed to be
Restricted Payments at the time of such designation and will reduce the amount
available for Restricted Payments under subsection 4.05(a). All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the fair market value of such Investments at the time of such
designation. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Subsidiary otherwise meets
the definition of an Unrestricted Subsidiary.
(d) The amount of all Restricted Payments (other than cash) will
be their fair market value (evidenced by a resolution of the Board of Directors
set forth in an Officers' Certificate delivered to the Trustee) on the date of
the Restricted Payment of the asset(s) proposed to be transferred by the
Company or such Subsidiary, as the case may be, pursuant to the Restricted
Payment. Not later than the date of making any Restricted Payment, the Company
will deliver to the Trustee an Officer's Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this covenant were computed, which calculations may be
based upon the Company's latest available financial statements.
SECTION 4.06. Corporate Existence. Subject to Section 4.14 and
Article 5, the Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence and the
corporate, partnership or other existence of each of its Subsidiaries in
accordance with the respective organizational documents of each of its
Subsidiaries and the rights (charter and statutory), licenses and franchises of
the Company and each of its Subsidiaries; provided, however, that the Company
shall not be required to preserve any such
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right, license or franchise, or the corporate, partnership or other existence
of any Subsidiary, if the Board of Directors of the Company shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries taken as a whole, and that the
loss thereof is not adverse in any material respect to the Holders.
SECTION 4.07. Limitation on Incurrence of Indebtedness and on
Issuance of Preferred Stock. (a) The Company will not Incur any Indebtedness
(including Acquired Indebtedness) and the Company will not issue any
Disqualified Stock and will not permit any of its Subsidiaries and Unrestricted
Subsidiaries to issue any shares of preferred stock; provided that the Company
may Incur Indebtedness (including Acquired Indebtedness) or issue shares of
Disqualified Stock and the Company's Subsidiaries that are Subsidiary
Guarantors may Incur Indebtedness and issue preferred stock if: (i) the Fixed
Charge Coverage Ratio for the Company's most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on which such additional Indebtedness is Incurred or such
Disqualified Stock is issued would have been (A) at least 2 to 1 if the date on
which such additional Indebtedness is Incurred, such Disqualified Stock is
issued or, in the case of any Subsidiary Guarantor, such preferred stock is
issued occurs prior to October 30, 1998, or (B) at least 2.25 to 1 if such date
occurs thereafter, in each case determined on a pro forma basis (including a
pro forma application of the net proceeds therefrom), as if the additional
Indebtedness had been Incurred, or the Disqualified Stock had been issued, or,
in the case of any Subsidiary Guarantor, such preferred stock had been issued,
as the case may be, at the beginning of such four-quarter period and (ii) no
Default or Event of Default will have occurred and be continuing or would occur
as a consequence thereof; provided that no Guarantee may be Incurred pursuant
to this subsection (a), unless the guaranteed Indebtedness is Incurred by the
Company or a Subsidiary pursuant to this subsection (a).
(b) The foregoing provisions will not apply to:
(i) the Incurrence by the Company of Senior Term Debt and
Senior Revolving Debt and letters of credit (and Guarantees thereof by
Subsidiaries that are Subsidiary Guarantors) in an aggregate principal
amount at any time outstanding (with letters of credit being deemed to
have a principal amount equal to the maximum potential liability of
the Company and its Subsidiaries thereunder) not to exceed an amount
equal to $200 million, less the aggregate amount of all Net Proceeds
of Asset Sales applied to permanently reduce the outstanding amount of
the commitments with respect to such Indebtedness pursuant to or in
accordance with Section 4.14;
(ii) the Incurrence by the Company and its Subsidiaries of
the Existing Indebtedness;
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(iii) the Incurrence by the Company of Indebtedness
represented by the Notes and by the Subsidiaries of Indebtedness
represented by the Subsidiary Guarantees;
(iv) the Incurrence by the Company or any of its
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or Purchase Money Obligations, in each case
Incurred for the purpose of financing all or any part of the purchase
price or cost of construction or improvement of property used in the
business of the Company or such Subsidiary, in an aggregate principal
amount not to exceed $25 million at any time outstanding;
(v) the Incurrence by the Company or any of its
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or
the net proceeds of which are used to extend, refinance, renew,
replace, defease or refund Indebtedness that was Incurred in
compliance with the first paragraph of subsection 4.07(a) or under
clauses (ii) and (iii) of this subsection (b);
(vi) the Incurrence by the Company or any of its
Subsidiaries of intercompany Indebtedness between or among the Company
and any of its Wholly Owned Subsidiaries or between or among any
Wholly Owned Subsidiaries; provided that (A) any subsequent issuance
or transfer of Equity Interests that results in any such Indebtedness
being held by a Person other than a Wholly Owned Subsidiary and (B)
any sale or other transfer of any such Indebtedness to a Person that
is not either the Company or a Wholly Owned Subsidiary will be deemed,
in each case, to constitute an Incurrence of such Indebtedness by the
Company or such Subsidiary, as the case may be;
(vii) the Incurrence by the Company or any of its
Subsidiaries that are Subsidiary Guarantors of Hedging Obligations
that are Incurred for the purpose of fixing or hedging interest rate
risk with respect to any floating rate Indebtedness that is permitted
by this Indenture to be Incurred;
(viii) the Incurrence by the Company or any of its
Subsidiaries that are Subsidiary Guarantors of Indebtedness (in
addition to Indebtedness permitted by any other clause of this
paragraph) in an aggregate principal amount at any time not to exceed
$30 million at any time outstanding (which may include additional
Indebtedness Incurred pursuant to the Senior Credit Facility);
(ix) the Incurrence by the Company's Unrestricted
Subsidiaries of Non-Recourse Debt; provided that if any such
Indebtedness ceases to be Non-Recourse Debt of an Unrestricted
Subsidiary, such event will be deemed to
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constitute an Incurrence of Indebtedness by a Subsidiary of the
Company; and
(x) Indebtedness Incurred by the Company or any of its
Subsidiaries that is a Subsidiary Guarantor arising from agreements
providing for indemnification, adjustment of purchase price or similar
obligations, or from guarantees or letters of credit, surety bonds or
performance bonds securing the performance of the Company or any of
its Subsidiaries in connection with the disposition of a portion of
the business or assets of a Subsidiary of the Company in a principal
amount not to exceed 25% of the gross proceeds (with proceeds other
than cash or Cash Equivalents being valued at the fair market value
thereof as determined by the Board of Directors of the Company in good
faith) actually received by the Company or any of its Subsidiaries in
connection with such disposition.
Notwithstanding any other provision of this Section 4.07, a Guarantee
of Indebtedness permitted by the terms of this Indenture at the time such
Indebtedness was Incurred will not constitute a separate Incurrence of
Indebtedness.
SECTION 4.08. Limitation on Transactions with Affiliates. The
Company will not, and will not permit any of its Subsidiaries to, sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make any contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless
(i) such Affiliate Transaction is on terms that are no less favorable to the
Company or the relevant Subsidiary than those that would have been obtained in
a comparable transaction by the Company or such Subsidiary with an unrelated
Person, (ii) the Company delivers to the Trustee (A) with respect to any
Affiliate Transaction entered into after the Closing Date involving aggregate
consideration in excess of $500,000, a resolution of the Board of Directors set
forth in an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (i) above and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the Board of Directors
and (B) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $3 million, an opinion as to the fairness to the
Company or such Subsidiary of such Affiliate Transaction from a financial point
of view issued by an investment banking firm of national standing; provided
that this clause (ii) shall not apply to transactions under the agreement dated
on or about the Closing Date (the "Real Estate Agreement") among one or more
Affiliates of the Carmel Trust and the Company in accordance with the terms of
such Real Estate Agreement as in effect on the Closing Date and any amendments,
modifications, restatements, renewals or supplements thereto; provided that any
such amendment, modification, restatement, renewal or supplement to the Real
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Estate Agreement contains provisions that are no less favorable to the Holders
of the Notes than those contained in the Real Estate Agreement as in effect on
the Closing Date and has been approved by a majority of the disinterested
members of the Board of Directors as evidenced by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee.
In addition, the following will not be deemed to be Affiliate
Transactions: (1) the provision of administrative or management services by
the Company or any of its officers to any of its Subsidiaries in the ordinary
course of business, (2) any employment agreement, collective bargaining
agreement, employee benefit plan or any similar arrangement heretofore or
hereafter entered into by the Company or any of its Subsidiaries in the
ordinary course of business of the Company or such Subsidiary, (3) transactions
between or among the Company and/or its Wholly Owned Subsidiaries, (4)
transactions permitted by Section 4.05, (5) payment of reasonable and customary
compensation to employees, officers, directors or consultants in the ordinary
course of business, (6) maintenance in the ordinary course of business of
benefit programs, or arrangements for employees, officers or directors,
including vacation plans, health and life insurance plans, deferred
compensation plans, and retirement or savings plans and similar plans.
SECTION 4.09. Limitations on Liens. The Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien on any asset now owned or hereafter
acquired, or any income or profits therefrom or assign or convey any right to
receive income therefrom, except Permitted Liens, unless the Obligations due
under this Indenture and the Notes are secured, on an equal and ratable basis
(or on a senior basis, in the case of Indebtedness subordinated in right of
payment to the Notes), with the Obligations so secured.
SECTION 4.10. Taxes. The Company shall, and shall cause each of its
Subsidiaries to, pay prior to delinquency all taxes, assessments and
governmental levies the failure of which to pay could reasonably be expected to
result in a material adverse effect on the condition (financial or otherwise),
business or results of operations of the Company and its Subsidiaries taken as
a whole, except for those taxes contested in good faith by appropriate
proceedings.
SECTION 4.11. Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Subsidiary to
(i) (A) pay dividends or make any other distributions to
the Company or any of its Subsidiaries (1) on its Capital
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Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (B) pay any Indebtedness owed to the
Company or any of its Subsidiaries,
(ii) make loans or advances to the Company or any of its
Subsidiaries or
(iii) transfer any of its properties or assets to the
Company or any of its Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of
(A) Existing Indebtedness,
(B) the Senior Credit Facility as in effect as of the
Closing Date, and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or
refinancings thereof; provided that such amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are no less favorable to
the Holders of the Notes with respect to such dividend and other
payment restrictions than those contained in the Senior Credit
Facility as in effect on the Closing Date,
(C) this Indenture and the Notes,
(D) applicable law,
(E) any instrument governing Acquired Indebtedness or
Capital Stock of a Person acquired by the Company or any of its
Subsidiaries as in effect at the time of such acquisition (except
to the extent such Acquired Indebtedness was Incurred in
connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the
property and assets of the Person, so acquired; provided that the
Consolidated EBITDA of such Person is not taken into account in
determining whether such acquisition was permitted by the terms of
this Indenture,
(F) by reason of customary provisions restricting
assignments, subletting or other transfers contained in leases,
licenses and similar agreements entered into in the ordinary
course of business,
(G) Purchase Money Obligations for property acquired in the
ordinary course of business that impose
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restrictions of the nature described in clause (iii) above on the
property so acquired,
(H) agreements relating to the financing of the acquisition
of real or tangible personal property acquired after the Closing
Date; provided that such encumbrance or restriction relates only
to the property which is acquired and in the case of any
encumbrance or restriction that constitutes a Lien, such Lien
constitutes a Permitted Lien as set forth in clause (xi) of the
definition of "Permitted Lien",
(I) contracts entered into in connection with any sale of
assets permitted by this Indenture in respect of the assets being
sold pursuant to such contract,
(J) Senior Indebtedness permitted to be Incurred under this
Indenture and Incurred after the Closing Date; provided that such
encumbrances or restrictions in such Indebtedness are no less
favorable to the Holders of the Notes than the restrictions
contained in the Senior Credit Facility on the Closing Date,
(K) Indebtedness of Subsidiaries that are not Subsidiary
Guarantors Incurred under clause (x) of Section 4.07,
(L) Permitted Refinancing Indebtedness; provided that the
restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no less favorable to the Holders of
the Notes than those contained in the agreements governing the
Indebtedness being refinanced or
(M) an agreement in effect on the Closing Date and any
amendment thereto; provided that the restrictions contained in any
such amendment are no less favorable to the Holders of the Notes
than the restrictions contained in such agreements on the Closing
Date.
SECTION 4.12. Maintenance of Office or Agencies. The Company will
maintain an office or an agency (which may be an office of any Agent) where
Notes may be surrendered for registration of transfer or exchange or for
presentation for payment and where notices and demands to or upon the Company
in respect of the Notes and this Indenture may be served. The Company will
give prompt written notice to the Trustee of any change in the location of such
office or agency. If at any time the Company shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office, subject to Section 2.06.
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The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03.
SECTION 4.13. Change of Control. Upon the occurrence of a Change of
Control (the "Change of Control Trigger Date"), each Holder of Notes may
require the Company to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase (the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Company will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes pursuant to the procedures required by Section 3.08.
The Change of Control Offer will remain open for a period of 20
Business Days following its commencement and no longer, except to the extent
that a longer period is required by applicable law (the "Change of Control
Offer Period"). No later than five Business Days after the termination of the
Change of Control Offer Period (the "Change of Control Purchase Date"), the
Company will purchase all Notes tendered in response to the Change of Control
Offer. Payment for any Notes so purchased will be made in the same manner as
interest payments are made.
Prior to complying with the provisions of this Section 4.13, but in
any event within 30 days following a Change of Control, the Company will either
repay all outstanding Senior Indebtedness or obtain the requisite consents, if
any, under all agreements governing outstanding Senior Indebtedness to permit
the repurchase of Notes required by this covenant.
SECTION 4.14. Asset Sales. (a) The Company will not, and will not
permit any of its Subsidiaries to, engage in an Asset Sale unless (i) the
Company (or the Subsidiary, as the case may be) receives consideration
(including by way of relief from, or by any other Person assuming sole
responsibility for, any liabilities, contingent or otherwise) at the time of
such Asset Sale at least equal to the fair market value, and in the case of a
lease of assets, a lease providing for rent and other conditions which are no
less favorable to the Company (or the Subsidiary, as the case may be) in any
material respect than the then prevailing market conditions (evidenced in each
case by a
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resolution of the Board of Directors of such entity set forth in an Officers'
Certificate delivered to the Trustee) of the assets or Equity Interests sold or
otherwise disposed of, and (ii) at least 80% (100% in the case of lease
payments) of the consideration therefor (excluding contingent liabilities
assumed by the transferee of any such assets) received by the Company or such
Subsidiary is in the form of cash or Cash Equivalents paid at the closing
thereof; provided that the amount of (A) any liabilities (as shown on the
Company's or such Subsidiary's most recent balance sheet or in the notes
thereto, excluding contingent liabilities), of the Company or any Subsidiary
that are assumed by the transferee of any such assets and (B) any notes,
securities or other obligations received by the Company or any such Subsidiary
from such transferee that are promptly, but in no event more than 30 days after
receipt, converted by the Company or such Subsidiary into cash (to the extent
of the cash received), will be deemed to be cash for purposes of this
provision.
(b) The Company or any of its Subsidiaries may apply the Net
Proceeds from such Asset Sale, at its option,
(i) to permanently reduce Senior Term Debt within 12
months from the later of the date of such Asset Sale or the receipt of
such Net Proceeds,
(ii) to permanently reduce Senior Revolving Debt (and to
correspondingly reduce commitments with respect thereto) within 12
months from the later of the date of such Asset Sale or the receipt of
such Net Proceeds,
(iii) to permanently prepay, repay or purchase Senior
Indebtedness or Guarantor Senior Indebtedness of the Company or a
Subsidiary Guarantor (other than Senior Term Debt or Senior Revolving
Debt) or Indebtedness (other than Preferred Stock) of the Company or a
Subsidiary Guarantor (that, in the case of Indebtedness other than
Senior Indebtedness or Guarantor Senior Indebtedness, is required by
its terms to be prepaid, repaid or repurchased as a result of such
Asset Sale) (and to correspondingly reduce any applicable commitments
with respect thereto) within 12 months from the later of the date of
such Asset Sale or the receipt of such Net Proceeds or
(iv) to reinvest in Additional Assets (including by means
of an Investment in Additional Assets by a Subsidiary with Net
Proceeds received by the Company or another Subsidiary) within 12
months from the later of the date of such Asset Sale or the receipt of
such Net Proceeds.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce Senior Revolving Debt or otherwise invest such Net Proceeds
in any manner that is not prohibited by this Indenture. Any Net Proceeds from
Asset Sales that are not
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applied or invested as provided in the first sentence of this paragraph will be
deemed to constitute "Excess Proceeds".
(c) When the aggregate amount of Excess Proceeds exceeds $5
million (such date, the "Asset Sale Trigger Date"), the Company shall make an
offer to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum
principal amount of Notes that may be purchased out of the Excess Proceeds, at
an offer price in cash in an amount equal to 100% of the principal amount
thereof plus accrued and unpaid interest and Liquidated Damages thereon, if
any, to the date of purchase, in accordance with the procedures set forth in
Section 3.08. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee will select
the Notes to be purchased on a pro rata basis. Upon completion of such offer
to purchase, the amount of Excess Proceeds will be reset at zero.
Notwithstanding the foregoing, if an Asset Sale Offer is commenced and
securities of the Company ranking pari passu in right of payment with the Notes
are outstanding at the date of commencement thereof, the terms of which provide
that a substantially similar offer must be made with respect thereto, then the
Asset Sale Offer shall be made concurrently with such offer, and securities of
each issue which the holders of securities of such issue elect to have
purchased will be accepted pro rata in proportion to the aggregate principal
amount thereof.
The Asset Sale Offer will remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Asset Sale Offer Period"). No later
than five Business Days after the termination of the Offer Period (the "Asset
Sale Purchase Date"), the Company will purchase the principal amount of Notes
required to be purchased pursuant to this covenant (the "Asset Sale Offer
Amount") or, if less than the Asset Sale Offer Amount has been tendered, all
Notes tendered in response to the Asset Sale Offer. Payment for any Notes so
purchased (the "Asset Sale Payment") will be made in the same manner as
interest payments are made.
SECTION 4.15. Additional Guarantees. Within 10 days after acquiring
or creating any Domestic Subsidiary, the Company will cause each such
Subsidiary to duly authorize, execute and deliver to the Trustee a counterpart
of this Indenture as a Subsidiary Guarantor. The Company will not, and will
not permit any of the Subsidiary Guarantors to, make any Investment in any
Subsidiary that is not a Subsidiary Guarantor unless either (i) such Investment
is permitted by Section 4.05, or (ii) such Subsidiary executes a Subsidiary
Guarantee and delivers an opinion of counsel in accordance with the provisions
of this Indenture.
SECTION 4.16. Senior Subordinated Debt. The Company will not incur,
create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in
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right of payment to any Senior Indebtedness and senior in any respect in right
of payment to the Notes. No Subsidiary Guarantor will incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to the Guarantor Senior Indebtedness
and senior in any respect in right of payment to the Subsidiary Guarantees.
ARTICLE 5
SUCCESSORS
SECTION 5.01. Limitation on Merger, Consolidation and Sale of Assets.
(a) The Company may not, in a single transaction or series of related
transactions, consolidate or merge with or into (whether or not the Company is
the surviving corporation), or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions, to another corporation, Person or entity
unless
(i) the Company is the surviving corporation or the
entity or the Person formed by or surviving any such consolidation or
merger (if other than the Company) or to which such sale, assignment,
transfer, lease, conveyance or other disposition will have been made
is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia,
(ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or
Person to which such sale, assignment, transfer, lease, conveyance or
other disposition will have been made assumes all the obligations of
the Company under the Notes and this Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the
Trustee,
(iii) immediately after such transaction no Default or
Event of Default exists and
(iv) the Company or the entity or Person formed by or
surviving any such consolidation or merger (if other than the
Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition will have been made (A) will have
Consolidated Net Worth immediately after the transaction equal to or
greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) will, at the time of such
transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of Section 4.07.
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(b) No Subsidiary Guarantor may consolidate with or merge with or
into (whether or not such Subsidiary Guarantor is the surviving Person),
another corporation, Person or entity whether or not affiliated with such
Subsidiary Guarantor unless, subject to subsection 5.01(c),
(i) the Person formed by or surviving any such
consolidation or merger (if other than such Subsidiary Guarantor)
assumes all the obligations of such Subsidiary Guarantor under its
respective Subsidiary Guarantee pursuant to a supplemental indenture
in form and substance reasonably satisfactory to the Trustee under
this Indenture,
(ii) immediately after giving effect to such transaction,
no Default or Event of Default exists, and
(iii) such Subsidiary Guarantor, or any Person formed by or
surviving any such consolidation or merger, (A) would have
Consolidated Net Worth (immediately after giving effect to such
transaction) equal to or greater than the Consolidated Net Worth of
such Subsidiary Guarantor immediately preceding the transaction and
(B) would be permitted by virtue of the Company's pro forma Fixed
Charge Coverage Ratio to incur, immediately after giving effect to
such transaction, at least $1.00 of additional Indebtedness pursuant
to Section 4.07;
provided that the foregoing will not apply to the merger of two or more
Subsidiary Guarantors with and into each other or with or into the Company.
(c) In the event of a sale or other disposition of all of the assets
of any Subsidiary Guarantor, by way of merger, consolidation or otherwise, or a
sale or other disposition of all of the Capital Stock of any Subsidiary
Guarantor, by way of merger, consolidation or otherwise, then such Subsidiary
Guarantor (in the event of a sale or other disposition of all of the Capital
Stock of such Subsidiary Guarantor) or the corporation acquiring the property
(in the event of a sale or other disposition of all of the assets of such
Subsidiary Guarantor) will be released and relieved of any obligations under its
Subsidiary Guarantee; provided that the Net Proceeds of such sale or other
disposition are applied in accordance with Section 4.14.
ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default. (a) Each of the following
constitutes an event of default (an "Event of Default"):
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(i) default for 30 days in the payment, when due, of
interest on, or Liquidated Damages, if any, with respect to the Notes
(whether or not prohibited by the subordination provisions of this
Indenture);
(ii) default in payment when due of the principal of or
premium, if any, on the Notes (whether or not prohibited by the
subordination provisions of this Indenture) including, without
limitation, payments of any required Change of Control Payment or as a
result of any Asset Sale Offer;
(iii) failure by the Company to comply for 30 days after
notice from the Trustee or the Holders of at least 25% in principal
amount of the then outstanding Notes with its other obligations under
Section 4.13 or 4.14 or its obligations under Section 4.05 or 4.07;
(iv) failure by the Company for 60 days after notice from
the Trustee or the Holders of at least 25% in principal amount of the
then outstanding Notes to comply with any other provision in this
Indenture or the Notes;
(v) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of
its Significant Subsidiaries (or the payment of which is Guaranteed by
the Company or any of its Significant Subsidiaries) whether such
Indebtedness or Guarantee now exists, or is created after the Closing
Date, which default (A) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness after giving effect
to any grace period provided in such Indebtedness on the date of such
default (a "Payment Default") or (B) results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the
principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated,
aggregates $10 million or more;
(vi) failure by the Company or any of its Significant
Subsidiaries to pay final judgments aggregating in excess of $10
million, which judgments are not paid, discharged or stayed for a
period of 60 days;
(vii) except as permitted by this Indenture, any Subsidiary
Guarantee by a Significant Subsidiary shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease for any
reason to be in full force and effect or any Subsidiary Guarantor, or
any Person acting on behalf of any Subsidiary Guarantor, shall deny or
disaffirm its obligations under its Subsidiary Guarantee, and such
Default continues for 10 days and
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(viii) if under any Bankruptcy Law, (A) the Company or any
Significant Subsidiary commences a voluntary case, consents to the
entry of an order for relief against it in an involuntary case,
consents to the appointment of a Custodian of it or for all or
substantially all of its property, or makes a general assignment for
the benefit of its creditors, or (B) a court of competent jurisdiction
enters an order or decree, and such order or decree remains unstated
and in effect for 60 days, that is for relief against the Company or
any Significant Subsidiary in an involuntary case, appoints a
Custodian of the Company or any Significant Subsidiary or for all or
substantially all of the property of the Company or any Significant
Subsidiary, or orders the liquidation of the Company or any
Significant Subsidiary.
(b) Any notice of default delivered to the Company by the Trustee
or by Holders of Notes with a copy to the Trustee must specify the Default,
demand that it be remedied and state that the notice is a "Notice of Default".
SECTION 6.02. Acceleration. (a) If an Event of Default (other than
an Event of Default under Section 6.01(a)(viii)) occurs and is continuing, the
Trustee or the Holders of at least 25% in principal amount of the then
outstanding Notes may declare by written notice to the Company (and to the
Trustee if given by the Holders) all outstanding Notes to be due and payable
immediately and, upon such declaration, the principal of and premium (if any),
Liquidated Damages (if any) and accrued interest on, all such Notes to the date
of payment shall be due and payable immediately; provided, however, that if any
Senior Indebtedness is outstanding pursuant to the Senior Credit Facility upon
a declaration of acceleration of the Notes, the principal of, premium, (if
any), Liquidated Damages (if any) and accrued interest on, the Notes will not
be payable until the earlier of (i) the day which is five Business Days after
notice of acceleration is given to the Company and the Credit Facility Agent
(unless such Event of Default is cured or waived prior to such date) and (ii)
the date of acceleration of the Senior Indebtedness under the Senior Credit
Facility.
(b) Notwithstanding anything to the contrary in this Indenture, if
an Event of Default arises under Section 6.01(a)(viii), the principal amount of
and premium on, if any, and any accrued and unpaid interest on, all outstanding
Notes shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holders.
(c) The Holders of a majority in aggregate principal amount of the
then outstanding Notes by notice to the Trustee may rescind any declaration of
acceleration of such Notes and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Defaults and Events of
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Default (other than the nonpayment of principal of, or premium, if any, or
interest on, the Notes which shall have become due by such declaration) shall
have been cured or waived.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of, or premium, if any, or interest on, the Notes or to enforce
the performance of any provision of the Notes or this Indenture. The Trustee
may maintain a proceeding even if it does not possess any of the Notes or does
not produce any of them in the proceeding. A delay or omission by the Trustee
or any Holder in exercising any right or remedy accruing upon an Event of
Default shall not impair the right or remedy or constitute a waiver of or
acquiescence in the Event of Default. All remedies are cumulative to the
extent permitted by law.
SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in
aggregate principal amount of the then outstanding Notes by notice to the
Trustee may on behalf of all Holders waive any existing Default or Event of
Default and its consequences under this Indenture, except a continuing Default
or Event of Default in the payment of the principal of, premium, if any, or
interest on, any Note (which may only be waived with the consent of each Holder
affected). Upon any such waiver, such Default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured for every
purpose of this Indenture; provided that no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereon.
SECTION 6.05. Control by Majority of Holders. Subject to Section
7.01(e), the Holders of a majority in aggregate principal amount of the then
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it by this Indenture. However, the Trustee may refuse to
follow any direction that conflicts with law or this Indenture, that the
Trustee determines may be unduly prejudicial to the rights of other Holders, or
would involve the Trustee in personal liability. The Trustee may take any
other action deemed proper by the Trustee that is not inconsistent with such
direction.
SECTION 6.06. Limitations on Suits by Holders. A Holder may pursue a
remedy with respect to this Indenture or the Notes only if: (1) the Holder
gives to the Trustee written notice of a continuing Event of Default; (2) the
Holders of at least 25% in principal amount of the then outstanding Notes make
a written request to the Trustee to pursue the remedy; (3) such Holder or
Holders offer to the Trustee indemnity satisfactory to the Trustee against any
loss, liability or expense; (4) the Trustee does not comply with the request
within 60 days after receipt of the request and the offer of indemnity; and (5)
during such 60-day period the Holders of a majority in aggregate principal
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amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request. A Holder may not use this Indenture to
prejudice the rights of another Holder or to obtain a preference or priority
over another Holder. Holders of the Notes may not enforce this Indenture or
the Notes, except as provided herein.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding
any other provision of this Indenture, but subject to Article 10, the right of
any Holder to receive payment of principal of, and premium, if any, and
interest on, a Note, on or after a respective due date expressed in the Note,
or to bring suit for the enforcement of any such payment on or after such
respective date, shall not be impaired or affected without the consent of the
Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default
specified in Section 6.01(a)(i) or (a)(ii) occurs and is continuing, the
Trustee is authorized to recover judgment in its own name and as trustee of an
express trust against the Company (or any Subsidiary Guarantor or other obligor
under the Notes) for (i) principal, premium, if any, interest (if any) and
Liquidated Damages (if any) remaining unpaid on the Notes, (ii) interest on
overdue principal and premium, if any, and, to the extent lawful, interest, and
(iii) such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel ("Trustee
Expenses").
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable to have the claims of the Trustee (including any claim for Trustee
Expenses and for amounts due under Section 7.07) and the Holders allowed in any
Insolvency or Liquidation Proceeding or other judicial proceeding relative to
the Company (or any Subsidiary Guarantor or other obligor upon the Notes), its
creditors or its property and shall be entitled and empowered to collect,
receive and distribute to Holders any money or other property payable or
deliverable on any such claims and each Holder authorizes any Custodian in any
such Insolvency or Liquidation Proceeding or other judicial proceeding to make
such payments to the Trustee, and if the Trustee shall consent to the making of
such payments directly to the Holders any such Custodian is hereby authorized
to make such payments directly to the Holders, and to pay to the Trustee any
amount due to it hereunder for Trustee Expenses, and any other amounts due the
Trustee or any predecessor Trustee under Section 7.07; provided, however, that
the Trustee shall not be authorized to (i) consent to, accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder or (ii) vote in
respect of the claim of any Holder in any such Insolvency or Liquidation
Proceeding. To the extent that the payment of any such Trustee
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Expenses, and any other amounts due the Trustee under Section 7.07 out of the
estate in any such proceeding, shall be denied for any reason, payment of the
same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, Notes and other properties which the Holders
may be entitled to receive in such proceeding, whether in liquidation or under
any plan of reorganization or arrangement or otherwise.
SECTION 6.10. Priorities. If the Trustee collects any money pursuant
to this Article 6, it shall pay out the money in the following order:
First: to the Trustee for all Trustee Expenses and for all amounts
due under Section 7.07;
Second: to the holders of Senior Indebtedness to the extent required
by Article 10;
Third: to Holders for amounts due and unpaid on the Notes for
principal, premium, if any, interest and Liquidated Damages, if any,
ratably, without preference or priority of any kind, according to the
amounts due and payable on the Notes for principal, premium, if any,
interest and Liquidated Damages, if any, respectively; and
Fourth: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as a Trustee, a court in its discretion
may require the filing by any party litigant in the suit of an undertaking to
pay the costs of the suit, and the court in its discretion may assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section 6.11 does not
apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.06, or
a suit by Holders of more than 10% in principal amount of the then outstanding
Notes.
ARTICLE 7
TRUSTEE
SECTION 7.01. Duties of Trustee. (a) If an Event of Default occurs
(and has not been cured) the Trustee shall (i) exercise the rights and powers
vested in it by this Indenture, and
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(ii) use the same degree of care and skill in exercising such rights and powers
as a prudent man would exercise or use under the circumstances in the conduct
of his own affairs.
(b) Except during the continuance of an Event of Default: (i) the
Trustee's duties shall be determined solely by the express provisions of this
Indenture and the Trustee need perform only those duties that are specifically
set forth in this Indenture and no others, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and (ii) in
the absence of bad faith on its part, the Trustee may conclusively rely, as to
the truth of the statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the Trustee and conforming
to the requirements of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether they conform to this Indenture's
requirements.
(c) The Trustee shall not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that: (i) this Section 7.01(c) does not limit the effect of
Section 7.01(b); (ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not
be liable with respect to any action it takes or omits to take in good faith in
accordance with a direction it receives pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to
the Trustee shall be subject to paragraphs (a), (b) and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be
under no obligation to exercise any of its rights and powers or to perform any
duty under this Indenture at the request of any Holders unless such Holders
shall have offered to the Trustee security and indemnity satisfactory to it
against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as it may agree in writing with the Company. Money held
in trust by the Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on any
document it believes to be genuine and to have been signed or presented by the
proper Person. The Trustee need not investigate any fact or matter stated in
any such document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel, or both. The
Trustee shall not be liable for any action it takes or
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omits to take in good faith in reliance on such Officers' Certificate or
Opinion of Counsel. The Trustee may consult with counsel and advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it under this
Indenture in good faith and in reliance on such advice or opinion.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within its
rights or powers.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Notes and
may otherwise deal with the Company or any of its Affiliates with the same
rights it would have if it were not Trustee. The Trustee shall at all times
comply with Section 310(b) of the TIA as in effect from time to time. Each
Agent shall have the same rights as the Trustee under this Section 7.03.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Notes; it shall not be accountable for the Company's use
of the proceeds from the Notes or for any money paid to the Company or upon the
Company's direction under any provisions of this Indenture; it shall not be
responsible for the use or application of any money that any Paying Agent other
than the Trustee receives, and it shall not be responsible for any statement or
recital in this Indenture or any statement in the Notes or any other document
executed in connection with the sale of the Notes or pursuant to this Indenture
other than its certificate of authentication.
SECTION 7.05. Notice to Holders of Defaults and Events of Default.
If a Default or Event of Default occurs and is continuing and if it is known to
the Trustee, the Trustee shall mail to the Holders a notice of the Default or
Event of Default within 90 days after it occurs. Except in the case of a
Default or Event of Default in payment of principal or interest or Liquidated
Damages (if any) on any Note (including any failure to redeem Notes called for
redemption or any failure to purchase Notes that are tendered pursuant to an
Offer and that are required to be purchased by the terms of this Indenture),
the Trustee may withhold the notice if and so long as a committee of
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its Trust Officers determines in good faith that withholding such notice is in
the Holders' interests.
SECTION 7.06. Reports by Trustee to Holders. Within 60 days after
each May 15 beginning with May 15, 1997, the Trustee shall mail to the Holders
a brief report dated as of such reporting date that complies with section
313(a) of the TIA (but if no event described in section 313(a) of the TIA has
occurred within the twelve months preceding the reporting date, no report need
be transmitted). The Trustee also shall comply with section 313(b)(2) of the
TIA. The Trustee shall also transmit by mail all reports as required by
section 313(c) of the TIA.
Commencing at the time this Indenture is qualified under the TIA, a
copy of each report at the time of its mailing to Holders shall be filed with
the SEC and each stock exchange on which the Notes are listed. The Company
shall notify the Trustee when the Notes are listed on any stock exchange.
SECTION 7.07. Compensation and Indemnity. The Company shall pay to
the Trustee from time to time reasonable compensation for its services
hereunder. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee upon request for all reasonable disbursements, advances and expenses it
incurs or makes in addition to the compensation for its services. Such expenses
shall include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.
The Company shall indemnify the Trustee for, from and against any and
all losses, liabilities or expenses the Trustee Incurs arising out of or in
connection with the acceptance or administration of its duties under this
Indenture (including any expenses Incurred in connection with the performance
of its duties under Section 6.08), except as set forth below. The Trustee
shall notify the Company promptly of any claim for which it may seek indemnity;
provided, however, that failure by the Trustee to provide the Company with any
such notice shall not relieve the Company of any of its obligations under this
Section 7.07. The Company shall defend the claim and the Trustee shall
cooperate in the defense of any such claim. The Trustee may have separate
counsel and the Company shall pay the reasonable fees and expenses of such
counsel. The Company need not pay for any settlement made without its consent,
which consent shall not be unreasonably withheld.
The Company's obligations under this Section 7.07 shall survive the
satisfaction and discharge of this Indenture. The Company need not reimburse
any expense or indemnify against any loss or liability the Trustee Incurs
through the Trustee's negligence or bad faith.
To secure payment of the Company's obligations under this Section
7.07, the Trustee shall have a Lien prior to the Notes on
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all money or property the Trustee holds or collects, except that held in trust
to pay principal of, and premium, if any, interest and Liquidated Damages, if
any, on, particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee Incurs expenses or renders services after an Event of
Default specified in Section 6.01(a)(viii) occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents
and counsel) are intended to constitute administrative expenses under any
Bankruptcy Law without any need to demonstrate substantial contribution under
Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. A resignation or removal of
the Trustee and appointment of a successor Trustee shall become effective only
upon the successor Trustee's acceptance of appointment as provided in this
Section 7.08.
The Trustee may resign and be discharged from the trust hereby created
by so notifying the Company in writing. The Holders of a majority in aggregate
principal amount of the then outstanding Notes may remove the Trustee by so
notifying the Trustee and the Company in writing. The Company may remove the
Trustee if: (i) the Trustee fails to comply with Section 7.10; (ii) the Trustee
is adjudged a bankrupt or an insolvent or an order for relief is entered with
respect to the Trustee under any Bankruptcy Law; (iii) a Custodian or public
officer takes charge of the Trustee or its property or (iv) the Trustee becomes
incapable of performing the services of the Trustee hereunder.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee, provided that the Holders of a majority in aggregate
principal amount of the then outstanding Notes may appoint a successor Trustee
to replace any successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of at least 10% in principal amount of the then outstanding Notes
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
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appointment to Holders. The retiring Trustee shall promptly transfer all
property it holds as Trustee to the successor Trustee, subject to its rights
under Section 7.07 and provided that all sums owing to the retiring Trustee
hereunder have been paid. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 shall
continue for the retiring Trustee's benefit with respect to expenses and
liabilities relating to the retiring Trustee's activities prior to being
replaced.
SECTION 7.09. Successor Trustee by Merger, Etc. If the Trustee
consolidates, merges or converts into, or transfers all or substantially all of
its corporate trust business to, another corporation, subject to Section 7.10,
the successor corporation without any further act shall be the successor
Trustee.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at
all times (i) be a corporation organized and doing business under the laws of
the United States of America, of any state thereof, or the District of Columbia
authorized under such laws to exercise corporate trustee power, (ii) be subject
to supervision or examination by federal or state authority, (iii) have a
combined capital and surplus of at least $50 million as set forth in its most
recent published annual report of condition, and (iv) satisfy the requirements
of sections 310(a)(1), (2) and (5) and 310(b) of the TIA.
SECTION 7.11. Preferential Collection of Claims Against Company. The
Trustee is subject to section 311(a) of the TIA, excluding any creditor
relationship listed in section 311(b) of the TIA. A Trustee who has resigned
or been removed shall be subject to section 311(a) of the TIA to the extent
indicated therein.
ARTICLE 8
Discharge of Indenture
SECTION 8.01. Discharge of Liability on Notes; Defeasance. (a)
Subject to Sections 8.01(c) and 8.06, this Indenture shall cease to be of any
further effect after (i) either the Company has delivered to the Trustee all
outstanding Notes (other than Notes replaced pursuant to Section 2.09) for
cancellation or all outstanding Notes have become due and payable and the
Company has irrevocably deposited with the Trustee or a Paying Agent money
and/or Government Securities in an amount sufficient (without reinvestment
thereof) to pay when due all principal of, premium, if any, and interest and
Liquidated Damages, if any, on, all outstanding Notes (other than Notes
replaced pursuant to Section 2.09), and (ii) the Company pays all other sums
payable under this Indenture.
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(b) Subject to Sections 8.01(c), 8.02, and 8.06, the Company at
any time may terminate (i) all its obligations under this Indenture and the
Notes ("Legal Defeasance"), or (ii) its obligations under Sections 4.02, 4.03,
4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.13, 4.14, 4.15 and 4.16 ("Covenant
Defeasance"). The Company may exercise Legal Defeasance notwithstanding its
prior exercise of Covenant Defeasance.
If the Company exercises Legal Defeasance, payment of the Notes may
not be accelerated because of an Event of Default. If the Company exercises
Covenant Defeasance, payment of the Notes may not be accelerated because of an
Event of Default specified in 6.01 (a)(iii), (iv), (v), (vi) or (vii).
Upon satisfaction of the conditions set forth in Section 8.02 and upon
the Company's request (and at the Company's expense), the Trustee shall
acknowledge in writing the discharge of those obligations that the Company has
terminated. Upon discharge of the Company's obligations as a result of the
exercise by the Company of its Covenant Defeasance the obligations of the
Subsidiary Guarantors under the Subsidiary Guarantees shall terminate.
(c) Notwithstanding Sections 8.01(a) and (b), the Company's
obligations under Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 2.09, 4.01,
4.04, 7.07, 7.08, 8.04, 8.05, and 8.06, and the obligations of the Trustee and
the Paying Agent under Section 8.04 shall survive until the Notes have been
paid in full. Thereafter, the Company's obligations under Sections 7.07 and
8.05 and the obligations of the Company, Trustee and Paying Agent under Section
8.04 shall survive.
SECTION 8.02. Conditions to Defeasance. The Company may exercise
either Legal Defeasance or Covenant Defeasance only if:
(i) the Company irrevocably deposits with the Trustee, in
trust, for the benefit of the Holders of the Notes, cash in U.S.
dollars, non-callable Government Securities, or a combination thereof,
in such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest and Liquidated Damages, if
any, on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company
specifies whether the Notes are being defeased to maturity or to a
particular redemption date,
(ii) in the case of Legal Defeasance, the Company shall
have delivered to the Trustee an Opinion of Counsel reasonably
acceptable to the Trustee confirming that (A) the Company has received
from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the Closing Date, there has been a change in the
applicable federal income tax law, in either case to the effect that,
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and based thereon such Opinion of Counsel will confirm that, the
Holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred,
(iii) in the case of Covenant Defeasance, the Company shall
have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that the
Holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner at the same times as would have been the
case if such Covenant Defeasance had not occurred,
(iv) no Default or Event of Default shall have occurred
and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied
to such deposit) or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on
the 91st day after the date of deposit,
(v) such Legal Defeasance or Covenant Defeasance shall
not result in a breach or violation of, or constitute a Default under
any material agreement or instrument (other than this Indenture) to
which the Company or any of its Subsidiaries is a party or by which
the Company or any of its Subsidiaries is bound,
(vi) the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally,
(vii) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders of Notes over the
other creditors of the Company with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or others
and
(viii) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
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SECTION 8.03. Application of Trust Money. The Trustee or Paying
Agent shall hold in trust money and/or Government Securities deposited with it
pursuant to this Article 8. The Trustee or Paying Agent shall apply the
deposited money and the money from Government Securities in accordance with
this Indenture to the payment of principal of, and premium, if any, interest or
Liquidated Damages (if any) on, the Notes. Money deposited with the Trustee or
a Paying Agent pursuant to this Article 8 shall not be subject to the
provisions of Article 10.
SECTION 8.04. Repayment to Company. After the Notes have been paid
in full, the Trustee and the Paying Agent shall promptly turn over to the
Company any excess money or Notes held by them.
Any money deposited with the Trustee or a Paying Agent pursuant to
this Article 8 for the payment of the principal of, premium, if any, interest
or Liquidated Damages (if any) on, any Note that remains unclaimed for two
years after becoming due and payable shall be paid to the Company on its
request; and the Holder of such Note shall thereafter, as an unsecured general
creditor, look only to the Company for payment thereof, and all liability of
the Trustee or such Paying Agent with respect to such money shall cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in The New York Times and The Wall Street Journal (National
Edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 8.05. Indemnity for Government Securities. The Company shall
pay and shall indemnify the Trustee and any Paying Agent against any tax, fee
or other charge imposed on or assessed against cash and/or Government
Securities deposited with it pursuant to this Article 8 or the principal and
interest received on such cash and/or Government Securities.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is
unable to apply any money or Government Securities in accordance with this
Article 8 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's Obligations under this
Indenture and the Notes and the Subsidiary Guarantors' Obligations under the
Subsidiary Guarantee shall be revived and reinstated as though no deposit had
occurred pursuant to this Article 8 until such time as the Trustee or Paying
Agent is permitted to apply all such money or Government Securities in
accordance with this Article 8; provided, however, that if the Company or any
Subsidiary Guarantor has made any payment of principal of, or premium, if any,
interest, or Liquidated Damages
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(if any) on, any Notes because of the reinstatement of its Obligations under
this Indenture and the Notes or the Subsidiary Guarantee, the Company or such
Subsidiary Guarantor, as the case may be, shall be subrogated to the Holders'
rights to receive such payment from the money or Government Securities held by
the Trustee or Paying Agent.
ARTICLE 9
AMENDMENTS
SECTION 9.01. Amendments and Supplements Permitted without Consent of
Holders. (a) Notwithstanding Section 9.02, the Company, the Subsidiary
Guarantors and the Trustee may amend or supplement this Indenture or the Notes
without the consent of any Holder to: (i) cure any ambiguity, defect or
inconsistency; (ii) provide for uncertificated Notes in addition to or in place
of Certificated Notes; (iii) provide for the assumption of the obligations to
the Holders of the Company or a Subsidiary Guarantor, as the case may be, in
the event of a merger or consolidation; (iv) make any change that (1) would
provide any additional rights or benefits to Holders or (2) does not adversely
affect the legal rights under this Indenture of any Holder; or (v) comply with
the requirements of the SEC in order to effect or maintain the qualification of
this Indenture under the TIA.
(b) Upon the Company's request, after receipt by the Trustee of a
resolution of the Board of Directors of the Company authorizing the execution
of any amended or supplemental indenture and the documents described in Section
9.06, the Trustee shall join with the Company and the Subsidiary Guarantors in
the execution of any amended or supplemental indenture authorized or permitted
by the terms of this Indenture, but the Trustee shall not be obligated to enter
into an amended or supplemental indenture that adversely affects its own
rights, duties or immunities under this Indenture or otherwise.
SECTION 9.02. Amendments and Supplements Requiring Consent of
Holders. (a) Except as otherwise provided in Sections 9.01(a) and 9.02(c),
this Indenture and the Notes may be amended or supplemented with the written
consent of the Holders of at least a majority in aggregate principal amount of
the Notes then outstanding (including consents obtained in connection with a
tender offer or exchange offer for the Notes), and any existing Default or
Event of Default or compliance with any provision of this Indenture or the
Notes may be waived with the consent of Holders of at least a majority in
aggregate principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for the Notes).
(b) Upon the Company's request and after receipt by the Trustee of
a resolution of the Board of Directors of the Company
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authorizing the execution of any supplemental indenture, evidence of the
Holders' consent, and the documents described in Section 9.06, the Trustee
shall join with the Company and the Subsidiary Guarantors in the execution of
such amended or supplemental indenture unless such amended or supplemental
indenture adversely affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may in its
discretion, but is not obligated to, enter into such amended or supplemental
indenture.
(c) Without the consent of each Holder affected, an amendment or
waiver may not (with respect to any Notes held by a non-consenting Holder):
(i) reduce the principal amount of Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Note or alter the provisions with respect to the
redemption of the Notes (other than with respect to Section 4.13 or 4.14),
(iii) reduce the rate of or change the time for payment of interest on any
Note, (iv) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the Notes and a waiver of the payment default that resulted
from such acceleration), (v) make any Note payable in money other than that
stated in the Notes, (vi) make any change in the provisions of this Indenture
relating to waivers of past Defaults or the rights of Holders of Notes to
receive payments of principal of or premium, if any, or interest on the Notes,
(vii) waive a redemption payment with respect to any Note (other than a payment
required pursuant to Section 4.13 or 4.14) or (viii) make any change in the
foregoing amendment and waiver provisions; provided that amendments of the
Registration Rights Agreement, including those relating to Liquidated Damages,
shall be governed by the Registration Rights Agreement.
(d) It shall not be necessary for the consent of the Holders under
this Section 9.02 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof. After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to each Holder affected thereby a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such amended or supplemental indenture
or waiver.
SECTION 9.03. Compliance with TIA. Every amendment or supplement to
this Indenture or the Notes shall be set forth in an amended supplemental
indenture that complies with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents. (a) Until an
amendment, supplement or waiver becomes effective, a consent to it by a Holder
of a Note is a continuing consent by the Holder
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and every subsequent holder of a Note or portion of a Note that evidences the
same Indebtedness as the consenting Holder's Note, even if notation of the
consent is not made on any Note. However, any such Holder or subsequent Holder
may revoke the consent as to his or her Note or portion of a Note if the
Trustee receives the notice of revocation before the date on which the Trustee
receives an Officers' Certificate certifying that the Holders of the requisite
principal amount of Notes have consented to the amendment, supplement or
waiver.
(b) The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the holders of Notes entitled to consent to
any amendment or waiver. If a record date is fixed, then notwithstanding the
provisions of the immediately preceding paragraph, those Persons who were
holders of Notes at such record date (or their duly designated proxies), and
only those Persons, shall be entitled to consent to such amendment or waiver or
to revoke any consent previously given, whether or not such Persons continue to
be holders of Notes after such record date. No consent shall be valid or
effective for more than 90 days after such record date unless consents from
Holders of the principal amount of Notes required hereunder for such amendment
or waiver to be effective shall have also been given and not revoked within
such 90-day period.
(c) After an amendment or waiver becomes effective, it shall bind
every Holder, unless it is of the type described in Section 9.02(c), in which
case the amendment or waiver shall only bind each Holder that consented to it
and every subsequent holder of a Note that evidences the same debt as the
consenting Holder's Note.
SECTION 9.05. Notation or Exchange of Notes. The Trustee may place
an appropriate notation about an amendment, supplement or waiver on any Note
thereafter authenticated. The Company in exchange for all Notes may issue and
the Trustee shall authenticate new Notes that reflect the amendment, supplement
or waiver. Failure to make the appropriate notation or issue a new Note shall
not affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06. Trustee Protected. The Trustee shall sign any
amendment or supplemental indenture authorized pursuant to this Article 9 if
the amendment does not adversely affect the rights, duties, liabilities or
immunities of the Trustee. If it does, the Trustee may, but need not, sign it.
In signing such amendment or supplemental indenture, the Trustee shall be
entitled to receive and, subject to Section 7.01, shall be fully protected in
relying upon, an Officers' Certificate and Opinion of Counsel pursuant to
Sections 12.04 and 12.05 as conclusive evidence that such amendment or
supplemental indenture is authorized or permitted by this Indenture, that it is
not inconsistent herewith, and that it will be valid and binding upon the
Company and the Subsidiary Guarantors in accordance with its
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terms. Neither the Company nor any Subsidiary Guarantor may sign an amendment
or supplemental indenture until the Board of Directors of the Company approves
it.
SECTION 9.07. Amendments Requiring Consent of Holders of Senior Debt.
No amendment or modification to Article 10, this Section 9.07 or Section 12.15
may be made to this Indenture without the consent of holders of at least a
majority of the outstanding principal amount of the loans under the Senior
Credit Facility (and, to the extent that there are unused commitments under the
Senior Credit Facility, such unused commitments) and a majority of the
outstanding principal amount of each other class of Designated Senior
Indebtedness, in each case to the extent that such holders would be adversely
affected by such amendment or modification (Senior Bank Debt and any other
Designated Senior Indebtedness shall each be a separate class); provided,
however, that if some but not all classes of Designated Senior Indebtedness
consent to any such amendment or modification, such amendment or modification
shall be effective with respect to each consenting class.
ARTICLE 10
SUBORDINATION
SECTION 10.01. Agreement to Subordinate. The Company agrees, and
each Holder by accepting a Note agrees, any provision of this Indenture or the
Notes to the contrary notwithstanding, that all Obligations owed under and in
respect of the Notes are subordinated in right of payment, to the extent and in
the manner provided in this Article 10, to the prior payment in full in cash of
all Obligations owed under and in respect of all Senior Indebtedness of the
Company, and that the subordination of the Notes pursuant to this Article 10 is
for the benefit of all holders of all Senior Indebtedness of the Company,
whether outstanding on the Closing Date or Incurred thereafter.
SECTION 10.02. Liquidation; Dissolution; Bankruptcy. (a) Upon any
distribution of cash, Notes or other property of the Company to creditors upon
any Insolvency or Liquidation Proceeding with respect to the Company, the
holders of any Senior Indebtedness of the Company will be entitled to receive
payment in full, in cash or Cash Equivalents, of all Obligations due in respect
of such Senior Indebtedness (including Post-Petition Interest and, in the case
of all Designated Senior Indebtedness, all Obligations with respect thereto)
before the Holders will be entitled to receive any payment or distribution with
respect to the Notes (including payment for the repurchase of Notes upon a
Change of Control), and until all Obligations with respect to such Senior
Indebtedness of the Company are paid in full, in cash or Cash Equivalents, any
payment or distribution to which the Holders would be entitled shall be made to
the holders of the Company's Senior Indebtedness on a pro rata basis (except
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payments made from the trust described in Section 8.02 and except that Holders
of the Notes may receive Reorganization Securities.
Upon any Insolvency or Liquidation Proceeding with respect to the
Company, any payment or distribution of assets of the Company of any kind or
character, whether in cash, securities or other property, to which the Holders
or the Trustee would be entitled except for the provisions of this Indenture
shall be paid by the Company, any Custodian or other Person making such payment
or distribution, or by the Holders or by the Trustee if received by them,
directly to the holders of the Company's Senior Indebtedness (pro rata to such
holders on the basis of the amounts of the Obligations due in respect of the
Senior Indebtedness held by them) or their Representatives, as their interests
may appear, for application to the payment of all Obligations due in respect of
such Senior Indebtedness (including Post- Petition Interest and, in the case of
all Designated Senior Indebtedness, all Obligations with respect thereto)
until all such Obligations have been paid in full in cash, after giving effect
to all other payments or distributions to, or provisions made for, holders of
the Company's Senior Indebtedness.
(b) A distribution may consist of cash, securities or other
property, by set-off or otherwise. For purposes of this Article 10, the words
"cash, securities or other property" shall not include any distribution of
securities of the Company or any other corporation provided for in any
reorganization proceeding under any Bankruptcy Law if (i) such securities
constitute Reorganization Securities, (ii) such distribution was authorized by
an order or decree of a court of competent jurisdiction, and (iii) such order
gives effect to (and states in such order or decree that effect has been given
to) the subordination of such securities to all Senior Indebtedness of the
Company not paid in full in connection with such reorganization; provided that
(a) all such Senior Indebtedness is assumed by the reorganized corporation, and
(b) the rights of the holders of any such Senior Indebtedness are not, without
the consent of such holders, altered by such reorganization, which consent
shall be deemed to have been given if the holders of such Senior Indebtedness
(or their Representative), individually or as a class, shall have approved such
reorganization.
(c) Notwithstanding anything to the contrary in Section 10.02,
Holders of Notes may continue to receive payments from the trust established
pursuant to Section 8.02.
SECTION 10.03. Default on Senior Debt. The Company also may not make
any payment upon or in respect of the Notes (except in such subordinated
securities as described in Section 10.02(b) or from the trust established
pursuant to Section 8.02) if (i) a default in the payment of the principal of,
premium, if any, or interest on Designated Senior Indebtedness occurs and is
continuing beyond any applicable period of grace or (ii) any other default
occurs and is continuing with respect to Designated
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Senior Indebtedness that permits holders of the Designated Senior Indebtedness
as to which such default relates to accelerate its maturity and the Trustee
receives a notice of such default (a "Payment Blockage Notice") from the
Company or any Representative of any Designated Senior Indebtedness. Payments
on the Notes may and will be resumed and all past due amounts on the Notes
shall be paid (a) in the case of a payment default, upon the date on which such
default is cured or waived and (b) in case of a nonpayment default, upon the
earlier of (1) the date on which such nonpayment default is cured or waived or
(2) 179 days after the date on which the applicable Payment Blockage Notice is
received, in each case, unless the maturity of any Designated Senior
Indebtedness has been accelerated and the Company has defaulted with respect to
the payment of such Designated Senior Indebtedness. No new period of payment
blockage may be commenced unless and until 360 days have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice. No nonpayment
default that existed or was continuing on the date any Payment Blockage Notice
was given shall be, or be made, the basis for a subsequent Payment Blockage
Notice.
SECTION 10.04. Acceleration of Notes. If payment of the Notes is
accelerated because of an Event of Default, the Company shall promptly notify
the Credit Facility Agent and each holder of the Company's Senior Indebtedness
of the acceleration.
SECTION 10.05. When Distributions Must Be Paid Over. If the Company
shall make any payment to the Trustee on account of the principal of, or
premium, if any, or interest or Liquidated Damages, if any, on, the Notes, or
any other Obligation in respect of the Notes, or the Holders shall receive from
any source any payment on account of the principal of, or premium, if any, or
interest on, the Notes or any Obligation in respect of the Notes, at a time
when such payment is prohibited by this Article 10, the Trustee or such Holders
shall hold such payment in trust for the benefit of, and shall pay over and
deliver to, the holders of the Company's Senior Indebtedness (pro rata as to
each of such holders on the basis of the respective amounts of such Senior
Indebtedness held by them) or their Representative, as their respective
interests may appear, for application to the payment of all outstanding Senior
Indebtedness of the Company until all such Senior Indebtedness has been paid in
full in cash, after giving effect to all other payments or distributions to, or
provisions made for, the holders of the Company's Senior Indebtedness.
With respect to the holders of Senior Indebtedness of the Company, the
Trustee undertakes to perform only such obligations on its part as are
specifically set forth in this Article 10, and no implied covenants or
obligations with respect to any holders of the Company's Senior Indebtedness
shall be read into this Indenture against the Trustee. The Trustee shall not
be deemed to owe any fiduciary duty to the holders of the Company's Senior
Indebtedness, and shall not be liable to any holders of such
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Senior Indebtedness if the Trustee shall pay over or distribute to, or on
behalf of, Holders or the Company or any other Person, money or assets to which
any holders of such Senior Indebtedness are entitled pursuant to this Article
10, except if such payment is made at a time when a Trust Officer has knowledge
that the terms of this Article 10 prohibit such payment.
SECTION 10.06. Notice. Neither the Trustee nor the Paying Agent
shall at any time be charged with the knowledge of the existence of any facts
that would prohibit the making of any payment to or by the Trustee or Paying
Agent under this Article 10, unless and until the Trustee or Paying Agent shall
have received written notice thereof from the Company or one or more holders of
the Company's Senior Indebtedness or a Representative of any holders of such
Senior Indebtedness; and, prior to the receipt of any such written notice, the
Trustee or Paying Agent shall be entitled to assume conclusively that no such
facts exist. The Trustee shall be entitled to rely on the delivery to it of
written notice by a Person representing itself to be a holder of the Company's
Senior Indebtedness (or a Representative thereof) to establish that such notice
has been given.
The Company shall promptly notify the Trustee and the Paying Agent in
writing of any facts it knows that would cause a payment of principal of, or
premium, if any, or interest on, the Notes or any other Obligation in respect
of the Notes to violate this Article 10, but failure to give such notice shall
not affect the subordination of the Notes to the Senior Indebtedness of the
Company provided in this Article 10 or the rights of holders of such Senior
Indebtedness under this Article 10.
SECTION 10.07. Subrogation. After all Senior Indebtedness of the
Company has been paid in full in cash and until the Notes are paid in full,
Holders shall be subrogated (equally and ratably with all other Indebtedness
pari- passu with the Notes) to the rights of holders of such Senior
Indebtedness to receive distributions applicable to such Senior Debt to the
extent that distributions otherwise payable to the Holders have been applied to
the payment of such Senior Indebtedness. A distribution made under this Article
10 to holders of the Company's Senior Indebtedness that otherwise would have
been made to Holders is not, as between the Company and Holders, a payment by
the Company on its Senior Indebtedness.
SECTION 10.08. Relative Rights. This Article 10 defines the relative
rights of Holders and holders of the Company's Senior Indebtedness. Nothing in
this Indenture shall: (1) impair, as between the Company and Holders, the
Company's Obligations, which are absolute and unconditional, to pay principal
of, and premium, if any, and interest and Liquidated Damages (if any) on, the
Notes in accordance with their terms; (2) affect the relative rights of Holders
and the Company's creditors other than their rights in relation to holders of
the Company's Senior Indebtedness; or (3) prevent the Trustee or any Holder
from
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exercising its available remedies upon a Default or Event of Default, subject
to the rights of holders of the Company's Senior Indebtedness to receive
distributions and payments otherwise payable to Holders.
Nothing contained in this Article 10 or elsewhere in this Indenture or
in any Note is intended to or shall impair, as between the Company and the
Holders, the Obligations of the Company, which are absolute and unconditional,
to pay to the Holders the principal of, and premium, if any, and interest and
Liquidated Damages (if any) on, the Notes as and when the same shall become due
and payable in accordance with their terms, or is intended to or shall affect
the relative rights of the Holders and creditors of the Company other than the
holders of the Company's Senior Indebtedness, nor shall anything herein or
therein prevent the Trustee or any Holder from exercising all remedies
otherwise permitted by applicable law upon Default under this Indenture,
subject to the rights, if any, under this Article 10 of the holders of such
Senior Indebtedness.
The failure to make a payment on account of principal of, or interest
on the Notes by reason of any provision of this Article 10 shall not be
construed as preventing the occurrence of an Event of Default under Section
6.01.
SECTION 10.09. The Company and Holders May Not Impair Subordination.
(a) No right of any holder of the Company's Senior Indebtedness to enforce the
subordination as provided in this Article 10 shall at any time or in any way be
prejudiced or impaired by any act or failure to act by the Company or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture or the Notes or any other agreement regardless of any knowledge
thereof with which any such holder may have or be otherwise charged.
(b) Without in any way limiting Section 10.09(a), the holders of
any Senior Indebtedness of the Company may, at any time and from time to time
to the extent not otherwise prohibited by this Indenture, without the consent
of or notice to any Holders, without incurring any liabilities to any Holder
and without impairing or releasing the subordination and other benefits
provided in this Indenture or the Holders' obligations to the holders of such
Senior Indebtedness, even if any Holder's right of reimbursement or subrogation
or other right or remedy is affected, impaired or extinguished thereby, do any
one or more of the following: (i) amend, renew, exchange, extend, modify,
increase or supplement in any manner such Senior Indebtedness or any instrument
evidencing or guaranteeing or securing such Senior Indebtedness or any
agreement under which such Senior Indebtedness is outstanding (including, but
not limited to, changing the manner, place or terms of payment or changing or
extending the time of payment of, or renewing, exchanging, amending, increasing
or altering, (1) the terms of such Senior Indebtedness, (2) any security for,
or any Guarantee of, such
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Senior Indebtedness, (3) any liability of any obligor on such Senior
Indebtedness (including any guarantor) or any liability Incurred in respect of
such Senior Indebtedness) (ii) sell, exchange, release, surrender, realize
upon, enforce or otherwise deal with in any manner and in any order any
property pledged, mortgaged or otherwise securing such Senior Indebtedness or
any liability of any obligor thereon, to such holder, or any liability Incurred
in respect thereof; (iii) settle or compromise any such Senior Indebtedness or
any other liability of any obligor of such Senior Indebtedness to such holder
or any security therefor or any liability Incurred in respect thereof and apply
any sums by whomsoever paid and however realized to any liability (including,
without limitation, payment of any of the Company's Senior Indebtedness) in any
manner or order; and (iv) fail to take or to record or otherwise perfect, for
any reason or for no reason, any lien or security interest securing such Senior
Indebtedness by whomsoever granted, exercise or delay in or refrain from
exercising any right or remedy against any obligor or any guarantor or any
other Person, elect any remedy and otherwise deal freely with any obligor and
any security for such Senior Indebtedness or any liability of any obligor to
the holders of such Senior Indebtedness or any liability Incurred in respect of
such Senior Indebtedness.
(c) Each Holder by accepting a Note agrees not to compromise,
release, forgive or otherwise discharge the Company's Obligations with respect
to such Holder's Note unless holders of a majority of the outstanding amount of
each class of Senior Indebtedness (as described in Section 9.07) consent to
such compromise, release, forgiveness or discharge.
SECTION 10.10. Distribution or Notice to Representative. Whenever a
distribution is to be made, or a notice given, to holders of Senior
Indebtedness of the Company, the distribution may be made and the notice given
to their Representative, if any. If any payment or distribution of the
Company's assets is required to be made to holders of any of the Company's
Senior Indebtedness pursuant to this Article 10, the Trustee and the Holders
shall be entitled to rely upon any order or decree of any court of competent
jurisdiction, or upon any certificate of a Representative of such Senior
Indebtedness or a Custodian, in ascertaining the holders of such Senior
Indebtedness entitled to participate in any such payment or distribution, the
amount to be paid or distributed to holders of such Senior Indebtedness and all
other facts pertinent to such payment or distribution or to this Article 10.
SECTION 10.11. Rights of Trustee and Paying Agent. The Trustee or
Paying Agent may continue to make payments on the Notes unless prior to any
payment date it has received written notice of facts that would cause a payment
of principal of, or premium, if any, or interest on, the Notes to violate this
Article 10. Only the Company, a Representative of Senior
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Indebtedness, or a holder of Senior Indebtedness that has no Representative may
give such notice.
To the extent permitted by the TIA, the Trustee in its individual or
any other capacity may hold Indebtedness of the Company (including Senior
Indebtedness) with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights.
SECTION 10.12. Authorization to Effect Subordination. Each Holder of
a Note by its acceptance thereof authorizes and directs the Trustee on its
behalf to take such action as may be necessary or appropriate to effectuate the
subordination as provided in this Article 10, and appoints the Trustee as such
Holder's attorney-in-fact for any and all such purposes (including, without
limitation, the timely filing of a claim for the unpaid balance of the Note
that such Holder holds in the form required in any Insolvency or Liquidation
Proceeding and causing such claim to be approved).
If a proper claim or proof of debt in the form required in such
proceeding is not filed by or on behalf of all Holders prior to 30 days before
the expiration of the time to file such claims or proofs, then the holders or a
Representative of any Senior Indebtedness of the Company are hereby authorized,
and shall have the right (without any duty), to file an appropriate claim for
and on behalf of the Holders.
SECTION 10.13. Payment. A payment on account of or with respect to
any Note shall include, without limitation, any Liquidated Damages or, in the
case of any payment after November 1, 1997, principal, premium or interest with
respect to or in connection with any optional redemption or purchase
provisions, any direct or indirect payment payable by reason of any other
Indebtedness or Obligation being subordinated to the Notes, and any direct or
indirect payment or recovery on any claim as a Holder relating to or arising
out of this Indenture or any Note, or the issuance of any Note, or the
transactions contemplated by this Indenture or referred to herein.
ARTICLE 11
SUBSIDIARY GUARANTEE
SECTION 11.01. Subsidiary Guarantee. (a) Each Subsidiary Guarantor
hereby unconditionally guarantees to each Holder of a Note authenticated and
delivered by the Trustee that: (i) the principal of, premium, if any,
Liquidated Damages, if any, and interest on the Notes will be promptly paid in
full when due, whether at maturity, by acceleration, redemption or otherwise,
and interest on the overdue principal of and interest and Liquidated Damages,
if any, and premium (if any) on the Notes, if any, to the extent lawful, and
all other Obligations of the
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Company to the Holders or the Trustee under this Indenture and the Notes will
be promptly paid in full, all in accordance with the terms of this Indenture
and the Notes; and (ii) in case of any extension of time of payment or renewal
of any Notes or any of such other Obligations, that the Notes will be promptly
paid in full when due in accordance with the terms of such extension or
renewal, whether at stated maturity, by acceleration or otherwise.
Each Subsidiary Guarantor hereby further agrees that its Obligations
under this Indenture and the Notes shall, subject to Section 11.05, be
unconditional, regardless of the validity, legality or enforceability of this
Indenture or the Notes, the absence of any action to enforce this Indenture or
the Notes, any waiver or consent by any Holder with respect to any provisions
this Indenture or the Notes, any modification or amendment of, or supplement
of, this Indenture or the Notes, the recovery of any judgment against the
Company or any action to enforce any such judgment, or any other circumstance
that might otherwise constitute a legal or equitable discharge or defense of
such Subsidiary Guarantor. Each Subsidiary Guarantor hereby waives diligence,
presentment, demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Company, any right to require a proceeding
first against the Company, protest, notice and all demands whatsoever and
covenants that its Subsidiary Guarantee will not be discharged except by
complete performance by the Company of such Obligations. If any Holder or the
Trustee is required by any court or otherwise to return to the Company, such
Subsidiary Guarantor or a Custodian of the Company or such Subsidiary Guarantor
any amount paid by the Company or such Subsidiary Guarantor to the Trustee or
such Holder, its Subsidiary Guarantee shall, to the extent previously
discharged as a result of any such payment, be immediately reinstated and be in
full force and effect. Each Subsidiary Guarantor hereby acknowledges and
agrees that, as between it, on the one hand, and the Holders and the Trustee,
on the other hand, (x) the maturity of the Company's Obligations under this
Indenture and the Notes may be accelerated as provided in Article 6 for
purposes of its Subsidiary Guarantee notwithstanding any stay, injunction or
other prohibition preventing such acceleration, and (y) in the event of any
declaration of acceleration of the Company's Obligations under this Indenture
and the Notes as provided in Article 6, such Obligations (whether or not due
and payable) shall forthwith become due and payable by such Subsidiary
Guarantor for the purpose of its Subsidiary Guarantee.
(b) Upon making any payment with respect to the Company hereunder,
a Subsidiary Guarantor shall be subrogated to the rights of the payee against
the Company with respect to such payment; provided that no Subsidiary Guarantor
shall enforce any payment by way of subrogation or contribution until all
Obligations of the Company under this Indenture have been paid in full.
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SECTION 11.02. Trustee to Include Paying Agent. In case at any time
any Paying Agent other than the Trustee shall have been appointed by the
Company, the term "Trustee" as used in this Article 11 shall (unless the
context shall otherwise require) be construed as extending to and including
such Paying Agent within its meaning as fully and for all intents and purposes
as if such Paying Agent were named in this Article 11 in place of the Trustee.
SECTION 11.03. Subordination of Subsidiary Guarantee. Each
Subsidiary Guarantor's Obligations under its Subsidiary Guarantee shall be
junior and subordinated in right of payment to any Guarantor Senior
Indebtedness in the same manner and to the same extent as the Notes are
subordinated to Senior Indebtedness of the Company pursuant to Article 10. Any
Payment Blockage Notice given to the Trustee in respect of the Company's
Designated Senior Indebtedness pursuant to Section 10.03 shall be deemed to be
a Payment Blockage Notice given to the Trustee in respect of such Subsidiary
Guarantor's Guarantor Senior Indebtedness and any Payment Blockage Notice given
to the Trustee in respect of such Subsidiary Guarantor's Guarantor Senior
Indebtedness pursuant to this Section 11.03 shall be deemed to be a Payment
Blockage Notice given to the Trustee in respect of the Company's Designated
Senior Indebtedness.
In the event of a conflict between the provisions of Section 10.03 and
the provisions of Section 10.03 as read to apply to such Subsidiary Guarantor's
Subsidiary Guarantee pursuant to this Section 11.03, the provisions of Section
10.03 shall apply and govern this Indenture.
SECTION 11.04. Senior Subordinated Debt of Subsidiary Guarantor.
Each Subsidiary Guarantor hereby agrees that it will not Incur, Guarantee or
otherwise become liable for any Indebtedness that is subordinated or junior in
right of payment to any Guarantor Senior Indebtedness and senior in any respect
in right of payment to its Subsidiary Guarantee.
SECTION 11.05. Limits of Subsidiary Guarantee. (a) Notwithstanding
anything to the contrary in this Article 11, the aggregate amount of the
Obligations guaranteed under this Indenture by each Subsidiary Guarantor shall
be limited in amount to the lesser of (a) maximum amount that would not render
such Subsidiary Guarantor's obligations subject to avoidance under applicable
fraudulent conveyance provisions of the United States Bankruptcy Code or any
comparable provision of any applicable state law and (b) the maximum amount
that would not render the Subsidiary Guarantee an improper corporate
distribution by such Subsidiary Guarantor under applicable state law. In
addition, the Subsidiary Guarantee will cease to be effective if and to the
extent that prior to the date it is probable to be called upon, a Subsidiary
Guarantor would be required to reflect the amount of such Subsidiary Guarantee
on the face of its balance sheet under GAAP and to do so would prevent such
Subsidiary Guarantor from
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distributing to the Company amounts sufficient to pay principal or interest or
Liquidated Damages (if any) on the Notes when due.
(b) With respect to the relative rights of the Holders and the
holders of Senior Indebtedness of the Company and any Guarantee of Senior
Indebtedness of the Company, each Subsidiary Guarantor agrees, and each Holder
by accepting a Note agrees, that any Designated Senior Indebtedness and any
Guarantee of any Designated Senior Indebtedness shall be deemed to have been
Incurred prior to the Incurrence by such Subsidiary Guarantor of its
Obligations under the Subsidiary Guarantee.
ARTICLE 12
MISCELLANEOUS
SECTION 12.01. Trustee Indenture Act Controls. If any provision of
this Indenture limits, qualifies, or conflicts with the duties imposed by
operation of Section 318(c) of the TIA, the imposed duties shall control.
SECTION 12.02. Notices. Any notice or communication by the Company
or the Trustee to the other is duly given if in writing and delivered in
person, mailed by registered or certified mail, postage prepaid, return receipt
requested or delivered by telecopier or overnight air courier guaranteeing next
day delivery to the other's address:
If to the Company or the Subsidiary Guarantors:
CSK Auto, Inc.
645 E. Missouri Avenue
Suite 400
Phoenix, AZ 85012
Telecopier: (602) 234-1713
Attention: President
With copies to: Gibson Dunn & Crutcher, LLP
200 Park Avenue
New York, NY 10166-0193
Telecopier: (212) 351-4035
Attention: Charles K.
Marquis
and
Investcorp International Inc
280 Park Avenue
37 West Floor
New York, NY 10017
Telecopier: (212) 983-7073
Attention: Jon T. Hedley
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<PAGE> 91
If to the Trustee: Wells Fargo Bank, N.A.
100 West Washington Street
Phoenix, AZ 85003
Telecopier: (602) 440-1389
Attention: Corporate Trust
Department
MAC #4101-082
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: (i) at the time delivered by hand, if
personally delivered; (ii) the date receipt is acknowledged, if mailed by
registered or certified mail; (iii) when answered back, if telecopied and (iv)
the next Business Day after timely delivery to the courier, if sent by
overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first-class
mail to his or her address shown on the register maintained by the Registrar.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders. If a notice or
communication is mailed in the manner provided above within the time
prescribed, it is duly given, whether or not the addressee receives it. If the
Company mails a notice or communication to Holders, it shall mail a copy to the
Trustee and each Agent at the same time.
SECTION 12.03. Communication by Holders with Other Holders. Holders
may communicate pursuant to section 312(b) of the TIA with other Holders with
respect to their rights under this Indenture or the Notes. The Company, the
Trustee, the Registrar and any other Person shall have the protection of
section 312(c) of the TIA.
SECTION 12.04. Certificate and Opinion As to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee: (a) an
Officers' Certificate (which shall include the statements set forth in Section
12.05) stating that, in the opinion of the signers, all conditions precedent
and covenants, if any, provided for in this Indenture relating to the proposed
action have been complied with; and (b) an Opinion of Counsel (which shall
include the statements set forth in Section 12.05) stating that, in the opinion
of such counsel, all such conditions precedent provided for in this Indenture
relating to the proposed action have been complied with.
SECTION 12.05. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance
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with a condition or covenant provided for in this Indenture (other than a
certificate provided pursuant to section 314(a)(4) of the TIA) shall include:
(1) a statement that the Person making such certificate or opinion has read such
covenant or condition; (2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based; (3) a statement that, in the opinion of
such Person, he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such covenant or
condition has been complied with, and (4) a statement as to whether, in such
Person's opinion, such condition or covenant has been complied with.
SECTION 12.06. Rules by Trustee and Agents. The Trustee may make
reasonable rules for action by or at a meeting of Holders. The Registrar or
Paying Agent may make reasonable rules and set reasonable requirements for its
functions.
SECTION 12.07. Legal Holidays. If a payment date is a Legal Holiday
at a place of payment, payment may be made at that place on the next succeeding
day that is not a Legal Holiday, and no interest shall accrue for the
intervening period.
SECTION 12.08. No Recourse Against Others. No director, officer,
employee, incorporator or direct or indirect stockholder or Affiliate of the
Company or any Subsidiary Guarantor (other than the Company and any Subsidiary
Guarantor), as such, shall have any liability for any obligation of the Company
under this Indenture, the Subsidiary Guarantees or the Notes or for any claim
based on, in respect of, or by reason of, any such obligation or the creation
of any such obligation. Each Holder by accepting a Note waives and releases
such Persons from all such liability and such waiver and release is part of the
consideration for the Issuance of the Notes.
SECTION 12.09. Counterparts. This Indenture may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
SECTION 12.10. Initial Appointments, Compliance Certificates. The
Company initially appoints the Trustee as Paying Agent, Registrar (subject to
Sections 2.03 and 2.06) and authenticating agent. The first compliance
certificate to be delivered by the Company to the Trustee pursuant to Section
4.03 shall be for the fiscal year ending on February 2, 1997.
SECTION 12.11. Governing Law. The internal laws of the State of New
York shall govern this Indenture and the Notes, without regard to the conflict
of laws provisions thereof.
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SECTION 12.12. No Adverse Interpretation of Other Agreements. This
Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or any of its Subsidiaries, and no other indenture,
loan or debt agreement may be used to interpret this Indenture.
SECTION 12.13. Successors. All agreements of the Company and the
Subsidiary Guarantors in this Indenture and the Notes shall bind any successors
of the Company and such Subsidiary Guarantors, respectively. All agreements of
the Trustee in this Indenture shall bind its successor.
SECTION 12.14. Severability. If any provision in this Indenture or
in the Notes shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 12.15. Third Party Beneficiaries. Holders of Senior
Indebtedness of the Company and of Guarantor Senior Indebtedness are third
party beneficiaries of this Indenture, and any of them (or their
Representative) shall have the right to enforce the provisions of this
Indenture that benefit such holders.
SECTION 12.16. Table of Contents, Headings, Etc. The Table of
Contents and headings of the Articles and Sections of this Indenture have been
inserted for convenience of reference only, are not to be considered a part of
this Indenture, and shall in no way modify or restrict any of the terms or
provisions of this Indenture.
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date and year first written above.
CSK AUTO, INC.
By: ----------------------------
Name:
Title:
Attest: ----------------------
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KRAGEN AUTO SUPPLY CO.
By:
------------------------
Name:
Title:
Attest:
------------------------
SCHUCK'S DISTRIBUTION CO.
By:
------------------------
Name:
Title:
Attest:
------------------------
WELLS FARGO BANK, N.A.,
as Trustee
By:
------------------------
Name:
Title:
By:
------------------------
Name:
Title:
Attest:
------------------------
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EXHIBIT A
FORM OF FACE OF NOTE
CSK AUTO, INC.
11% SENIOR SUBORDINATED NOTES DUE 2006
No. $
---------- ----------
[CUSIP] [CINS] NO.
CSK Auto, Inc., a corporation duly organized and existing under the
laws of the State of Arizona (herein called the "Company", which term includes
any successor Person under the Indenture hereinafter referred to), for value
received, hereby promises to pay to ______________________, or registered
assigns, the principal sum of ___________________ Dollars on November 1, 2006
and to pay interest thereon until maturity from the date of original issuance
hereof or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, semi-annually in arrears on May 1 and November 1 of
each year, commencing May 1, 1997, at the rate of 11% per annum.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof and as more fully specified in the Indenture, which
further provisions shall for all purposes have the same effect as if set forth
at this place.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
CSK AUTO, INC.
By:
-------------------------
Name:
Title:
Attest:
-------------------
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<PAGE> 96
FORM OF REVERSE OF NOTE
1. INTEREST. CSK Auto, Inc. (the "Company") promises to pay
interest on the principal amount of this Note at the rate and in the manner
specified below. Cash interest will accrue at 11% per annum until maturity and
will be payable semi-annually in arrears in cash on May 1 and November 1 of
each year commencing May 1, 1997, or if any such day is not a Business Day on
the next succeeding Business Day (each an "Interest Payment Date"). Interest
on this Note will accrue from the most recent date on which interest has been
paid or, if no interest has been paid, from the original date of issue. To the
extent lawful, the Company shall pay interest on overdue principal. premium, if
any, interest and Liquidated Damages, if any, from time to time on demand at
the rate of 11% per annum, compounded semi-annually. Interest will be computed
on the basis of a 360-day year of twelve 30-day months.
[In the event that a Registration Default occurs under the
Registration Rights Agreement, then Liquidated Damages (as defined therein) (in
addition to the interest otherwise due hereon) will accrue with respect to the
first 90-day period immediately following the occurrence of such Registration
Default in an amount equal to $.05 per week per $1,000 principal amount of
Notes held by such Holder. The amount of Liquidated Damages will increase by
an additional $.05 per week per $1,000 principal amount of Notes with respect
to each subsequent 90-day period until all Registration Defaults have been
cured, up to a maximum amount of Liquidated Damages of $.30 per week per $1,000
principal amount of Notes. All accrued Liquidated Damages, if any, will be
paid by the Company or the Subsidiary Guarantors, in arrears, on each Interest
Payment Date, commencing November 1, 1997. Upon the cure of all Registration
Defaults, the accrual of Liquidated Damages will cease.]1
[There shall also be payable in respect of this Note all Liquidated
Damages that may have accrued on the Note for which this Note was exchanged (as
defined in such Note) pursuant to the Exchange Offer or otherwise pursuant to a
Registration of such Note, such Liquidated Damages to be payable in accordance
with the terms of such Note.]2
2. METHOD OF PAYMENT. The Company will pay interest on this Note
to the Person who is the registered Holder of this Note at the close of
business on the record date for the next Interest
- --------------------------------
1 To be included in Notes but not New Notes.
2 To be included in New Notes.
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<PAGE> 97
Payment Date, which record date shall be April 15 and October 15 of each year
(each a "Record Date") even if such Note is cancelled after such Record Date
and on or before such Interest Payment Date. Holders must surrender Notes to a
Paying Agent, as defined below, to collect principal payments on such Notes.
Principal of, premium, if any, interest and Liquidated Damages, if any, on, the
Notes will be payable at the office or agency of the Company maintained for
such purpose or, at the option of the Company, payment of interest and
Liquidated Damages, if any, may be made by check mailed to the Holders of the
Notes at their respective addresses set forth in the register of Holders of
Notes; provided that all payments with respect to the Global Note and
Certificated Notes the Holders of whom, in the case of Certificated Notes, have
given wire transfer instructions to the Company will be required to be made by
wire transfer of immediately available funds to the accounts specified by the
Holders thereof. Until otherwise designated by the Company, the Company's
office or agency will be the office of the Trustee maintained for such purpose.
3. PAYING AGENT AND REGISTRAR. (a) Wells Fargo Bank, N.A. (the
"Trustee") will initially act as the Paying Agent and Registrar. The Company
may appoint additional paying agents or co-registrars, and change the Paying
Agent, any additional paying agent, the Registrar or any co-registrar without
prior notice to any Holder. The Company or any of its Subsidiaries may act in
any such capacity.
(b) Pursuant to the Indenture, the Company has appointed
the Trustee as transfer and exchange agent for the purpose of any transfer or
exchange of the Notes.
(c) Holders shall present Notes to the Trustee, as
transfer and exchange agent.
4. INDENTURE. The Company has issued the Notes under an
Indenture, dated as of October 30, 1996 (the "Indenture"), among the Company,
as issuer of the Notes, Kragen Auto Supply Co. and Schuck's Distribution Co.,
as guarantors of the Notes, and the Trustee. The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) as in
effect on the date of the original issuance of the Notes (the "Trust Indenture
Act"). The Notes are subject to, and qualified by, all such terms, certain of
which are summarized herein, and Holders are referred to the Indenture and the
Trust Indenture Act for a statement of such terms (all capitalized terms not
defined herein shall have the meanings assigned to them in the Indenture). The
Notes are unsecured general obligations of the Company limited to $125,000,000
in aggregate principal amount.
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5. REDEMPTION PROVISIONS.
(a) The Notes are not subject to any mandatory sinking
fund redemption prior to maturity.
(b) Except as set forth below in this Section 5, the
Notes may not be redeemed at the option of the Company prior to November 1,
2001. On November 1, 2001 and thereafter, the Notes will be subject to
redemption at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of the principal amount of the Notes) set forth below, plus accrued
and unpaid interest and Liquidated Damages thereon, if any, to the applicable
redemption date, if redeemed during the twelve-month period beginning on
November 1 of the years indicated below:
[S] [C]
YEAR PERCENTAGE
2001 105.500
2002 103.667
2003 101.833
2004 and thereafter 100.000%
(c) In addition to the Company's right to redeem the
Notes as set forth in Section 5(b), at any time prior to November 1, 1999, the
Company may (but will not have the obligation to) redeem up to 35% of the
original aggregate principal amount of the Notes at a redemption price of 110%
of the principal amount thereof, in each case plus accrued and unpaid interest
and Liquidated Damages thereon, if any, to the redemption date, with the net
proceeds of an Equity Offering; provided that at least 65% of the original
aggregate principal amount of Notes remain outstanding immediately after the
occurrence of such redemption; and provided, further that such redemption will
occur within 60 days of the date of the closing of such Equity Offering.
6. MANDATORY OFFERS.
(a) Within 30 days after any Change of Control Trigger
Date or Asset Sale Trigger Date, the Company shall mail a notice to each Holder
stating certain details as set forth in Section 3.08 of the Indenture in
connection with the Offer that the Company is obligated under the Indenture to
make to Holders in such circumstances.
(b) Holders may tender all or, subject to Section 8
below, any portion of their Notes by completing the attachment hereto entitled
"OPTION OF HOLDER TO ELECT PURCHASE" in an Offer.
(c) Upon a Change of Control, any Holder of Notes will
have the right to cause the Company to purchase the Notes of such Holder, in
whole or in part in integral multiples of aggregate principal amount of $1,000,
at a purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid
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interest, if any, and Liquidated Damages, if any, to any Change of Control
Purchase Date, as provided in, and subject to the terms of the Indenture.
(d) Upon there being at least $5,000,000 in Excess
Proceeds relating to one or more Asset Sales, any Holder of Notes will have the
right to cause the Company to purchase the Notes of such Holder, in whole or in
part in integral multiples of aggregate principal amount of $1,000, at a
purchase price in cash equal to 100% of the principal amount thereof plus
accrued and unpaid interest, if any, and Liquidated Damages, if any, to any
Asset Sale Purchase Date, as provided in, and subject to the terms of the
Indenture.
(e) Promptly after consummation of an Offer, (i) the
Paying Agent shall mail to each Holder of Notes or portions thereof accepted
for payment an amount equal to Change of Control Payment or Asset Sale Payment,
as the case may be, (ii) with respect to any tendered Note not accepted for
payment in whole or in part, the Trustee shall return such Note to the Holder
thereof, and (iii) with respect to any Note accepted for payment in part, the
Company shall issue and the Trustee shall authenticate and mail to each such
Holder a new Note equal in principal amount to the unpurchased portion of the
tendered Note.
(f) The Company will (i) announce the results of the
Offer to Holders on or as soon as practicable after the Purchase Date, and (ii)
comply with Rule 14e-1 under the Securities Exchange Act of 1934, as amended,
and any other securities laws and regulations to the extent applicable to any
Offer.
7. NOTES TO BE REDEEMED OR PURCHASED. The Notes may be redeemed
or purchased in part, but only in multiples of $1,000 principal amount unless
all Notes held by a Holder are to be redeemed or purchased. On or after any
date on which Notes are redeemed or purchased, interest ceases to accrete or
accrue, as the case may be, on the Notes or portions thereof called for
redemption or accepted for purchase on such date.
8. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
registered form without coupons in denominations of $1,000 principal amount and
multiples thereof; provided that, except as otherwise permitted under the
Indenture, Notes will be issued to Institutional Accredited Investors only in
denominations of $250,000 of principal amount and any integral multiple of
$1,000 in excess thereof. The transfer of Notes may be registered and Notes
may be exchanged as provided in the Indenture. Holders seeking to transfer or
exchange their Notes may be required, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar need not exchange
or register the transfer of any Note or portion of a Note selected for
redemption or tendered pursuant to an Offer. None of the Company, the Trustee
or the Registrar shall be required to
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issue, register the transfer of or exchange any Note (i) during a period
beginning at the opening of business on the day that the Trustee receives
notice of any redemption from the Company pursuant to the terms of the
Indenture and ending at the close of business on the day the notice of
redemption is sent to Holders, (ii) selected for redemption, in whole or in
part, except the unredeemed portion of any Note being redeemed in part may be
transferred or exchanged, or (iii) during an Offer if such Note is tendered
pursuant to such Offer and not withdrawn.
9. PERSONS DEEMED OWNERS. The registered Holder of a Note shall
be treated as the owner of the Note for all purposes.
10. AMENDMENTS AND WAIVERS.
(a) Subject to certain exceptions, the Indenture and the
Notes may be amended or supplemented with the written consent of the Holders of
at least a majority in aggregate principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange
offer for the Notes), and any existing Default or Event of Default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of at least a majority in principal amount of the
then outstanding Notes (including consents obtained in connection with a tender
offer or exchange offer for the Notes).
(b) Notwithstanding section 10(a) above, the Company, the
Subsidiary Guarantors and the Trustee may amend or supplement the Indenture or
the Notes, without the consent of any Holder, to: cure any ambiguity, defect
or inconsistency; provide for uncertificated Notes in addition to or in place
of certificated Notes; provide for the assumption of the obligations to the
Holders of the Company, or the Subsidiary Guarantors, as the case may be, in
the event of any merger or reorganization involving the Company, or a
Subsidiary Guarantor, as the case may be, that is permitted under Article 5 of
the Indenture; make any change that would provide any additional rights or
benefits to Holders or does not adversely affect the legal rights under the
Indenture of any Holder; comply with the requirements of the SEC in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act.
(c) Certain provisions of the Indenture cannot be
amended, supplemented or waived without the consent of each Holder of Notes
affected. Additionally, certain provisions of the Indenture cannot be amended
or modified without the consent of at least a majority of the outstanding
principal amount of each class of Senior Indebtedness of the Company then
outstanding.
11. DEFAULTS AND REMEDIES. Events of Default include: default
for 30 days in the payment, when due, of interest on, or Liquidated Damages, if
any, with respect to the Notes; default in
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the payment when due of principal or premium, if any, on the Notes, including,
without limitation, any required Change of Control Payment or Asset Sale
Payment; failure by the Company for 30 days after receipt of notice from the
Trustee or Holders of at least 25% in principal amount of the then outstanding
Notes to comply with certain provisions of the Indenture or the Notes; failure
by the Company for 60 days after receipt of notice from the Trustee or Holders
of at least 25% in principal amount of the then outstanding Notes to comply
with any other provisions of the Indenture or the Notes; certain defaults under
and acceleration prior to maturity or failure to pay at maturity, of certain
other indebtedness; failure of the Company and certain Subsidiaries to pay
certain final judgments that remain undischarged; a Subsidiary Guarantor or any
person acting on behalf of such Subsidiary Guarantor (including a trustee in
bankruptcy) shall deny or disaffirm its Obligations under its Subsidiary
Guarantee, which shall continue for at least 10 days; and certain events of
bankruptcy or insolvency involving the Company or any Significant Subsidiary.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all outstanding Notes to be due and payable immediately in an amount
equal to the principal amount of and premium on, if any, such Notes, plus any
accrued and unpaid interest provided, however, that if any Senior Indebtedness
is outstanding pursuant to the Senior Credit Facility upon a declaration of
acceleration of the Notes, the principal, premium, if any, and accrued
interest, as the case may be, on the Notes will not be payable until the
earlier of (1) the day which is five Business Days after notice of acceleration
is given to the Company and the Credit Facility Agent, unless such Event of
Default is cured or waived prior to such date, and (2) the date of acceleration
of any Senior Indebtedness under the Senior Credit Facility; provided further,
however, that in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, principal amount of, and premium, if any, on and any
accrued and unpaid interest on, as the case may be, the Notes becomes due and
payable immediately without further action or notice.
Subject to certain limitations, Holders of a majority in aggregate
principal amount of the then outstanding Notes may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it by the Indenture, provided that
the Trustee may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines may be unduly prejudicial to the
rights of other Holders, or would involve the Trustee in personal liability.
The Trustee may withhold from Holders notice of any continuing Default or Event
of Default (except a payment Default) if it determines that withholding such
notice is in their interests. The Holders of a majority in aggregate principal
amount of the Notes then outstanding by
A-7
<PAGE> 102
notice to the Trustee may, on behalf of the Holders of all the Notes, waive any
existing Default or Event of Default and its consequences under the Indenture
except a continuing Default or Event of Default in the payment of principal of,
or interest on, the Notes.
12. SUBSIDIARY GUARANTEE. Payment of principal, premium, if any,
and interest (including interest on overdue principal and overdue interest, and
overdue premium, if any, to the extent lawful) on the Notes and all other
Obligations of the Company to the Holders or the Trustee under the Indenture
and the Notes is unconditionally guaranteed by the Subsidiary Guarantors
pursuant to and subject to the terms of Article 11 of the Indenture (the
"Subsidiary Guarantee"), provided that notwithstanding anything to the contrary
herein or in Article 11 of the Indenture, the aggregate amount of the
Obligations guaranteed under the Indenture by any Subsidiary Guarantor shall be
limited in amount to the lesser of (a) the maximum amount that would not render
such Subsidiary Guarantor obligations subject to avoidance under applicable
fraudulent conveyance provisions of the United States Bankruptcy Code or any
comparable provision of any applicable state law and (b) the maximum amount
that would not render the Subsidiary Guarantee an improper corporate
distribution by such Subsidiary Guarantor under applicable state law. In
addition, the Subsidiary Guarantee will cease to be effective if and to the
extent that prior to the date it is probable to be called upon, the Subsidiary
Guarantor would be required to reflect the amount of such Subsidiary Guarantee
on the face of its balance sheet under GAAP and to do so would prevent such
Subsidiary Guarantor from distributing to the Company amounts sufficient to pay
principal or interest on the Notes when due.
13. ADDITIONAL SUBSIDIARY GUARANTEES. Within 10 days after
acquiring or creating any Domestic Subsidiary, the Company will cause each such
Subsidiary to duly authorize, execute and deliver to the Trustee a counterpart
of the Indenture as a Subsidiary Guarantor. The Company will not, and will not
permit any of the Subsidiary Guarantors to, make any Investment in any
Subsidiary that is not a Subsidiary Guarantor unless either (i) such Investment
is permitted by Section 4.05 of the Indenture, or (ii) such Subsidiary executes
a Subsidiary Guarantee and delivers an opinion of counsel in accordance with
the provisions of the Indenture.
14. SUBORDINATION.
(a) All Obligations owed under and in respect of the Notes are
subordinated in right of payment, to the extent and in the manner provided in
Article 10 of the Indenture, to the prior payment in full in cash of all
Obligations owed under and in respect of all Senior Indebtedness of the
Company, and the subordination of the Notes is for the benefit of all holders
of all Senior Indebtedness of the Company, whether outstanding on
A-8
<PAGE> 103
the Closing Date or Incurred thereafter. The Company agrees, and each Holder
by accepting a Note agrees, to the subordination.
(b) Each Subsidiary Guarantor's Obligations under its
Subsidiary Guarantee shall be junior and subordinated in right of payment to
any Guarantor Senior Indebtedness in the manner set forth in more detail in
Section 11.03 of the Indenture.
15. TRUSTEE DEALINGS WITH COMPANY. The Trustee in its individual
or any other capacity may become the owner or pledgee of Notes and may
otherwise deal with the Company or any of its Affiliates with the same rights
it would have if it were not Trustee.
16. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator or direct or indirect stockholder of the Company or any Subsidiary
Guarantor (other than the Company and any Subsidiary Guarantor), as such, shall
have any liability for any obligation of the Company or such Subsidiary
Guarantor under the Indenture or the Notes or for any claim based on, in
respect of, or by reason of, any such obligation or the creation of any such
obligation. Each Holder by accepting a Note waives and releases such Persons
from all such liability, and such waiver and release is part of the
consideration for the issuance of the Notes.
17. MERGERS, CONSOLIDATIONS OR SALE OF ASSETS. The Company may
not, in a single transaction or series of related transactions, consolidate or
merge with or into (whether or not the Company is the surviving corporation),
or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions, to another corporation, Person or entity unless (i) the Company
is the surviving corporation or the entity or the Person formed by or surviving
any such consolidation or merger (if other than the Company) or to which such
sale, assignment, transfer, lease, conveyance or other disposition will have
been made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia, (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been made assumes all the
obligations of the Company under the Notes and the Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee, (iii)
immediately after such transaction no Default or Event of Default exists and
(iv) the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition will have been
made (A) will have Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) will, at the time of such transaction and
A-9
<PAGE> 104
after giving pro forma effect thereto as if such transaction had occurred at
the beginning of the applicable four- quarter period, meet the minimum
requirements under the Fixed Charge Coverage Ratio test set forth in the
Indenture.
18. GOVERNING LAW. This Note shall be governed by and construed
in accordance with the internal laws of the State of New York, without regard
to the conflict of laws provisions thereof.
19. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
20. CUSIP/CINS NUMBERS. Pursuant to a recommendation promulgated
by the Committee on Uniform Note Identification Procedures, the Company has
caused CUSIP and CINS numbers, as applicable, to be printed on the Notes and
has directed the Trustee to use CUSIP and CINS numbers, as applicable, in
notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers printed on the Notes.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Request may be made to: CSK Auto,
Inc., 645 E. Missouri Avenue, Phoenix, AZ 85012, Attention: Secretary.
A-10
<PAGE> 105
SCHEDULE OF EXCHANGES OF CERTIFICATED NOTES3
The following exchanges of a part of this Global Note for Certificated notes
have been made:
<TABLE>
<S> <C> <C> <C>
PRINCIPAL AMOUNT OF
THIS GLOBAL NOTE
AMOUNT OF DECREASE AMOUNT OF INCREASE FOLLOWING SUCH SIGNATURE OF AUTHORIZED
DATE OF IN PRINCIPAL AMOUNT IN PRINCIPAL AMOUNT DECREASE (OR OFFICER OF TRUSTEE OR
EXCHANGE OF THIS GLOBAL NOTE OF THIS GLOBAL NOTE INCREASE) NOTES CUSTODIAN
</TABLE>
- ---------------
3 This schedule should only be added if the Note is issued in global form.
A-11
<PAGE> 106
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered Holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.:
--------------------------------
Please print or typewrite name and address including zip code of assignee:
- ----------------------------------------------------------------
- ----------------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing ------------------------- attorney to transfer said note on the
books of the Company with full power of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED ON ALL NOTES OTHER THAN EXCHANGE NOTES,
RESTRICTED GLOBAL NOTES AND OFFSHORE CERTIFICATED NOTES:]
In connection with any transfer of this note occuring prior to the
date which is the earlier of (i) the date of an effective registration or (ii)
three years after the later of the original issuance of this Note or the last
date on which this note was held by the Company or an affiliate of the Company,
the undersigned confirms, without utilizing any general solicitation or general
advertising, that:
[CHECK ONE]
- --- (a) This note is being transferred in compliance
with the exemption from registration under the securities act
of 1933, as amended, provided by rule 144a thereunder.
or
- --- (b) This note is being transferred other than in
accordance with (a) above and documents are being furnished
which comply with the conditions of transfer set forth in this
note and the indenture.
If neither of the foregoing boxes is checked, the registrar shall not
be obligated to register this note in the name of any person other than the
holder hereof unless and until the conditions to any such transfer or
registration set forth herein and in section 2.08 of the indenture shall have
been satisfied.
Date: Signature:
--------- ------------------
A-12
<PAGE> 107
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within-mentioned instrument in every particular,
without alteration or any change whatsoever.
TO BE COMPLETED BY PURCHASER IF (A), ABOVE, IS CHECKED:
The undersigned represents and warrants that it is purchasing this
note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of rule 144a under the securities act
of 1933, as amended, and is aware that the sale to it is being made in reliance
on rule 144a and acknowledges that it has received such information regarding
the company as the undersigned has requested pursuant to rule 144a or has
determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing representations in order
to claim the exemption from registration provided by rule 144a.
Dated: Signature:
--------------- ---------------
NOTICE: To be executed by an executive officer of the transferee
Signature Guarantee:
--------------------------------------------
(Signature must be guaranteed by a financial institution that is a member of
the securities transfer agent medallion program ("stamp"), in accordance with
the securities exchange act of 1934, as amended.)
A-13
<PAGE> 108
OPTION OF HOLDER TO ELECT PURCHASE
If you elect to have this Note purchased by the company pursuant to
Section 4.13 of the Indenture, check the box:
-----
If you elect to have this Note purchased by the company pursuant to
Section 4.14 of the Indenture, check the box:
-----
If you elect to have only part of the principal amount of this Note
purchased by the Company pursuant to Section 4.13 or 4.14 of the Indenture,
state the portion of such amount (multiples of $1,000 principal amount only):
$
-------------------------.
Dated: Your signature:
-----------------------
-------------------------------
(Sign exactly as name appears
on the other side of this Note)
Signature Guarantee:
--------------------------------------------
(Signature must be guaranteed by a financial institution that is a member of
the Securities Transfer Agent Medallion program ("STAMP"), in accordance with
the Securities Exchange Act of 1934, as amended.)
A-14
<PAGE> 109
FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated:
-----------------------
This is one of the Notes referred to in the within-mentioned
Indenture.
Wells Fargo Bank, National
Association, as Trustee
By:
------------------------
Authorized Signatory
A-15
<PAGE> 110
FORM OF ALTERNATIVE CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in the within-mentioned
Indenture.
Wells Fargo Bank, National
Association, as Trustee
By: -----------------------------------
As Authenticating Agent
By: ------------------------------------
Authorized Signatory
<PAGE> 111
EXHIBIT B
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
----------------------, ----
[Trustee]
[Address]
Attention:
Re: CSK Auto, Inc. (the "Company")
11% Senior Subordinated Notes due 2006 (the "Notes")
----------------------------------------------------
Dear Sirs:
In connection with our proposed purchase of $
-------
aggregate principal amount of the Notes, we confirm that:
1. We understand that any subsequent transfer of the Notes is
subject to certain restrictions and conditions set forth in the Indenture dated
as of October 30, 1996, relating to the Notes (the "Indenture") and the
undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Notes except in compliance with, such restrictions and conditions
and the Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not
been registered under the Securities Act, and that the Notes may not be offered
or sold except as permitted in the following sentence. We agree, on our own
behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Notes within three years after the original
issuance of the Notes, we will do so only (A) to the Company or any subsidiary
thereof, (B) in accordance with Rule 144A under the Securities Act to a
"qualified institutional buyer" (as defined therein), (C) to an institutional
"accredited investor" (as defined below) that, prior to such transfer,
furnishes to you a signed letter containing certain representations and
agreements relating to the restrictions on transfer of the Notes (the form of
which letter can be obtained from the Issuer or the Trustee) and, if such
transfer is in respect of an aggregate principal amount of Notes of less than
$250,000, an opinion of counsel acceptable to the Company that such transfer is
in compliance with the Securities Act, (D) outside the United States in
accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant
to the exemption from registration provided by Rule 144 under the Securities
Act, or (F) pursuant to an effective registration statement under the
Securities Act, and we
B-1
<PAGE> 112
further agree to provide to any person purchasing any of the Notes from us a
notice advising such purchaser that resales of the Notes are restricted as
stated herein.
3. We understand that, on any proposed resale of any Notes, we
will be required to furnish to you and the Company such certifications, legal
opinions and other information as you and the Company may reasonable require to
confirm that the proposed sale complies with the foregoing restrictions. We
further understand that the Notes purchased by us will bear a legend to the
foregoing effect.
4. We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes, and
we and any accounts for which we are acting are each able to bear the economic
risk of our or its investment.
5. We are acquiring the Notes purchased by us for our own account
or for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By: ---------------------------------
Authorized Signatory
B-2
<PAGE> 113
EXHIBIT C
Form of Certificate to be Delivered
in Connection with Transfers
Pursuant to Regulation S
----------------------, ----
[Trustee]
[Address]
Attention: Corporate Trust Department
Re: CSK Auto, Inc. (the "Company")
11% Senior Subordinated Notes due 2006 (the "Notes")
Dear Sirs:
In connection with our proposed sale of U.S.$-------- aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the Securities Act of
1933, as amended, and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) at the time the buy order was originated, the transferee was
outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the
United States;
(3) no directed selling efforts have been made by us in the United
States in contravention of the requirements of Rule 903(b) or
Rule 904(b) of Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act of 1933.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters
C-1
<PAGE> 114
PAGE
covered hereby. Terms used in this certificate have the meanings set forth in
Regulation S.
Very truly yours,
[Name of Transferor]
By:
------------------------------
Authorized Signatory
C-2
<PAGE> 1
FORM OF FACE OF NOTE
CSK AUTO, INC.
11% SERIES A SENIOR SUBORDINATED NOTES DUE 2006
No. ______________ $__________
CUSIP NO.
CSK Auto, Inc., a corporation duly organized and existing under the laws
of the State of Arizona (herein called the "Company", which term includes any
successor Person under the Indenture hereinafter referred to), for value
received, hereby promises to pay to ______________________, or registered
assigns, the principal sum of ___________________ Dollars on November 1, 2006
and to pay interest thereon until maturity from the date of original issuance
hereof or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, semi-annually in arrears on May 1 and November 1 of
each year, commencing May 1, 1997, at the rate of 11% per annum.
Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof and as more fully specified in the Indenture, which
further provisions shall for all purposes have the same effect as if set forth
at this place.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
CSK AUTO, INC.
By:
Name:
Title:
Attest:________________________
<PAGE> 2
FORM OF REVERSE OF NOTE
1. INTEREST. CSK Auto, Inc. (the "Company") promises to pay interest on
the principal amount of this Note at the rate and in the manner specified
below. Cash interest will accrue at 11% per annum until maturity and will be
payable semi-annually in arrears in cash on May 1 and November 1 of each year
commencing May 1, 1997, or if any such day is not a Business Day on the next
succeeding Business Day (each an "Interest Payment Date"). Interest on this
Note will accrue from the most recent date on which interest has been paid or,
if no interest has been paid, from the original date of issue. To the extent
lawful, the Company shall pay interest on overdue principal. premium, if any,
interest and Liquidated Damages, if any, from time to time on demand at the
rate of 11% per annum, compounded semi-annually. Interest will be computed on
the basis of a 360-day year of twelve 30-day months.
There shall also be payable in respect of this Note all Liquidated Damages
that may have accrued on the Note for which this Note was exchanged (as defined
in such Note) pursuant to the Exchange Offer or otherwise pursuant to a
Registration of such Note, such Liquidated Damages to be payable in accordance
with the terms of such Note.
2. METHOD OF PAYMENT. The Company will pay interest on this Note to the
Person who is the registered Holder of this Note at the close of business on
the record date for the next Interest Payment Date, which record date shall be
April 15 and October 15 of each year (each a "Record Date") even if such Note
is cancelled after such Record Date and on or before such Interest Payment
Date. Holders must surrender Notes to a Paying Agent, as defined below, to
collect principal payments on such Notes. Principal of, premium, if any,
interest and Liquidated Damages, if any, on, the Notes will be payable at the
office or agency of the Company maintained for such purpose or, at the option
of the Company, payment of interest and Liquidated Damages, if any, may be made
by check mailed to the Holders of the Notes at their respective addresses set
forth in the register of Holders of Notes; provided that all payments with
respect to the Global Note and Certificated Notes the Holders of whom, in the
case of Certificated Notes, have given wire transfer instructions to the
Company will be required to be made by wire transfer of immediately available
funds to the accounts specified by the Holders thereof. Until otherwise
designated by the Company, the Company's office or agency will be the office of
the Trustee maintained for such purpose.
3. PAYING AGENT AND REGISTRAR. (a) Wells Fargo Bank, N.A. (the
"Trustee") will initially act as the Paying Agent and Registrar. The Company
may appoint additional paying agents or co-registrars, and change the Paying
Agent, any additional paying agent, the Registrar or any co-registrar without
prior notice to any Holder. The Company or any of its Subsidiaries may act in
any such capacity.
(b) Pursuant to the Indenture, the Company has appointed the Trustee as
transfer and exchange agent for the purpose of any transfer or exchange of the
Notes.
(c) Holders shall present Notes to the Trustee, as transfer and exchange
agent.
2
<PAGE> 3
4. INDENTURE. The Company has issued the Notes under an Indenture, dated
as of October 30, 1996 (the "Indenture"), among the Company, as issuer of the
Notes, Kragen Auto Supply Co. and Schuck's Distribution Co., as guarantors of
the Notes, and the Trustee. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code Section Section 77aaa-77bbbb) as in effect
on the date of the original issuance of the Notes (the "Trust Indenture Act").
The Notes are subject to, and qualified by, all such terms, certain of which
are summarized herein, and Holders are referred to the Indenture and the Trust
Indenture Act for a statement of such terms (all capitalized terms not defined
herein shall have the meanings assigned to them in the Indenture). The Notes
are unsecured general obligations of the Company limited to $125,000,000 in
aggregate principal amount.
5. REDEMPTION PROVISIONS.
(a) The Notes are not subject to any mandatory sinking fund redemption
prior to maturity.
(b) Except as set forth below in this Section 5, the Notes may not be
redeemed at the option of the Company prior to November 1, 2001. On November
1, 2001 and thereafter, the Notes will be subject to redemption at the option
of the Company, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of the
principal amount of the Notes) set forth below, plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the applicable redemption
date, if redeemed during the twelve-month period beginning on November 1 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2001 105.500
2002 103.667
2003 101.833
2004 and thereafter 100.000%
</TABLE>
(c) In addition to the Company's right to redeem the Notes as set forth
in Section 5(b), at any time prior to November 1, 1999, the Company may (but
will not have the obligation to) redeem up to 35% of the original aggregate
principal amount of the Notes at a redemption price of 110% of the principal
amount thereof, in each case plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the redemption date, with the net proceeds of an
Equity Offering; provided that at least 65% of the original aggregate principal
amount of Notes remain outstanding immediately after the occurrence of such
redemption; and provided, further that such redemption will occur within 60
days of the date of the closing of such Equity Offering.
6. MANDATORY OFFERS.
(a) Within 30 days after any Change of Control Trigger Date or Asset
Sale Trigger Date, the Company shall mail a notice to each Holder stating
certain details as set forth in
3
<PAGE> 4
Section 3.08 of the Indenture in connection with the Offer that the Company is
obligated under the Indenture to make to Holders in such circumstances.
(b) Holders may tender all or, subject to Section 8 below, any portion
of their Notes by completing the attachment hereto entitled "OPTION OF HOLDER TO
ELECT PURCHASE" in an Offer.
(c) Upon a Change of Control, any Holder of Notes will have the right to
cause the Company to purchase the Notes of such Holder, in whole or in part in
integral multiples of aggregate principal amount of $1,000, at a purchase price
in cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, and Liquidated Damages, if any, to any Change of Control
Purchase Date, as provided in, and subject to the terms of the Indenture.
(d) Upon there being at least $5,000,000 in Excess Proceeds relating to
one or more Asset Sales, any Holder of Notes will have the right to cause the
Company to purchase the Notes of such Holder, in whole or in part in integral
multiples of aggregate principal amount of $1,000, at a purchase price in cash
equal to 100% of the principal amount thereof plus accrued and unpaid interest,
if any, and Liquidated Damages, if any, to any Asset Sale Purchase Date, as
provided in, and subject to the terms of the Indenture.
(e) Promptly after consummation of an Offer, (i) the Paying Agent shall
mail to each Holder of Notes or portions thereof accepted for payment an amount
equal to Change of Control Payment or Asset Sale Payment, as the case may be,
(ii) with respect to any tendered Note not accepted for payment in whole or in
part, the Trustee shall return such Note to the Holder thereof, and (iii) with
respect to any Note accepted for payment in part, the Company shall issue and
the Trustee shall authenticate and mail to each such Holder a new Note equal in
principal amount to the unpurchased portion of the tendered Note.
(f) The Company will (i) announce the results of the Offer to Holders on
or as soon as practicable after the Purchase Date, and (ii) comply with Rule
14e-1 under the Securities Exchange Act of 1934, as amended, and any other
securities laws and regulations to the extent applicable to any Offer.
7. NOTES TO BE REDEEMED OR PURCHASED. The Notes may be redeemed or
purchased in part, but only in multiples of $1,000 principal amount unless all
Notes held by a Holder are to be redeemed or purchased. On or after any date
on which Notes are redeemed or purchased, interest ceases to accrete or accrue,
as the case may be, on the Notes or portions thereof called for redemption or
accepted for purchase on such date.
8. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 principal amount and multiples
thereof; provided that, except as otherwise permitted under the Indenture,
Notes will be issued to Institutional Accredited Investors only in
denominations of $250,000 of principal amount and any integral multiple of
$1,000 in excess thereof. The transfer of Notes may be registered and Notes
may be exchanged as provided in the Indenture. Holders seeking to transfer or
exchange their Notes may be
4
<PAGE> 5
required, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not exchange or register the transfer of any
Note or portion of a Note selected for redemption or tendered pursuant to an
Offer. None of the Company, the Trustee or the Registrar shall be required to
issue, register the transfer of or exchange any Note (i) during a period
beginning at the opening of business on the day that the Trustee receives
notice of any redemption from the Company pursuant to the terms of the
Indenture and ending at the close of business on the day the notice of
redemption is sent to Holders, (ii) selected for redemption, in whole or in
part, except the unredeemed portion of any Note being redeemed in part may be
transferred or exchanged, or (iii) during an Offer if such Note is tendered
pursuant to such Offer and not withdrawn.
9. PERSONS DEEMED OWNERS. The registered Holder of a Note shall be
treated as the owner of the Note for all purposes.
10. AMENDMENTS AND WAIVERS.
(a) Subject to certain exceptions, the Indenture and the Notes may be
amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the then outstanding Notes (including
consents obtained in connection with a tender offer or exchange offer for the
Notes), and any existing Default or Event of Default or compliance with any
provision of the Indenture or the Notes may be waived with the consent of the
Holders of at least a majority in principal amount of the then outstanding
Notes (including consents obtained in connection with a tender offer or
exchange offer for the Notes).
(b) Notwithstanding section 10(a) above, the Company, the Subsidiary
Guarantors and the Trustee may amend or supplement the Indenture or the Notes,
without the consent of any Holder, to: cure any ambiguity, defect or
inconsistency; provide for uncertificated Notes in addition to or in place of
certificated Notes; provide for the assumption of the obligations to the
Holders of the Company, or the Subsidiary Guarantors, as the case may be, in
the event of any merger or reorganization involving the Company, or a
Subsidiary Guarantor, as the case may be, that is permitted under Article 5 of
the Indenture; make any change that would provide any additional rights or
benefits to Holders or does not adversely affect the legal rights under the
Indenture of any Holder; comply with the requirements of the SEC in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act.
(c) Certain provisions of the Indenture cannot be amended, supplemented
or waived without the consent of each Holder of Notes affected. Additionally,
certain provisions of the Indenture cannot be amended or modified without the
consent of at least a majority of the outstanding principal amount of each
class of Senior Indebtedness of the Company then outstanding.
11. DEFAULTS AND REMEDIES. Events of Default include: default for 30
days in the payment, when due, of interest on, or Liquidated Damages, if any,
with respect to the Notes; default in the payment when due of principal or
premium, if any, on the Notes, including, without limitation, any required
Change of Control Payment or Asset Sale Payment; failure by the Company for 30
days after receipt of notice from the Trustee or Holders of at least 25% in
5
<PAGE> 6
principal amount of the then outstanding Notes to comply with certain
provisions of the Indenture or the Notes; failure by the Company for 60 days
after receipt of notice from the Trustee or Holders of at least 25% in
principal amount of the then outstanding Notes to comply with any other
provisions of the Indenture or the Notes; certain defaults under and
acceleration prior to maturity or failure to pay at maturity, of certain other
indebtedness; failure of the Company and certain Subsidiaries to pay certain
final judgments that remain undischarged; a Subsidiary Guarantor or any person
acting on behalf of such Subsidiary Guarantor (including a trustee in
bankruptcy) shall deny or disaffirm its Obligations under its Subsidiary
Guarantee, which shall continue for at least 10 days; and certain events of
bankruptcy or insolvency involving the Company or any Significant Subsidiary.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all outstanding Notes to be due and payable immediately in an amount
equal to the principal amount of and premium on, if any, such Notes, plus any
accrued and unpaid interest provided, however, that if any Senior Indebtedness
is outstanding pursuant to the Senior Credit Facility upon a declaration of
acceleration of the Notes, the principal, premium, if any, and accrued
interest, as the case may be, on the Notes will not be payable until the
earlier of (1) the day which is five Business Days after notice of acceleration
is given to the Company and the Credit Facility Agent, unless such Event of
Default is cured or waived prior to such date, and (2) the date of acceleration
of any Senior Indebtedness under the Senior Credit Facility; provided further,
however, that in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, principal amount of, and premium, if any, on and any
accrued and unpaid interest on, as the case may be, the Notes becomes due and
payable immediately without further action or notice.
Subject to certain limitations, Holders of a majority in aggregate
principal amount of the then outstanding Notes may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it by the Indenture, provided that
the Trustee may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines may be unduly prejudicial to the
rights of other Holders, or would involve the Trustee in personal liability.
The Trustee may withhold from Holders notice of any continuing Default or Event
of Default (except a payment Default) if it determines that withholding such
notice is in their interests. The Holders of a majority in aggregate principal
amount of the Notes then outstanding by notice to the Trustee may, on behalf of
the Holders of all the Notes, waive any existing Default or Event of Default
and its consequences under the Indenture except a continuing Default or Event
of Default in the payment of principal of, or interest on, the Notes.
12. SUBSIDIARY GUARANTEE. Payment of principal, premium, if any, and
interest (including interest on overdue principal and overdue interest, and
overdue premium, if any, to the extent lawful) on the Notes and all other
Obligations of the Company to the Holders or the Trustee under the Indenture
and the Notes is unconditionally guaranteed by the Subsidiary Guarantors
pursuant to and subject to the terms of Article 11 of the Indenture (the
"Subsidiary Guarantee"), provided that notwithstanding anything to the contrary
herein or in Article 11 of the Indenture, the aggregate amount of the
Obligations guaranteed under the Indenture by any Subsidiary Guarantor shall be
limited in amount to the lesser of (a) the maximum amount that
6
<PAGE> 7
would not render such Subsidiary Guarantor obligations subject to avoidance
under applicable fraudulent conveyance provisions of the United States
Bankruptcy Code or any comparable provision of any applicable state law and (b)
the maximum amount that would not render the Subsidiary Guarantee an improper
corporate distribution by such Subsidiary Guarantor under applicable state law.
In addition, the Subsidiary Guarantee will cease to be effective if and to the
extent that prior to the date it is probable to be called upon, the Subsidiary
Guarantor would be required to reflect the amount of such Subsidiary Guarantee
on the face of its balance sheet under GAAP and to do so would prevent such
Subsidiary Guarantor from distributing to the Company amounts sufficient to pay
principal or interest on the Notes when due.
13. ADDITIONAL SUBSIDIARY GUARANTEES. Within 10 days after acquiring or
creating any Domestic Subsidiary, the Company will cause each such Subsidiary
to duly authorize, execute and deliver to the Trustee a counterpart of the
Indenture as a Subsidiary Guarantor. The Company will not, and will not permit
any of the Subsidiary Guarantors to, make any Investment in any Subsidiary that
is not a Subsidiary Guarantor unless either (i) such Investment is permitted by
Section 4.05 of the Indenture, or (ii) such Subsidiary executes a Subsidiary
Guarantee and delivers an opinion of counsel in accordance with the provisions
of the Indenture.
14. SUBORDINATION.
(a) All Obligations owed under and in respect of the Notes are
subordinated in right of payment, to the extent and in the manner provided in
Article 10 of the Indenture, to the prior payment in full in cash of all
Obligations owed under and in respect of all Senior Indebtedness of the
Company, and the subordination of the Notes is for the benefit of all holders
of all Senior Indebtedness of the Company, whether outstanding on the Closing
Date or Incurred thereafter. The Company agrees, and each Holder by accepting
a Note agrees, to the subordination.
(b) Each Subsidiary Guarantor's Obligations under its Subsidiary
Guarantee shall be junior and subordinated in right of payment to any Guarantor
Senior Indebtedness in the manner set forth in more detail in Section 11.03 of
the Indenture.
15. TRUSTEE DEALINGS WITH COMPANY. The Trustee in its individual or any
other capacity may become the owner or pledgee of Notes and may otherwise deal
with the Company or any of its Affiliates with the same rights it would have if
it were not Trustee.
16. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator or direct or indirect stockholder of the Company or any Subsidiary
Guarantor (other than the Company and any Subsidiary Guarantor), as such, shall
have any liability for any obligation of the Company or such Subsidiary
Guarantor under the Indenture or the Notes or for any claim based on, in
respect of, or by reason of, any such obligation or the creation of any such
obligation. Each Holder by accepting a Note waives and releases such Persons
from all such liability, and such waiver and release is part of the
consideration for the issuance of the Notes.
17. MERGERS, CONSOLIDATIONS OR SALE OF ASSETS. The Company may not, in a
single transaction or series of related transactions, consolidate or merge with
or into (whether or not the
7
<PAGE> 8
Company is the surviving corporation), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions, to another corporation, Person or entity
unless (i) the Company is the surviving corporation or the entity or the Person
formed by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, lease, conveyance or
other disposition will have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia, (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
will have been made assumes all the obligations of the Company under the Notes
and the Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee, (iii) immediately after such transaction no
Default or Event of Default exists and (iv) the Company or the entity or Person
formed by or surviving any such consolidation or merger (if other than the
Company), or to which such sale, assignment, transfer, lease, conveyance or
other disposition will have been made (A) will have Consolidated Net Worth
immediately after the transaction equal to or greater than the Consolidated Net
Worth of the Company immediately preceding the transaction and (B) will, at the
time of such transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter
period, meet the minimum requirements under the Fixed Charge Coverage Ratio
test set forth in the Indenture.
18. GOVERNING LAW. This Note shall be governed by and construed in
accordance with the internal laws of the State of New York, without regard to
the conflict of laws provisions thereof.
19. AUTHENTICATION. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
20. CUSIP/CINS NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Note Identification Procedures, the Company has caused
CUSIP and CINS numbers, as applicable, to be printed on the Notes and has
directed the Trustee to use CUSIP and CINS numbers, as applicable, in notices
of redemption as a convenience to Holders. No representation is made as to the
accuracy of such numbers either as printed on the Notes or as contained in any
notice of redemption and reliance may be placed only on the other
identification numbers printed on the Notes.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Request may be made to: CSK Auto, Inc., 645 E.
Missouri Avenue, Phoenix, AZ 85012, Attention: Secretary.
8
<PAGE> 1
EXHIBIT 4.05
EXECUTION COPY
================================================================================
________________________________________
CSK AUTO, INC.
CREDIT AGREEMENT
dated as of October 30, 1996
________________________________________
$200,000,000
Credit Facility
________________________________________
THE CHASE MANHATTAN BANK,
as Administrative Agent,
LEHMAN COMMERCIAL PAPER INC.,
as Documentation Agent,
and
CHASE SECURITIES INC.,
as Arranger
________________________________________
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 2. TERM LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.1 Term Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.2 Repayment of Term Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.3 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 3. AMOUNT AND TERMS OF REVOLVING
CREDIT COMMITMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.1 Revolving Credit Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.2 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.3 Proceeds of Revolving Credit Loans . . . . . . . . . . . . . . . . . . . . . . . 26
3.4 Swing Line Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.5 Issuance of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.6 Participating Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.7 Procedure for Opening Letters of Credit . . . . . . . . . . . . . . . . . . . . 28
3.8 Payments in Respect of Letters of Credit . . . . . . . . . . . . . . . . . . . . 28
3.9 Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.10 Letter of Credit Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.11 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.12 Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.13 Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.14 Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 4. GENERAL PROVISIONS APPLICABLE TO LOANS . . . . . . . . . . . . . . . . . . . . . . 32
4.1 Procedure for Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.2 Conversion and Continuation Options . . . . . . . . . . . . . . . . . . . . . . 33
4.3 Changes of Commitment Amounts . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.4 Optional and Mandatory Prepayments; Repayments of Term Loans . . . . . . . . . . 34
4.5 Interest Rates and Payment Dates . . . . . . . . . . . . . . . . . . . . . . . . 37
4.6 Computation of Interest and Fees . . . . . . . . . . . . . . . . . . . . . . . 38
4.7 Certain Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.8 Inability to Determine Interest Rate . . . . . . . . . . . . . . . . . . . . . . 39
4.9 Pro Rata Treatment and Payments . . . . . . . . . . . . . . . . . . . . . . . . 39
4.10 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.11 Requirements of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.12 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.13 Repayment of Loans; Evidence of Debt . . . . . . . . . . . . . . . . . . . . . 45
4.14 Replacement of Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>
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<TABLE>
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SECTION 5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.1 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.2 No Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
5.3 Corporate Existence; Compliance with Law . . . . . . . . . . . . . . . . . . . . 48
5.4 Corporate Power; Authorization . . . . . . . . . . . . . . . . . . . . . . . . . 49
5.5 Enforceable Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
5.6 No Legal Bar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
5.7 No Material Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
5.8 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
5.9 Federal Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
5.10 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
5.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
5.12 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
5.13 Ownership of Property; Liens . . . . . . . . . . . . . . . . . . . . . . . . . 51
5.14 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.15 Collateral Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.16 Copyrights, Permits, Trademarks and Licenses . . . . . . . . . . . . . . . . . 53
5.17 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
5.18 Accuracy and Completeness of Information . . . . . . . . . . . . . . . . . . . 54
SECTION 6. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
6.1 Conditions to Initial Loans and Letters of Credit . . . . . . . . . . . . . . . 55
6.2 Conditions to All Loans and Letters of Credit . . . . . . . . . . . . . . . . . 59
SECTION 7. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7.2 Certificates; Other Information . . . . . . . . . . . . . . . . . . . . . . . . 60
7.3 Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
7.4 Conduct of Business and Maintenance of Existence . . . . . . . . . . . . . . . . 62
7.5 Maintenance of Property; Insurance . . . . . . . . . . . . . . . . . . . . . . . 63
7.6 Inspection of Property; Books and Records; Discussions . . . . . . . . . . . . . 63
7.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
7.8 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
7.9 Landlord Lien Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
7.10 Lockbox Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 8. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.1 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.2 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
8.3 Limitation on Contingent Obligations . . . . . . . . . . . . . . . . . . . . . . 69
8.4 Prohibition of Fundamental Changes . . . . . . . . . . . . . . . . . . . . . . . 70
8.5 Prohibition on Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . 71
8.6 Limitation on Investments, Loans and Advances . . . . . . . . . . . . . . . . . 72
8.7 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
8.8 Consolidated EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
8.9 Debt to EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
8.10 Interest Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
</TABLE>
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8.11 Limitation on Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
8.12 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . 78
8.13 Prepayments and Amendments of Subordinated Debt. . . . . . . . . . . . . . . . 78
8.14 Limitation on Changes in Fiscal Year . . . . . . . . . . . . . . . . . . . . . 79
8.15 Limitation on Lines of Business . . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 9. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 10. THE ADMINISTRATIVE AGENT; THE ISSUING LENDER . . . . . . . . . . . . . . . . . . . 82
10.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
10.2 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.3 Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.4 Reliance by Administrative Agent . . . . . . . . . . . . . . . . . . . . . . . 83
10.5 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
10.6 Non-Reliance on Administrative Agent and Other Lenders . . . . . . . . . . . . 84
10.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
10.8 The Administrative Agent in its Individual Capacity . . . . . . . . . . . . . . 85
10.9 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
10.10 Issuing Lender as Issuer of Letters of Credit . . . . . . . . . . . . . . . . 86
SECTION 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
11.1 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
11.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
11.3 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . 88
11.4 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . 88
11.5 Payment of Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 89
11.6 Successors and Assigns; Participations and Assignments . . . . . . . . . . . . 90
11.7 Adjustments; Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
11.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
11.9 Governing Law; No Third Party Rights . . . . . . . . . . . . . . . . . . . . . 95
11.10 Submission to Jurisdiction; Waivers . . . . . . . . . . . . . . . . . . . . . 95
11.11 Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
11.12 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
11.13 Special Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
11.14 Permitted Payments and Transactions . . . . . . . . . . . . . . . . . . . . . 97
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SCHEDULES
Schedule I List of Addresses for Notices; Lending Offices;
Commitment Amounts
Schedule 5.12 Subsidiaries
Schedule 5.13 Fee and Leased Properties
Schedule 5.15(b) UCC Filing Offices
Schedule 5.16 Trademarks and Copyrights
Schedule 8.1(a) Indebtedness to Remain Outstanding
Schedule 8.2 Existing Liens
Schedule 8.3(d) Existing Contingent Obligations
EXHIBITS
EXHIBIT A Form of Revolving Credit Note
EXHIBIT B Form of Term Loan Note
EXHIBIT C Form of Swing Line Note
EXHIBIT D Form of Assignment and Acceptance
EXHIBIT E-1 Form of Company Security Agreement
EXHIBIT E-2 Form of Subsidiary Security Agreement
EXHIBIT F-1 Form of Holdings Guarantee
EXHIBIT F-2 Form of Subsidiary Guarantee
EXHIBIT G-1 Form of Holdings Pledge Agreement
EXHIBIT G-2 Form of Company Pledge Agreement
EXHIBIT H Form of L/C Participation Certificate
EXHIBIT I Form of Landlord Lien Waiver
EXHIBIT J Form of Swing Line Loan Participation Certificate
EXHIBIT K-1 Form of Opinion of Gibson, Dunn & Crutcher LLP
EXHIBIT K-2 Form of Opinion of Arizona Counsel
EXHIBIT L Form of Subsection 4.11(d)(2) Certificate
EXHIBIT M-1 Form of Company Closing Certificate
EXHIBIT M-2 Form of Holdings Closing Certificate
EXHIBIT N Form of Borrowing Base Certificate
-iv-
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CREDIT AGREEMENT, dated as of October 30, 1996, among CSK
AUTO, INC., an Arizona corporation (the "Company"), the several lenders from
time to time parties hereto (the "Lenders"), THE CHASE MANHATTAN BANK, a New
York banking corporation, as administrative agent for the Lenders (in such
capacity, the "Administrative Agent") and LEHMAN COMMERCIAL PAPER INC., a
Delaware corporation, as documentation agent for the Lenders (in such capacity,
the "Documentation Agent").
W I T N E S S E T H:
WHEREAS, Investcorp Investment Equity Limited and certain of
its affiliates and other international investors (collectively, the
"Investors") intend to acquire common stock of CSK Group, Ltd., a Delaware
corporation ("Holdings") from the Carmel Trust, a trust governed by the laws of
Canada (the "Carmel Trust"), representing, after giving effect to all the
transactions contemplated to occur on the Closing Date (as defined below; such
transactions, the "Closing Date Transactions"), 51% of the voting power of the
stock of Holdings (the "Investor Holdings Stock") for $105,000,024 (the
"Investor Equity Investment");
WHEREAS, the Investors intend to purchase subordinated debt of
Holdings for $40,000,000 (the "Investor Holdings Subordinated Debt"; together
with the Investor Equity Investment, the "Investor Investment"); and an
affiliate of the Carmel Trust shall have purchased subordinated debt of
Holdings for $10,000,000 (the "Seller Holdings Subordinated Debt"; together
with the Investor Holdings Subordinated Debt, the "Holdings Subordinated
Debt");
WHEREAS, Holdings intends to acquire preferred stock of the
Company for an aggregate purchase price equal to the aggregate principal amount
of the Holdings Subordinated Debt and having terms consistent with those
applicable to the Holdings Subordinated Debt;
WHEREAS, Holdings intends to redeem (the "Redemption") its
capital stock (other than the Investor Holdings Stock) for $238,467,655;
WHEREAS, following the Redemption, the Carmel Trust intends to
acquire newly issued voting stock of Holdings from Holdings for $100,882,376
representing, after giving effect to the Closing Date Transactions, 49% of the
voting power of the stock of Holdings (the "Seller Holdings Stock"; together
with the Investor Holdings Stock, the "Holdings Stock");
WHEREAS, the Company intends to pay or prepay its existing
bank indebtedness for approximately $98,019,000 and make payments, or cause
Holdings to make payments, on account of "phantom stock" of approximately
$9,942,792;
WHEREAS, all of the foregoing shall be consummated pursuant to
the Stock Purchase Agreement, dated as of September 29, 1996 (the "Stock
Purchase Agreement"), among the Investors, the Trust, Holdings and CSK
Holdings, Ltd., a Delaware corporation; and
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WHEREAS, the Company has requested the Lenders to make loans
and other extensions of credit available to the Company for the purposes set
forth herein.
NOW, THEREFORE, the Company, the Administrative Agent and the
Lenders agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the terms
defined in the caption hereto shall have the meanings set forth therein, and
the following terms have the following meanings:
"Affiliate": of any Person (a) any Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with such Person, (b) any
Person who is a director or officer (i) of such Person, (ii) of any
Subsidiary of such Person or (iii) of any Person described in clause
(a) above or (c) in the case of a trust, its protectors or trustees,
any Person who is or has been a beneficiary thereof, or any Person who
is or has been able to appoint a beneficiary thereof. For purposes of
this definition, control of a Person shall mean the power, direct or
indirect (i) to vote 25% or more of the securities having ordinary
voting power for the election of directors of such Person, whether by
ownership of securities, contract, proxy or otherwise, or (ii) to
direct or cause the direction of the management and policies of such
Person, whether by ownership of securities, contract, proxy or
otherwise.
"Agents": the Administrative Agent and the Documentation
Agent.
"Agreement": this Credit Agreement, as amended, supplemented
or modified from time to time.
"Alternate Base Rate": for any day, a rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to the greatest
of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in
effect on such day plus 1% and (c) the Federal Funds Effective Rate in
effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate"
shall mean the rate of interest per annum publicly announced from time
to time by the Administrative Agent as its prime rate in effect at its
principal office in New York City (the Prime Rate not being intended
to be the lowest rate of interest charged by the Administrative Agent
in connection with extensions of credit to debtors); "Base CD Rate"
shall mean the sum of (a) the product of (i) the Three-Month Secondary
CD Rate and (ii) a fraction, the numerator of which is one and the
denominator of which is one minus the C/D Reserve Percentage and (b)
the C/D Assessment Rate; "Three-Month Secondary CD Rate" shall mean,
for any day, the secondary market rate for three-month certificates of
deposit reported as being in effect on such day (or, if such day shall
not be a Business Day, the next preceding Business Day) by the Board
of Governors of the Federal Reserve System (together with any
successor, the "Board") through the public information
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telephone line of the Federal Reserve Bank of New York (which rate
will, under the current practices of the Board, be published in
Federal Reserve Statistical Release H.15(519) during the week
following such day), or, if such rate shall not be so reported on such
day or such next preceding Business Day, the average of the secondary
market quotations for three-month certificates of deposit of major
money center banks in New York City received at approximately 10:00
A.M., New York City time, on such day (or, if such day shall not be a
Business Day, on the next preceding Business Day) by the
Administrative Agent from three New York City negotiable certificate
of deposit dealers of recognized standing selected by it; and "Federal
Funds Effective Rate" shall mean, for any day, the weighted average of
the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published
on the next succeeding 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 the day of such
transactions received by the Administrative Agent from three federal
funds brokers of recognized standing selected by it. Any change in
the Alternate Base Rate due to a change in the Prime Rate, the Base CD
Rate or the Federal Funds Effective Rate shall be effective as of the
opening of business on the effective day of such change in the Prime
Rate, the Base CD Rate or the Federal Funds Effective Rate,
respectively.
"Alternate Base Rate Lending Office": as to each Lender, the
office of such Lender located within the United States which shall be
making or maintaining Alternate Base Rate Loans.
"Alternate Base Rate Loans": Loans at such time as they are
made and/or being maintained at a rate of interest based upon the
Alternate Base Rate.
"Applicable Margin": for Term Loans, Revolving Credit Loans
and Swing Line Loans of the Types set forth below, the rate per annum
set forth under the relevant column heading opposite such Loans below:
<TABLE>
<CAPTION>
Alternate
Base Rate Eurodollar
Loans Loans
----------- ------------
<S> <C> <C>
Term Loans: 2.00% 3.00%
Revolving Credit Loans: 1.50% 2.50%
Swing Line Loans: 1.50% Not applicable
</TABLE>
"Asset Sale": any sale, sale-leaseback, or other disposition
by the Company or any Subsidiary thereof of any of its property or
assets, including the stock of any Subsidiary of the Company, other
than sales and dispositions permitted by subsections 8.5(a), (b), (c),
(e), (f) and (g).
"Assignee": as defined in subsection 11.6(c).
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"Assignment and Acceptance": an assignment and acceptance
substantially in the form of Exhibit D.
"Available Revolving Credit Commitment": as to any Lender, at
a particular time, an amount equal to (a) the amount of such Lender's
Revolving Credit Commitment at such time, less (b) the sum of (i) the
aggregate unpaid principal amount at such time of all Revolving Credit
Loans made by such Lender pursuant to subsection 3.1, (ii) such
Lender's Revolving Credit Commitment Percentage of the aggregate
unpaid principal amount at such time of all Swing Line Loans, provided
that for purposes of calculating the Revolving Credit Commitments
pursuant to subsection 3.2 the amount referred to in this clause (ii)
shall be zero, (iii) such Lender's L/C Participating Interest in the
aggregate amount available to be drawn at such time under all
outstanding Letters of Credit issued by the Issuing Lender and (iv)
such Lender's Revolving Credit Commitment Percentage of the aggregate
outstanding amount of L/C Obligations; collectively, as to all the
Lenders, the "Available Revolving Credit Commitments".
"Bankruptcy Code": Title I of the Bankruptcy Reform Act of
1978, as amended and codified at Title 11 of the United States Code.
"Board": as defined in the definition of "Alternate Base
Rate".
"Borrowing Base": an amount, calculated on a monthly basis
based upon the most recent Borrowing Base Certificate delivered
pursuant to subsection 7.2(g), equal to (i) the sum (without
duplication) of (a) 65% of Eligible DC Inventory, (b) 50% of Eligible
Store Inventory, (c) 50% of Eligible Depot Inventory and (d) 25% of
Slow Moving Inventory (up to a maximum of $7,500,000) (ii) minus the
Reserve Amount. All determinations in connection with the Borrowing
Base shall be made by the Company and certified to the Administrative
Agent by a Responsible Officer of the Company; provided, however, that
the Administrative Agent shall have the final right to review and
adjust, in its reasonable judgment, any such determination to the
extent such determination is not in accordance with this Agreement.
Each Borrowing Base Certificate shall remain in effect from and
including the date on which such Borrowing Base Certificate is
delivered, to, but excluding the date on which the next Borrowing Base
Certificate is delivered.
"Borrowing Base Certificate": as defined in subsection
7.2(g).
"Borrowing Base Deficiency": a condition wherein the sum of
(a) the aggregate principal amount of all Revolving Credit Loans and
Swing Line Loans outstanding at such time, (b) the aggregate unexpired
and undrawn face amount of all Letters of Credit outstanding at such
time and (c) the aggregate amount of L/C Obligations outstanding at
such time exceeds the Borrowing Base as set forth on the most recent
Borrowing Base Certificate delivered by the Company.
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"Borrowing Date": any Business Day specified in a notice
pursuant to (a) subsection 3.4 or 4.1 as a date on which the Company
requests the Swing Line Lender or the Lenders to make Loans hereunder
or (b) subsection 3.5 as a date on which the Company requests the
Issuing Lender to issue a Letter of Credit hereunder.
"Bridge Subordinated Debt Agreement": the Bridge Subordinated
Debt Agreement dated as of October __, 1996 among the Company, DLJ
Bridge Finance, Inc. and Merrill Lynch Capital Corporation, as the
same may be amended, supplemented or otherwise modified from time to
time in accordance with its terms and the terms of this Agreement.
"Bridge Subordinated Debt": the subordinated bridge
indebtedness of the Company outstanding from time to time pursuant to
the Bridge Subordinated Debt Agreement.
"Bridge Subordinated Debt Documents": the Bridge Subordinated
Debt Agreement and the notes evidencing the Bridge Subordinated Debt.
"Business Day": a day other than a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or
required by law to close.
"Capital Expenditures": for any period, all amounts which
would, in accordance with GAAP, be set forth as capital expenditures
(exclusive of any amount attributable to capitalized interest) on the
consolidated statement of cash flows or other similar statement of the
Company and its Subsidiaries for such period and shall in any event
include expenditures to acquire all or a portion of the Capital Stock
or assets of any Person (exclusive of expenditures for the acquisition
of cash) but shall exclude any expenditures made with the proceeds of
condemnation or eminent domain proceedings affecting real property or
with insurance proceeds; provided that any Capital Expenditures
financed with the proceeds of any Indebtedness permitted hereunder
(other than Indebtedness incurred hereunder) shall be deemed to be a
Capital Expenditure only in the period in which, and by the amount
which, any principal of such Indebtedness is repaid.
"Capital Stock": any and all shares, interests,
participations or other equivalents (however designated) of capital
stock of a corporation, any and all equivalent ownership interests in
a Person (other than a corporation) and any and all warrants or
options to purchase any of the foregoing.
"Carmel Trust": as defined in the recitals to this Agreement.
"Cash Equivalents": (a) securities issued or directly and
fully guaranteed or insured by the United States of America or any
agency or instrumentality thereof having maturities of not more than
six months from the date of acquisition, (b) certificates of deposit
and eurodollar time deposits with maturities of six months or less
from the date of acquisition, bankers' acceptances with maturities not
exceeding six months and overnight
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bank deposits, in each case with any Lender or with any domestic
commercial bank having capital and surplus in excess of $300,000,000,
(c) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (a) and (b)
entered into with any financial institution meeting the qualifications
specified in clause (b) above, and (d) commercial paper issued by any
Lender or the parent corporation of any Lender, and commercial paper
rated A-1 or the equivalent thereof by Standard & Poor's Ratings Group
or P-1 or the equivalent thereof by Moody's Investors Service, Inc.
and in each case maturing within six months after the date of
acquisition.
"C/D Assessment Rate": for any day the net annual assessment
rate (rounded upwards, if necessary, to the next 1/100 of 1%)
determined by the Administrative Agent to be payable on such day to
the Federal Deposit Insurance Corporation or any successor ("FDIC")
for FDIC's insuring time deposits made in Dollars at offices of the
Administrative Agent in the United States.
"C/D Reserve Percentage": for any day as applied to any Base
CD Rate, that percentage (expressed as a decimal) which is in effect
on such day, as prescribed by the Board for determining maximum
reserve requirement for a Depositary Institution (as defined in
Regulation D of the Board) in respect of new non-personal time
deposits in Dollars having a maturity of 30 days or more.
"Change in Law": with respect to any Lender, the adoption of
any law, rule, regulation, policy, guideline or directive (whether or
not having the force of law) or any change therein or in the
interpretation or application thereof by any Governmental Authority
having jurisdiction over such Lender, in each case after the Closing
Date.
"Change of Control": shall be considered to have occurred if
(i) at any time prior to an IPO by the Company or Holdings, (A) the
Initial Shareholders shall cease to own, directly or indirectly, in
the aggregate, at least 51% of the issued and outstanding voting stock
of Holdings or a majority of the directors of Holdings shall cease to
be nominees of the Investcorp Shareholders or (B) Holdings shall cease
to own 100% of the issued and outstanding voting stock of the Company,
in each case free and clear of all Liens (except, in the case of the
Capital Stock of the Company owned by Holdings, for Liens created by
the Holdings Pledge Agreement), and (ii) at any time after an IPO by
the Company or Holdings, (A)(1) if any Person, whether singly or in
concert with one or more Persons, other than the Initial Shareholders
or any Person acting in the capacity of an underwriter, shall,
directly or indirectly, have acquired, or acquire the power to vote or
direct the voting of, 30% or more on a fully diluted basis, of the
outstanding common stock of the Company or of the common stock of
Holdings and (2) the percentage of such outstanding voting stock held
by such Person or Persons shall be greater than the percentage of such
outstanding common stock held by the Investcorp Shareholders or (B) a
majority of the directors of Holdings shall cease to be nominees of
the Investcorp Shareholders.
"Chase": The Chase Manhattan Bank, a New York banking
corporation, and its successors.
<PAGE> 12
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"Closing Date": the date (which shall be on or prior to
December 15, 1996) on which the Lenders make their initial Loans or
the Issuing Lender issues the initial Letter of Credit.
"Closing Date Transactions": as defined in the recitals to
this Agreement.
"Code": the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral": all assets of the Credit Parties, now owned or
hereinafter acquired, upon which a Lien is purported to be created by
any Security Document.
"Commercial L/C": a commercial documentary Letter of Credit
under which the Issuing Lender agrees to make payments in Dollars for
the account of the Company, on behalf of the Company or a Subsidiary
thereof, in respect of obligations of the Company or such Subsidiary
in connection with the purchase of goods or services in the ordinary
course of business.
"Commitment": as to any Lender at any time, such Lender's
Swing Line Commitment, Term Loan Commitment and Revolving Credit
Commitment; collectively, as to all the Lenders, the "Commitments".
"Commitment Percentage": as to any Lender at any time, its
Term Loan Commitment Percentage or its Revolving Credit Commitment
Percentage, as the context may require.
"Commonly Controlled Entity": an entity, whether or not
incorporated, which is under common control with the Company within
the meaning of Section 414(b) or (c) of the Code.
"Company": CSK Auto, Inc., an Arizona corporation.
"Company Pledge Agreement": the Company Pledge Agreement,
substantially in the form of Exhibit G-2, to be made by the Company in
favor of the Administrative Agent for the ratable benefit of the
Lenders, as the same may be amended, modified or supplemented from
time to time.
"Company Security Agreement": the Company Security Agreement,
substantially in the form of Exhibit E- 1, to be made by the Company
in favor of the Administrative Agent for the ratable benefit of the
Lenders, as the same may be amended, modified or supplemented from
time to time.
"Consolidated Current Assets": at a particular date, all
amounts which would, in conformity with GAAP, be included under
current assets on a consolidated balance sheet of the Company and its
Subsidiaries as at such date.
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"Consolidated Current Liabilities": at a particular date, all
amounts which would, in conformity with GAAP, be included under
current liabilities on a consolidated balance sheet of the Company and
its Subsidiaries as at such date, excluding the current portion of
long-term debt and the entire outstanding principal amount of the
Revolving Credit Loans.
"Consolidated EBITDA": for any period, the Consolidated Net
Income of the Company and its Subsidiaries for such period, plus,
without duplication and to the extent reflected as a charge in the
statement of such Consolidated Net Income for such period, the sum of
(a) total income tax expense (including any tax benefit or expense
related to the dividend on any preferred stock), (b) interest expense,
amortization or writeoff of debt discount, debt issuance, warrant and
other equity (including any preferred stock) issuance costs and
commissions, discounts, redemption premium and other fees and charges
associated with the Loans (including commitment fees and other
periodic bank charges), Standby L/Cs, the Subordinated Debt or with
the acquisition or repayment of any debt securities of the Company
permitted hereunder, and net costs associated with Interest Rate
Agreements to which the Company is a party in respect of the Loans,
(c) costs of surety bonds, (d) depreciation and amortization expense,
(e) amortization of inventory write-up under APB 16, amortization of
intangibles (including, but not limited to, goodwill and costs of
interest-rate caps, leasehold interests and the cost of
non-competition agreements) and organization costs, (f) non-cash
amortization of Financing Leases, (g) franchise taxes, (h) management
fees paid as contemplated by subsection 11.14(a), (i) all cash
dividend payments, (j) any fees and expenses incurred in connection
with the Closing Date Transactions, (k) phantom stock payments paid as
contemplated by Section 4.15 of the Stock Purchase Agreement, (l) any
other write-downs, write-offs, minority interests and other non-cash
charges in determining such Consolidated Net Income for such period
and (m) all extraordinary losses in determining such Consolidated Net
Income for such period, and minus, without duplication and to the
extent reflected as a credit in the statement of such Consolidated Net
Income for such period, the sum of (A) extraordinary gains, (B)
non-cash income and (C) non-cash gains; provided that: (i) the
cumulative effect of a change in accounting principles (effected
either through cumulative effect adjustment or a retroactive
application) shall be excluded and (ii) the impact of foreign currency
translations shall be excluded.
"Consolidated Funded Indebtedness": at a particular date, all
Indebtedness (other than Indebtedness described in clauses (b), (c) or
(d) (but only to the extent such Indebtedness consists of leases
entered into in connection with the Real Estate Financing Agreement
which on the Closing Date would be classified as off- balance sheet
operating leases but which, due to a change in Securities and Exchange
Commission regulations, accounting requirements or the opinion of the
Company's auditors, are included as on-balance sheet indebtedness) of
the definition of "Indebtedness" included in this subsection 1.1) of
the Company and its Subsidiaries determined on a consolidated basis in
accordance with GAAP at such date.
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"Consolidated Net Income": for any period, net income of the
Company and its Subsidiaries, determined on a consolidated basis in
accordance with GAAP; provided that: (i) the net income (but not loss)
of any Person that is not a Subsidiary or that is accounted for by the
equity method of accounting shall be included only to the extent of
the amount of dividends or distributions paid in cash to the Company
or a wholly-owned Subsidiary, (ii) the net income of any Person
acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded and (iii) net income of
any Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Subsidiary of
that net income is prohibited or not permitted at the date of
determination.
"Contingent Obligation": as to any Person, any obligation of
such Person guaranteeing or in effect guaranteeing any Indebtedness,
dividends or other obligations ("primary obligations") of any other
Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such
Person, whether or not contingent (a) to purchase any such primary
obligation or any property constituting direct or indirect security
therefor, (b) to advance or supply funds (i) for the purchase or
payment of any such primary obligation or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency of the primary obligor, (c) to
purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation or (d)
otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; provided, however, that
the term Contingent Obligation shall not include endorsements of
instruments for deposit or collection in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to
be an amount equal to the stated or determinable amount (based on the
maximum reasonably anticipated net liability in respect thereof as
determined by the Company in good faith) of the primary obligation or
portion thereof in respect of which such Contingent Obligation is made
or, if not stated or determinable, the maximum reasonably anticipated
net liability in respect thereof (assuming such Person is required to
perform thereunder) as determined by the Company in good faith.
"Contractual Obligation": as to any Person, any provision of
any security issued by such Person or of any agreement, instrument or
undertaking to which such Person is a party or by which it or any of
the property owned by it is bound.
"Credit Documents": the collective reference to this
Agreement, the Notes, the Pledge Agreements, the Security Agreements
and the Guarantees.
"Credit Parties": the collective reference to Holdings, the
Company and each Subsidiary of the Company from time to time party to
a Guarantee.
"Default": any of the events specified in Section 9, whether
or not any requirement for the giving of notice, the lapse of time, or
both, has been satisfied.
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"Documentation Agent": Lehman, in its capacity as
documentation agent hereunder.
"Dollars" and "$": dollars in lawful currency of the United
States of America.
"Domestic Subsidiary": any Subsidiary of the Company other
than a Foreign Subsidiary.
"Eligible DC Inventory": all Eligible Inventory of the
Company and its Subsidiaries, less Slow Moving Inventory, located at
any distribution center.
"Eligible Depot Inventory": all Eligible Inventory of the
Company and its Subsidiaries, less Slow Moving Inventory, located at
any depot.
"Eligible Inventory": all Inventory of the Company and its
Subsidiaries that consists of finished goods available for sales to
customers, excluding all Inventory located at a distribution center
received from a third-party customer in exchange for the initial
stocking of Inventory of such third-party customer in any changeover
or conversion. In determining the amount to be so included, the
amount of such Inventory shall be valued at the lower of cost or
market on a basis consistent with the Company's or such Subsidiary's
current and historical accounting practice less reserves taken, if
any, (i) on account of physical inventory adjustments, (ii) for
warranty and price changes as recorded in the Company's or such
Subsidiary's accounting records, (iii) for any goods returned or
rejected by the Company's or such Subsidiary's customers as damaged or
defective, scrap, obsolete or otherwise non-salable, return to vendor
goods, miscellaneous non-perpetual inventory, cores, rental tools,
supplies, (iv) for goods in transit to third parties that are not
excluded pursuant to clause (a), (b), (c), (d) or (e) below, (v) for
Liens referred to in clause (c)(i) below, provided that the aggregate
amount of such Rent Reserves shall not exceed $3,000,000, and (vi) for
Liens referred to in clause (c)(ii) below as established by the
Administrative Agent in its sole discretion. Unless otherwise
approved in writing by the Administrative Agent, no Inventory shall be
deemed Eligible Inventory of the Company or its Subsidiaries if:
(a) the Inventory is not owned solely by the Company or
such Subsidiary or is leased or on consignment or the Company
or such Subsidiary does not have good and valid title thereto;
(b) the Inventory is not located at or in transit to
property that is owned or leased by the Company or such
Subsidiary;
(c) the Inventory is not subject to a perfected Lien in
favor of the Administrative Agent prior to all other Liens
except for (i) Liens arising by operation of law with respect
to which either a Landlord Lien Waiver has been obtained or a
Rent Reserve has been established (a Rent Reserve with respect
to
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all such Liens shall be deemed to have been established if an
amount equal to the maximum amount set forth in clause (v) of
this definition is established) and (ii) with respect to
Eligible Inventory located at or in transit to sites described
in clause (b) above, for Liens for normal and customary
warehousing and transportation charges (appropriate reserves
for which have been reasonably established for borrowing base
purposes by the Company or such Subsidiary);
(d) the Inventory is not located in the United States; or
(e) the Inventory does not conform in all material
respects to the representations and warranties contained in
this Agreement or any of the Security Documents.
"Eligible Store Inventory": all Eligible Inventory of the
Company and its Subsidiaries, less Slow Moving Inventory, located at
any store.
"Environmental Laws": any and all Federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees or requirements of any Governmental Authority or
requirements of law (including court-ordered requirements of common
law) regulating or imposing liability or standards of conduct
concerning, environmental or public health protection matters,
including, without limitation, Hazardous Materials, as now or may at
any time hereafter be in effect.
"Environmental Reports": the Phase 1 environmental
assessments covering certain owned and leased real properties of the
Company and its Subsidiaries made available by the Company to the
Administrative Agent.
"ERISA": the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Eurocurrency Reserve Requirements": as defined in the
definition of Eurodollar Rate.
"Eurodollar Lending Office": as to any Lender the office of
such Lender which shall be making or maintaining Eurodollar Loans.
"Eurodollar Loans": Loans at such time as they are made
and/or being maintained at a rate of interest based upon a Eurodollar
Rate.
"Eurodollar Rate": with respect to each day during any
Interest Period for any Eurodollar Loan, the rate per annum equal to
the quotient of (a) the average (rounded upwards to the nearest whole
multiple of one sixteenth of one percent) of the respective rates
notified to the Administrative Agent by the Reference Lender as the
rate at which each of their Eurodollar Lending Offices is offered
Dollar deposits two Business Days prior to the beginning of such
Interest Period in the interbank eurodollar market where the
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foreign currency and exchange operations of such Eurodollar Lending
Office are customarily conducted at or about 10:00 A.M., New York City
time, 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 Loan of such Reference Lender to be
outstanding during such Interest Period, divided by (b) a number equal
to 1.00 minus the aggregate (without duplication) of the rates
(expressed as a decimal) of reserve requirements current on such day
(including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board or other
Governmental Authority having jurisdiction with respect thereto), as
now and from time to time hereafter in effect, dealing with reserve
requirements prescribed for Eurocurrency funding (currently referred
to as "Eurocurrency liabilities" in Regulation D of such Board)
maintained by a member bank of such System (such rates of reserve
requirements being referred to herein as "Eurocurrency Reserve
Requirements") (such Eurodollar Rate to be rounded upwards, if
necessary, to the next higher 1/100 of one percent).
"Event of Default": any of the events specified in Section 9,
provided that any requirement for the giving of notice, the lapse of
time, or both, has been satisfied.
"Excess Cash Flow": at the end of any fiscal year of the
Company ending on or after January 28, 1998, the excess of (a) the
sum, without duplication, of (i) Consolidated EBITDA for the period
from the Closing Date to the end of such fiscal year and (ii)
extraordinary cash gains with respect to such period over (b) the sum,
without duplication, of (i) the aggregate amount actually paid by the
Company and its Subsidiaries in cash since the Closing Date on account
of capital expenditures (other than capital expenditures made with the
proceeds of eminent domain or condemnation proceedings to the extent
such proceeds are not included in the determination of EBITDA for such
period), (ii) the aggregate amount of payments of principal in respect
of any Indebtedness since the Closing Date (other than any such
payments of principal pursuant to subsections 4.4(b)(i), (ii)), (iii)
and (iv) or any such payment of principal in respect of any revolving
credit facility to the extent that there is not an equivalent
reduction in such facility), (iii) increases in working capital
(calculated as Consolidated Current Assets at the end of such period
minus Consolidated Current Liabilities as at the end of such period)
of the Company and its Subsidiaries since the Closing Date (excluding
any increase in cash or Cash Equivalents above an increase deemed in
good faith by the Company to be necessary or desirable for the
operation of the business of the Company and its Subsidiaries), (iv)
cash interest expense (including fees paid in connection with Letters
of Credit, surety bonds, commitment fees and other periodic bank
charges) of the Company since the Closing Date, (v) the amount of
dividends actually paid in cash by the Company to Holdings since the
Closing Date as permitted by subsections 8.11(c)(iv) and 8.11(c)(v)
and, to the extent not deducted from revenues in determining
Consolidated Net Income of the Company and its Subsidiaries for such
period, by subsection 8.11(c)(i) and (ii), (vi) the amount of taxes
actually paid in cash by the Company and its Subsidiaries since the
Closing Date either during such period or within a normal payment
period thereof, (vii) the amount of cash actually paid to repurchase
Capital Stock of Holdings pursuant to subsection 8.11(c)(iii) since
the Closing Date, (viii) extraordinary cash losses with respect to
such period, (ix)
<PAGE> 18
13
any fees and expenses incurred in connection with the Closing Date
Transactions and (x) to the extent added to Consolidated Net Income of
the Company and its Subsidiaries in calculating Consolidated EBITDA
for such period, the net cost of Interest Rate Agreements, franchise
taxes and management fees during such period.
"Fee Property": as defined in subsection 5.13.
"Financing Lease": (a) any lease of property, real or
personal, the obligations under which are capitalized on a
consolidated balance sheet of the Company and its consolidated
Subsidiaries and (b) any other such lease to the extent that the then
present value of any rental commitment thereunder should, in
accordance with GAAP, be capitalized on a balance sheet of the lessee.
"Foreign Subsidiary": any Subsidiary of the Company which is
not organized under the laws of the United States of America or any
state thereof or the District of Columbia.
"GAAP": generally accepted accounting principles in the
United States of America in effect from time to time.
"Governmental Authority": any nation or government, any state
or other political subdivision thereof or any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Guarantees": the collective reference to the Holdings
Guarantee, the Subsidiary Guaranty and any other guarantee which may
from time to time be executed and delivered by a Subsidiary of the
Company pursuant to subsection 8.6(b).
"Hazardous Materials": any hazardous materials, hazardous
wastes, hazardous pesticides, hazardous or toxic substances, defined,
listed, classified or regulated as such in or under any Environmental
Law, including, without limitation, asbestos, petroleum, any other
petroleum products (including gasoline, crude oil or any fraction
thereof) polychlorinated biphenyls and urea-formaldehyde insulation.
"Holdings": CSK Group, Ltd., a Delaware corporation.
"Holdings Guarantee": the Holdings Guarantee, substantially
in the form of Exhibit F-1, to be made by Holdings in favor of the
Administrative Agent for the ratable benefit of the Lenders, as the
same may be amended, modified or supplemented from time to time.
"Holdings Pledge Agreement": the Holdings Pledge Agreement,
substantially in the form of Exhibit G-1, to be made by Holdings in
favor of the Administrative Agent for the ratable benefit of the
Lenders, as the same may be amended, modified or supplemented from
time to time.
<PAGE> 19
14
"Holdings Subordinated Debt": as defined in the recitals to
this Agreement.
"Indebtedness": of a Person, at a particular date, (a) all
indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services, (b) the undrawn face amount of
all letters of credit issued for the account of such Person and,
without duplication, all drafts drawn thereunder and unpaid
reimbursement obligations with respect thereto, (c) all liabilities
(other than Lease Obligations) secured by any Lien on any property
owned by such Person, even though such Person has not assumed or
become liable for the payment thereof, (d) Financing Leases and (e)
all indebtedness of such Person arising under acceptance facilities;
but excluding (i) trade and other accounts payable and accrued
expenses payable in the ordinary course of business and (ii) letters
of credit supporting the purchase of goods in the ordinary course of
business and expiring no more than six months from the date of
issuance.
"Initial Shareholders": (a) INVESTCORP SA and its Affiliates
(provided that for purposes of clauses (a) and (b) of this definition
only, the reference to 25% in the definition of Affiliate contained in
this subsection 1.1 shall be deemed to be 51%) and Subsidiaries
(collectively, the "Investcorp Shareholders") and (b) the Carmel Trust
and its beneficiaries and their respective immediate family members,
heirs, estate, administrators and executors and trusts benefitting
them and Affiliates thereof.
"Insolvency": with respect to a Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of such term
as used in Section 4245 of ERISA.
"Installment Payment Date": as defined in subsection 4.4(c).
"Interest Coverage Ratio": on the last day of any fiscal
quarter of the Company, the ratio of (a) Consolidated EBITDA for the
period of four fiscal quarters ending on such day, or, if shorter, the
period commencing on the first day of the first fiscal quarter
commencing on or after the Closing Date and ending on such day, to (b)
cash interest expense (excluding fees payable on account of Letters of
Credit and, to the extent included in interest expense in accordance
with GAAP, net costs associated with Interest Rate Agreements to which
the Company is party in respect of the Loans, amortization of debt
discount (including discount of liabilities and reserves established
under APB 16), costs of debt issuance and interest expense on customer
deposits) for the period described in clause (a) above net of interest
income, in each case for or during such period on a consolidated basis
for the Company and its Subsidiaries.
"Interest Payment Date": (a) as to Alternate Base Rate Loans,
the last day of each March, June, September and December, commencing
on the first such day to occur after any Alternate Base Rate Loans are
made or any Eurodollar Loans are converted to Alternate Base Rate
Loans, (b) as to any Eurodollar Loan in respect of which the Company
has selected an Interest Period of one, two or three months, the last
day of such Interest Period and (c) as to any Eurodollar Loan in
respect of which the Company has
<PAGE> 20
15
selected an Interest Period longer than three months, on each
successive date three months after the first day of such Interest
Period.
"Interest Period": with respect to any Eurodollar Loan:
(a) initially, the period commencing on, as the case
may be, the Borrowing Date or conversion date with respect to
such Eurodollar Loan and ending one, two, three, six or, if
and when available to all the relevant Lenders, nine or twelve
months thereafter as selected by the Company in its notice of
borrowing as provided in subsection 4.1 or its notice of
conversion as provided in subsection 4.2; and
(b) thereafter, each period commencing on the last
day of the next preceding Interest Period applicable to such
Eurodollar Loan and ending one, two, three, six or, if and
when available to all the relevant Lenders, nine or twelve
months thereafter as selected by the Company by irrevocable
notice to the Administrative Agent not less than three
Business Days prior to the last day of the then current
Interest Period with respect to such Eurodollar Loan;
provided that the foregoing provisions relating to Interest Periods
are subject to the following:
(A) if any Interest Period would otherwise end on a
day which is not a Business Day, that Interest Period shall be
extended to the next succeeding Business Day, unless the
result of such extension would be to carry such Interest
Period into another calendar month, in which event such
Interest Period shall end on the immediately preceding
Business Day;
(B) any Interest Period that would otherwise extend
beyond (i) in the case of an Interest Period for a Term Loan,
the final Installment Payment Date for such Term Loan shall
end on such Installment Payment Date or, if such Installment
Payment Date shall not be a Business Day, on the next
preceding Business Day and (ii) in the case of any Interest
Period for a Revolving Credit Loan, the Revolving Credit
Termination Date shall end on the Revolving Credit Termination
Date, or if the Revolving Credit Termination Date shall not be
a Business Day, on the next preceding Business Day;
(C) if the Company shall fail to give notice as
provided above in clause (b), it shall be deemed to have
selected a conversion of a Eurodollar Loan into an Alternate
Base Rate Loan (which conversion shall occur automatically and
without need for compliance with the conditions for conversion
set forth in subsection 4.2);
(D) any Interest Period that begins on the last day
of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar
<PAGE> 21
16
month at the end of such Interest Period) shall end on the
last Business Day of a calendar month; and
(E) the Company shall select Interest Periods so as
not to require a prepayment (to the extent practicable) or a
scheduled payment of a Eurodollar Loan during an Interest
Period for such Eurodollar Loan.
"Interest Rate Agreement": any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement, currency
hedge agreement or other similar agreement or arrangement; provided
that the amount of any such Interest Rate Agreement for purposes of
Section 9(e) shall be based on calculation of payments for early
termination in a reasonable manner in accordance with customary
industry practices.
"Inventory": as defined in the Uniform Commercial Code as in
effect in the State of New York; and, with respect to the Company and
its Subsidiaries, all such Inventory of the Company or such Subsidiary
including, without limitation, all finished goods, wares and
merchandise, finished or unfinished parts, components, assemblies held
for sale to third party customers by the Company or such Subsidiary.
"Investcorp Shareholders": as defined in the definition of
"Initial Shareholders."
"Investment Documents": the Stock Purchase Agreement and each
exhibit or schedule thereto.
"Investor Investment": as defined in the recitals hereto.
"Investors": as defined in the recitals hereto.
"IPO": any sale by either the Company or Holdings through a
public offering of its common (or other voting) stock pursuant to an
effective registration statement (other than a registration statement
on Form S-4, S-8 or any successor or similar forms) filed under the
Securities Act of 1933, as amended.
"Issuing Lender": Chase and any of its Affiliates, including
Chase Bank Delaware, as issuer of the Letters of Credit.
"Landlord Lien Waiver": a written agreement, in substantially
the form of Exhibit I or as otherwise is reasonably acceptable to the
Administrative Agent, pursuant to which a Person shall waive or
subordinate its rights and claims as landlord in any Inventory of the
Company or its Subsidiaries for unpaid rents, grant access to the
Administrative Agent for the repossession and sale of such inventory
and make other agreements relative thereto.
"L/C Application": as defined in subsection 3.5(a).
<PAGE> 22
17
"L/C Obligations": the obligations of the Company to reimburse
the Issuing Lender for any payments made by the Issuing Lender under
any Letter of Credit that have not been reimbursed by the Company
pursuant to subsection 3.8(a).
"L/C Participating Interest": an undivided participating
interest (equal to such Lender's Revolving Credit Commitment
Percentage) in the face amount of each issued and outstanding Letter
of Credit and the L/C Application relating thereto.
"L/C Participation Certificate": the certificate in
substantially the form of Exhibit H.
"Lease Obligations": of the Company and its Subsidiaries, as
of the date of any determination thereof, the rental commitments of
the Company and its Subsidiaries determined on a consolidated basis,
if any, under leases for real and/or personal property (net of rental
commitments from sub-leases thereof), excluding however, obligations
under Financing Leases.
"Leased Properties": as defined in subsection 5.13.
"Lehman": Lehman Commercial Paper Inc., a Delaware
corporation.
"Letters of Credit": the collective reference to the
Commercial L/Cs and the Standby L/Cs; individually, a "Letter of
Credit".
"Lien": any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), or
preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement,
any financing lease having substantially the same economic effect as
any of the foregoing, and the filing of any financing statement under
the Uniform Commercial Code or comparable law of any jurisdiction in
respect of any of the foregoing except for the filing of financing
statements in connection with Lease Obligations incurred by the
Company or its Subsidiaries to the extent that such financing
statements relate to the property subject to such Lease Obligations).
"Loans": the collective reference to the Swing Line Loans,
the Term Loans and the Revolving Credit Loans; individually, a "Loan".
"Maturity Date": October 31, 2003.
"Multiemployer Plan": a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Proceeds": the aggregate cash proceeds received by
Holdings, the Company or any Subsidiary of the Company in respect of:
<PAGE> 23
18
(a) (i) any issuance or borrowing of any debt
securities or loans by the Company or any Subsidiary other
than debt or loans permitted to be incurred or borrowed
pursuant to subsection 8.1 (except for the amount of any
Permanent Subordinated Indebtedness incurred in accordance
with subsection 8.1(d)(ii) in excess of the outstanding
principal amount of any Bridge Subordinated Indebtedness at
the time of such incurrence, which excess amount shall be "Net
Proceeds") or (ii) any issuance of Capital Stock.
(b) any Asset Sale, excluding (i) any net proceeds
received upon any condemnation or exercise of rights of
eminent domain to the extent the same shall be deemed not to
constitute Net Proceeds pursuant to the proviso to subsection
8.5(d) and (ii) any proceeds of insurance received upon any
casualty or loss;
(c) any cash received in respect of substantially
like-kind exchanges of property to the extent provided in the
proviso to subsection 8.5(e); and
(d) any cash payments received in respect of
promissory notes delivered to the Company or such Subsidiary
in respect of an Asset Sale;
in each case net of (without duplication) (A) the amount required to
repay any Indebtedness (other than the Loans) secured by a Lien on any
assets of the Company or a Subsidiary of the Company that are
collateral for any such debt securities or loans that are sold or
otherwise disposed of in connection with such Asset Sale, (B) the
reasonable expenses (including legal fees and brokers' and
underwriters' commissions, lenders fees or credit enhancement fees, in
any case, paid to third parties or, to the extent permitted hereby,
Affiliates) incurred in effecting such issuance or sale and (C) any
taxes reasonably attributable to such sale and reasonably estimated by
the Company or such Subsidiary to be actually payable.
"Non-Funding Lender": as defined in subsection 4.9(c).
"Notes": the collective reference to the Swing Line Note, the
Revolving Credit Notes and the Term Loan Notes; each of the Notes, a
"Note".
"Offering Memorandum": the Preliminary Offering Memorandum,
dated October 9, 1996 with respect to the Permanent Subordinated Debt.
"Participants": as defined in subsection 11.6(b).
"Participating Lender": any Lender (other than the Issuing
Lender) with respect to its L/C Participating Interest in each Letter
of Credit.
"Payment Sharing Notice": a written notice from the Company
or any Lender informing the Administrative Agent that an Event of
Default has occurred and is
<PAGE> 24
19
continuing and directing the Administrative Agent to allocate payments
thereafter received from or on behalf of the Company in accordance
with the provisions of subsection 4.9.
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA or any successor.
"Permanent Subordinated Debt": (a) unsecured notes or
debentures of the Company, subordinated to the prior payment of the
Loans and the other obligations under the Credit Documents, that may
be issued by the Company on or after the Closing Date, provided that
either (x) such notes or debentures have terms consistent with those
described in the Offering Memorandum or (y) (i) unless otherwise
agreed to by the Required Lenders, no part of the principal amount of
any such notes or debentures shall have a maturity date earlier than
October 31, 2004, (ii) unless otherwise agreed to by the Required
Lenders, the subordination provisions of which are as favorable to the
Lenders as the Exchange Notes issued under, and as defined in the
Bridge Subordinated Debt Agreement, the other terms and conditions
thereof (including, without limitation, covenant and event of default
provisions thereof but excluding any call protection provisions) taken
as a whole shall be at least as favorable to the Company and the
Lenders as the Exchange Notes issued under, and as defined in, the
Bridge Subordinated Debt Agreement and the non-default cash interest
rate thereon shall not exceed 15% per annum and the total non-default
interest rate shall not exceed 16% per annum, (iii) no covenant
contained in this Agreement or any of the other Credit Documents would
be violated on the proposed issuance date after giving effect to (A)
the issuance of such notes or debentures, (B) the payment of all
issuance costs, commissions, discounts, redemption premiums and other
fees and charges associated therewith, (C) the use of proceeds thereof
and (D) the redemption, repayment, retirement and repurchase of all
Indebtedness of the Company and its Subsidiaries to be redeemed,
repaid or repurchased in connection therewith and (iv) substantially
final drafts of the documentation governing any such notes or
debentures, showing the terms thereof, shall have been furnished to
the Lenders at least 10 days prior to the date of issuance of such
notes or debentures and (b) unsecured notes or debentures of the
Company, subordinated to the prior payment of the Loans and the other
obligations under the Credit Documents, that may be issued by the
Company in order to refinance previously issued Permanent Subordinated
Debt, provided that (i) the maturity date, the interest rate, the
scheduled amortization, the final maturity and the subordination
provisions shall be at least as favorable to the Company and the
Lenders as such refinanced Permanent Subordinated Debt and the other
terms and conditions thereof (including, without limitation, the
covenant and event of default provisions thereof) taken as a whole
shall be at least as favorable to the Company and the Lenders as such
refinanced Permanent Subordinated Debt and (ii) the conditions
contained in clauses (a)(iii) and (iv) of this definition shall be
met.
"Permitted Liens": Liens permitted to exist under subsection
8.2.
<PAGE> 25
20
"Person": an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, Governmental Authority or other entity of whatever nature.
"Plan": at any particular time, any employee benefit plan as
defined in Section 3(3) of ERISA and not excluded by Section 4(b) of
ERISA and in respect of which the Company or a Commonly Controlled
Entity is (or, if such plan were terminated at such time, would under
Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Pledge Agreements": the collective reference to the Holdings
Pledge Agreement, the Company Pledge Agreement and any pledge
agreement from time to time executed and delivered by any Subsidiary
of the Company providing for the pledge of the Capital Stock of any
Subsidiary pursuant to subsection 8.6(b).
"Real Estate Financing Agreement": the Agreement, to be dated
as of the Closing Date, between Carmel Trust and the Company, in
substantially the form of Exhibit I to the Stock Purchase Agreement.
"Reference Lender": Chase.
"Refunded Swing Line Loans": as defined in subsection 3.4(b).
"Register": as defined in subsection 11.6(d).
"Regulation U": Regulation U of the Board of Governors of the
Federal Reserve System, as from time to time in effect.
"Related Document": any agreement, certificate, document or
instrument relating to a Letter of Credit.
"Rent Reserve": with respect to any store, distribution
center or depot where any Inventory subject to Liens arising by
operation of law is located, a reserve equal to three (3) months' rent
at such store, distribution center or depot; provided, that the
aggregate amount of Rent Reserves for all stores, distribution centers
or depots shall not exceed $3,000,000.
"Reorganization": with respect to a Multiemployer Plan, the
condition that such Plan is in reorganization as such term is used in
Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section
4043(b) of ERISA other than those events as to which the thirty day
notice period is waived under subsections .13, .14, .16, .18, .19 or
.20 of PBGC Reg. Section 2615.
<PAGE> 26
21
"Required Lenders": at a particular time, the holders of at
least 51% of the sum of (i) the aggregate unpaid principal amount of
the Term Loans, if any, and (ii) the Revolving Credit Commitments or,
if the Revolving Credit Commitments are terminated, the aggregate
unpaid principal amount of the Revolving Credit Loans, and
participations in Swingline Loans, the aggregate amount available to
be drawn at such time under all outstanding Letters of Credit and L/C
Obligations. The Term Loans and the Revolving Credit Commitments of
any Non-Funding Lender shall be disregarded in determining Required
Lenders at any time.
"Requirement of Law": as to any Person, the Articles or
Certificate of Incorporation and By-Laws or other organizational or
governing documents of such Person, and any law, treaty, rule or
regulation, order, 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.
"Responsible Officer": with respect to any Person, the
president, chief executive officer, the chief operating officer, the
chief financial officer, treasurer, controller or any vice president
of such Person.
"Reserve Amount": $25,000,000, provided that, at any time
when the aggregate outstanding principal amount of the Term Loans is
less than $25,000,000, the Reserve Amount shall be reduced by an
amount equal to the amount by which the aggregate outstanding
principal amount of the Term Loans is less than $25,000,000 at such
time.
"Revolving Credit Commitment": as to any Lender, its
obligations to make Revolving Credit Loans to the Company pursuant to
subsection 3.1, and to purchase its L/C Participating Interest in any
Letter of Credit, in an aggregate amount not to exceed the amount set
forth under such Lender's name in Schedule I opposite the caption
"Revolving Credit Commitment" or in Schedule 1 to the Assignment and
Acceptance by which such Lender acquired its Revolving Credit
Commitment, as the same may be reduced from time to time pursuant to
subsection 4.3 or 4.4(b) or adjusted pursuant to subsection 11.6(c);
collectively, as to all the Lenders, the "Revolving Credit
Commitments". The original aggregate principal amount of the
Revolving Credit Commitments is $100,000,000.
"Revolving Credit Commitment Percentage": as to any Lender at
any time, the percentage of the aggregate Revolving Credit Commitments
then constituted by such Lender's Revolving Credit Commitment.
"Revolving Credit Commitment Period": the period from and
including the Closing Date to but not including the Revolving Credit
Termination Date.
"Revolving Credit Loan" and "Revolving Credit Loans": as
defined in subsection 3.1(a).
<PAGE> 27
22
"Revolving Credit Note": as defined in subsection 4.13(e).
"Revolving Credit Termination Date": the earlier of (a)
October 31, 2001 and (b) such other date as the Revolving Credit
Commitments shall terminate hereunder.
"Section 4.4 Lenders": at a particular time, the holders of
(a) at least 51% of the aggregate unpaid principal amount of the Term
Loans, if any, and (b) at least 51% of the Revolving Credit
Commitments or, if the Revolving Credit Commitments are terminated,
the aggregate unpaid principal amount of the Revolving Credit Loans,
and participations in Swingline Loans and the aggregate amount
available to be drawn at such time under all outstanding Letters of
Credit. The Term Loans and the Revolving Credit Commitments of any
Non-Funding Lender shall be disregarded in determining Section 4.4
Lenders at any time.
"Security Agreements": the collective reference to the
Company Security Agreement, the Subsidiary Security Agreement and any
other security agreement which may from time to time be executed and
delivered by a Subsidiary of the Company pursuant to subsection
8.6(b).
"Security Documents": the collective reference to the Pledge
Agreements and the Security Agreements.
"Single Employer Plan": any Plan which is covered by Title IV
of ERISA and which is not a Multiemployer Plan.
"Slow Moving Inventory": Inventory in excess of a 52 week
supply based on sales for the preceding 52 weeks and determined on an
individual SKU basis.
"Standby L/C": an irrevocable letter of credit under which
the Issuing Lender agrees to make payments in Dollars for the account
of the Company, on behalf of the Company or any Subsidiary thereof in
respect of obligations of the Company or such Subsidiary incurred
pursuant to contracts made or performances undertaken or to be
undertaken or like matters relating to contracts to which the Company
or such Subsidiary is or proposes to become a party in the ordinary
course of the Company's or such Subsidiary's business, including,
without limiting the foregoing, for insurance purposes or in respect
of advance payments or as bid or performance bonds or for any other
purpose for which a standby letter of credit might customarily be
issued.
"Stock Purchase Agreement": as defined in the recitals
hereto.
"Subordinated Debt": the collective term for the Bridge
Subordinated Debt and the Permanent Subordinated Debt.
"Subsection 4.11(d)(2) Certificate": as defined in subsection
4.11(d).
<PAGE> 28
23
"Subsidiary": as to any Person, any corporation of which
shares of stock of each class having ordinary voting power (other than
stock having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other
managers of such corporation are at the time owned by such Person or
by one or more Subsidiaries of such Person or by such Person and one
or more Subsidiaries of such Person. (A Subsidiary shall be deemed
wholly-owned by a Person who owns all of the voting shares of stock of
such Subsidiary having voting power under ordinary circumstances to
vote for directors, except for directors' qualifying shares.) Unless
otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or
Subsidiaries of the Company.
"Subsidiary Guarantee": the Subsidiary Guarantee,
substantially in the form of Exhibit F-2, to be made by each Domestic
Subsidiary of the Company in favor of the Administrative Agent for the
ratable benefit of the Lenders, as the same may be amended, modified
or supplemented from time to time.
"Subsidiary Security Agreement": the Subsidiary Security
Agreement, substantially in the form of Exhibit E-2, to be made by
each Domestic Subsidiary of the Company in favor of the Administrative
Agent for the ratable benefit of the Lenders, as the same may be
amended, modified or supplemented from time to time.
"Supermajority Lenders": at a particular time, the holders of
at least 66-2/3% of the sum of (i) the aggregate unpaid principal
amount of the Term Loans, if any, and (ii) the Revolving Credit
Commitments or, if the Revolving Credit Commitments are terminated,
the aggregate unpaid principal amount of the Revolving Credit Loans,
and participations in Swingline Loans and the aggregate amount
available to be drawn at such time under all outstanding Letters of
Credit. The Term Loans and the Revolving Credit Commitments of any
Non-Funding Lender shall be disregarded in determining Supermajority
Lenders at any time.
"Supplemental Reporting": as described in Schedule 1 to the
Form of Borrowing Base Certificate.
"Swing Line Commitment": the Swing Line Lender's obligation
to make Swing Line Loans pursuant to subsection 3.4.
"Swing Line Lender": Chase in its capacity as lender of the
Swing Line Loans.
"Swing Line Loan Participation Certificate": a certificate in
substantially the form of Exhibit J.
"Swing Line Loans": as defined in subsection 3.4(a).
"Swing Line Note": as defined in subsection 4.13(e).
<PAGE> 29
24
"Term Loan Commitment": as to any Lender, its obligation to
make a Term Loan to the Company pursuant to subsection 2.1 in an
aggregate amount not to exceed the amount set forth under such
Lender's name in Schedule I opposite the caption "Term Loan
Commitment" or in Schedule 1 to the Assignment and Acceptance pursuant
to which a Lender acquires its Term Loan Commitment, as the same may
be adjusted pursuant to subsection 11.6(c); collectively, as to all
the Lenders, the "Term Loan Commitments". The original aggregate
principal amount of the Term Loan Commitments is $100,000,000.
"Term Loan Commitment Percentage": as to any Lender at any
time, the percentage of the aggregate Term Loan Commitments then
constituted by such Lender's Term Loan Commitment.
"Term Loan Note": as defined in subsection 4.13(e).
"Term Loans": as defined in subsection 2.1.
"Transferee": as defined in subsection 11.6(f).
"Type": as to any Loan, its nature as an Alternate Base Rate
Loan or Eurodollar Loan.
"Uniform Customs": the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, and any amendments thereof.
1.2 Other Definitional Provisions. (a) Unless otherwise
specified therein, all terms defined in this Agreement shall have the defined
meanings when used in the Notes, any other Credit Document or any certificate
or other document made or delivered pursuant hereto.
(b) As used herein and in the Notes, any other Credit
Document and any certificate or other document made or delivered pursuant
hereto, accounting terms relating to the Company and its Subsidiaries not
defined in subsection 1.1 and accounting terms partly defined in subsection 1.1
to the extent not defined, shall have the respective meanings given to them
under GAAP. All computations determining compliance with financial covenants
or terms, including definitions used therein, shall be prepared in accordance
with generally accepted accounting principles in effect at the time of the
preparation of, and in conformity with those used to prepare, the historical
financial statements delivered to the Administrative Agent pursuant to
subsection 7.1. If at any time the computations for determining compliance
with financial covenants or provisions relating thereto utilize generally
accepted accounting principles different than those then being utilized in the
financial statements then being delivered to the Administrative Agent, such
financial statements shall be accompanied by a reconciliation statement with
respect to such computations.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular
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25
provision of this Agreement, and section, subsection, schedule and exhibit
references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be
equally applicable to the singular and plural forms of such terms.
SECTION 2. TERM LOANS
2.1 Term Loans. Subject to the terms and conditions hereof,
each Lender severally agrees to make a loan in Dollars (individually, a "Term
Loan"; and collectively, the "Term Loans") to the Company on the Closing Date,
in an aggregate principal amount equal to such Lender's Term Loan Commitment.
The Term Loans shall be made initially as Alternate Base Rate Loans.
2.2 Repayment of Term Loans. The Company shall repay the
Term Loans as provided in subsection 4.4(c).
2.3 Use of Proceeds. The proceeds of the Term Loans,
together with part of the proceeds of the Revolving Credit Loans, will be used
to finance in part the Closing Date Transactions and to pay certain of the
fees, expenses and financing costs related to the Closing Date Transactions.
SECTION 3. AMOUNT AND TERMS OF REVOLVING
CREDIT COMMITMENTS
3.1 Revolving Credit Commitments. (a) Subject to the terms
and conditions hereof, each Lender severally agrees to the extent of its
Revolving Credit Commitment to extend credit to the Company from time to time
on any Borrowing Date during the Revolving Credit Commitment Period (i) by
purchasing an L/C Participating Interest in each Letter of Credit issued by the
Issuing Lender and (ii) by making loans in Dollars (individually, such a Loan
is a "Revolving Credit Loan", and collectively such Loans are the "Revolving
Credit Loans") to the Company from time to time. Notwithstanding the above,
(x) in no event shall any Letter of Credit be issued if after giving effect
thereto the sum of the undrawn amount of all outstanding Letters of Credit and
the amount of all L/C Obligations would exceed $15,000,000 and (y) in no event
shall any Revolving Credit Loans be made, or Letters of Credit be issued, (A)
if the aggregate amount of the Revolving Credit Loans to be made or Letters of
Credit to be issued would, after giving effect to the use of proceeds, if any,
thereof, exceed the aggregate Available Revolving Credit Commitments or (B) if,
after giving effect to such Revolving Credit Loan or Letter of Credit, a
Borrowing Base Deficiency would exist. During the Revolving Credit Commitment
Period, the Company may use the Revolving Credit Commitments by borrowing,
prepaying the Revolving Credit Loans in whole or in part, and reborrowing, all
in accordance with the terms and conditions hereof, and/or by having the
Issuing Lender issue Letters of Credit, having such Letters of Credit
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expire undrawn upon or if drawn upon, reimbursing the Issuing Lender for such
drawing, and having the Issuing Lender issue new Letters of Credit.
(b) The Revolving Credit Loans made on the Closing Date shall
be made initially as Alternate Base Rate Loans. Each borrowing of Revolving
Credit Loans pursuant to the Revolving Credit Commitments shall be in an
aggregate principal amount of the lesser of (i) $1,000,000 or a whole multiple
of $100,000 in excess thereof, in the case of Alternate Base Rate Loans, and
$2,000,000 or a whole multiple of $1,000,000 in excess thereof, in the case of
Eurodollar Loans and (ii) the Available Revolving Credit Commitments, except
that any borrowing of Revolving Credit Loans to be used solely to pay a like
amount of Swing Line Loans may be in the aggregate principal amount of such
Swing Line Loans.
3.2 Commitment Fee. The Company agrees to pay to the
Administrative Agent for the account of each Lender (other than any Non-Funding
Lender) a commitment fee from and including the Closing Date to and including
the Revolving Credit Termination Date, computed at the rate of 1/2 of 1% per
annum on the average daily amount of the Available Revolving Credit Commitment
of such Lender during the period for which payment is made (whether or not the
Company shall have satisfied the applicable conditions to borrowing or issuance
of a Letter of Credit set forth in Section 6). Such commitment fee shall be
payable quarterly in arrears on the last day of each March, June, September and
December and on the Revolving Credit Termination Date, commencing on the first
such date to occur on or following the Closing Date (or, if earlier, the
Revolving Credit Termination Date).
3.3 Proceeds of Revolving Credit Loans. The Company shall
use the proceeds of Revolving Credit Loans (a) as set forth in subsection 2.3
and (b) for general corporate purposes of the Company and its Subsidiaries.
3.4 Swing Line Commitment. (a) Subject to the terms and
conditions hereof, the Swing Line Lender agrees, so long as the Administrative
Agent has not received notice that an Event of Default has occurred and is
continuing, to make swing line loans (individually, a "Swing Line Loan";
collectively, the "Swing Line Loans") to the Company from time to time during
the Revolving Credit Commitment Period in an aggregate principal amount at any
one time outstanding not to exceed $15,000,000, provided that no Swing Line
Loan may be made if the aggregate principal amount of the Swing Line Loans to
be made would exceed the aggregate Available Revolving Credit Commitments at
such time, and provided, further, that no Swing Line Loan may be made if, after
giving effect thereto, a Borrowing Base Deficiency would exist. Amounts
borrowed by the Company under this subsection 3.4 may be repaid and, through
but excluding the Revolving Credit Termination Date, reborrowed. All Swing
Line Loans shall be made as Alternate Base Rate Loans and shall not be entitled
to be converted into Eurodollar Loans. The Company shall give the Swing Line
Lender irrevocable notice (which notice must be received by the Swing Line
Lender prior to 3:00 p.m., New York City time) on the requested Borrowing Date
specifying the amount of each requested Swing Line Loan, which shall be in an
aggregate minimum amount of $250,000 or a whole multiple of $100,000 in excess
thereof. The proceeds of each Swing Line Loan will be made available by the
Swing Line Lender to the Company by crediting the account of the Company at the
office of the Swing Line Lender with
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such proceeds. The proceeds of Swing Line Loans may be used solely for the
purposes referred to in subsection 3.3.
(b) The Swing Line Lender at any time in its sole and
absolute discretion may, and on the fifteenth day (or if such day is not a
Business Day, the next Business Day) and last Business Day of each month shall,
on behalf of the Company (which hereby irrevocably directs the Swing Line
Lender to act on its behalf) request each Lender, including the Swing Line
Lender, to make a Revolving Credit Loan in an amount equal to such Lender's
Revolving Credit Commitment Percentage of the amount of the Swing Line Loans
(the "Refunded Swing Line Loans") outstanding on the date such notice is given.
Unless any of the events described in paragraph (f) of Section 9 shall have
occurred (in which event the procedures of paragraph (c) of this subsection 3.4
shall apply) each Lender shall make the proceeds of its Revolving Credit Loan
available to the Swing Line Lender for the account of the Swing Line Lender at
the Alternate Base Rate Lending Office of the Swing Line Lender prior to 2:00
p.m. (New York City time) in funds immediately available on the Business Day
next succeeding the date such notice is given. The proceeds of such Revolving
Credit Loans shall be immediately applied to repay the Refunded Swing Line
Loans.
(c) If prior to the making of a Revolving Credit Loan
pursuant to paragraph (b) of this subsection 3.4 one of the events described in
paragraph (f) of Section 9 shall have occurred, each Lender will, on the date
such Loan was to have been made, purchase an undivided participating interest
in the Refunded Swing Line Loan in an amount equal to its Revolving Credit
Commitment Percentage of such Refunded Swing Line Loan. Each Lender will
immediately transfer to the Swing Line Lender in immediately available funds,
the amount of its participation and upon receipt thereof the Swing Line Lender
will deliver to such Lender a Swing Line Loan Participation Certificate dated
the date of receipt of such funds and in such amount.
(d) Whenever, at any time after the Swing Line Lender has
received from any Lender such Lender's participating interest in a Refunded
Swing Line Loan, the Swing Line Lender receives any payment on account thereof,
the Swing Line Lender will distribute to such Lender its participating interest
in such amount (appropriately adjusted, in the case of interest payments, to
reflect the period of time during which such Lender's participating interest
was outstanding and funded) in like funds as received; provided, however, that
in the event that such payment received by the Swing Line Lender is required to
be returned, such Lender will return to the Swing Line Lender any portion
thereof previously distributed by the Swing Line Lender to it in like funds as
such payment is required to be returned by the Swing Line Lender.
(e) Each Lender's obligation to purchase participating
interests pursuant to subsection 3.4(c) shall be absolute and unconditional and
shall not be affected by any circumstance, including, without limitation, (i)
any set- off, counterclaim, recoupment, defense or other right which such
Lender may have against the Swing Line Lender, the Company or any other Person
for any reason whatsoever; (ii) the occurrence or continuance of an Event of
Default; (iii) any adverse change in the condition (financial or otherwise) of
the Company; (iv) any breach of this Agreement by the Company or any other
Lender; or (v) any other circumstance, happening or event whatsoever, whether
or not similar to any of the foregoing.
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3.5 Issuance of Letters of Credit. (a) The Company may from
time to time request the Issuing Lender to issue a Standby L/C or a Commercial
L/C by delivering to the Administrative Agent at its address specified in
subsection 11.2 a letter of credit application in the Issuing Lender's then
customary form (the "L/C Application") completed to the satisfaction of the
Issuing Lender, together with the proposed form of such Letter of Credit (which
shall comply with the applicable requirements of paragraph (b) below) and such
other certificates, documents and other papers and information as the Issuing
Lender may reasonably request; provided that if the Issuing Lender informs the
Company that it is for any reason unable to open such Letter of Credit, the
Company may request any Lender to open such Letter of Credit upon the same
terms offered to the Issuing Lender and each reference to the Issuing Lender
for purposes of subsections 3.5 through 3.14, 6.1 and 6.2 shall be deemed to be
a reference to such issuing Lender.
(b) Each Standby L/C and Commercial L/C issued hereunder
shall, among other things, (i) be in such form requested by the Company as
shall be acceptable to the Issuing Lender in its sole discretion and (ii) in
the case of each Standby L/C, have an expiry date occurring not later than 365
days after the date of issuance of such Standby L/C and, in the case of each
Commercial L/C, have an expiry date occurring not later than 120 days after the
date of issuance of such Commercial L/C and, in all cases, may be automatically
renewed on its expiry date for an additional period equal to the initial term
but in no case shall any Letter of Credit have an expiry date occurring later
than three Business Days before the Revolving Credit Termination Date. Each
L/C Application and each Letter of Credit shall be subject to the Uniform
Customs and, to the extent not inconsistent therewith, the laws of the State of
New York.
3.6 Participating Interests. Effective in the case of each
Standby L/C and Commercial L/C as of the date of the opening thereof, the
Issuing Lender agrees to allot and does allot, to itself and each other Lender,
and each Lender severally and irrevocably agrees to take and does take in such
Letter of Credit and the related L/C Application, an L/C Participating Interest
in a percentage equal to such Lender's Revolving Credit Commitment Percentage.
3.7 Procedure for Opening Letters of Credit. The Issuing
Lender will notify each Lender after the end of each calendar month of any L/C
Applications received by the Issuing Lender from the Company during such month.
Upon receipt of any L/C Application from the Company, the Issuing Lender will
process such L/C Application, and the other certificates, documents and other
papers delivered to the Issuing Lender in connection therewith, in accordance
with its customary procedures and, subject to the terms and conditions hereof,
shall promptly open such Letter of Credit by issuing the original of such
Letter of Credit to the beneficiary thereof and by furnishing a copy thereof to
the Company, provided that no such Letter of Credit shall be issued if
subsection 3.1 would be violated thereby.
3.8 Payments in Respect of Letters of Credit. (a) The
Company agrees forthwith upon demand by the Issuing Lender and otherwise in
accordance with the terms of the L/C Application relating thereto (i) to
reimburse the Issuing Lender for any payment made by the Issuing Lender under
any Letter of Credit issued for the account of the Company and (ii) to pay
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29
interest on any unreimbursed portion of any such payment from the date of such
payment until reimbursement in full thereof at a rate per annum equal to (A) on
or prior to the date which is one Business Day after the day on which the
Issuing Lender demands reimbursement from the Company for such payment, the
Alternate Base Rate plus the Applicable Margin for the Revolving Credit Loans
and (B) thereafter, the Alternate Base Rate plus the Applicable Margin for
Revolving Credit Loans plus 2%.
(b) In the event that the Issuing Lender makes a payment
under any Letter of Credit and is not reimbursed in full therefor forthwith
upon demand of the Issuing Lender, and otherwise in accordance with the terms
of the L/C Application relating to such Letter of Credit, the Issuing Lender
will promptly notify each other Lender. Forthwith upon its receipt of any such
notice, each other Lender will transfer to the Issuing Lender, in immediately
available funds, an amount equal to such other Lender's pro rata share of the
L/C Obligation arising from such unreimbursed payment. Promptly, upon its
receipt from such other Lender of such amount, the Issuing Lender will
complete, execute and deliver to such other Lender an L/C Participation
Certificate dated the date of such receipt and in such amount.
(c) Whenever, at any time after the Issuing Lender has made a
payment under any Letter of Credit and has received from any other Lender such
other Lender's pro rata share of the L/C Obligation arising therefrom, the
Issuing Lender receives any reimbursement on account of such L/C Obligation or
any payment of interest on account thereof, the Issuing Lender will promptly
distribute to such other Lender its pro rata share thereof in like funds as
received; provided, however, that in the event that the receipt by the Issuing
Lender of such reimbursement or such payment of interest (as the case may be)
is required to be returned, such other Lender will return to the Issuing Lender
any portion thereof previously distributed by the Issuing Lender to it in like
funds as such reimbursement or payment is required to be returned by the
Issuing Lender.
3.9 Letter of Credit Fees. (a) In lieu of any letter of
credit commissions and fees provided for in any L/C Application relating to
Standby or Commercial L/Cs (other than standard issuance, amendment and
negotiation fees), the Company agrees to pay the Administrative Agent, for the
account of the Issuing Lender and the Participating Lenders, with respect to
each Standby or Commercial L/C issued for the account of the Company, a Standby
or Commercial L/C fee, as the case may be, equal to the Applicable Margin for
Revolving Credit Loans which are Eurodollar Loans (of which the Issuing Lender
shall retain for its own account, as the issuing bank and not on account of
its L/C Participating Interest therein, 1/4 of 1% per annum) on the daily
average amount available to be drawn under each Standby L/C in the case of a
Standby L/C and on the maximum face amount of each Commercial L/C in the case
of a Commercial L/C, in either case payable, in arrears, on the last day of
each fiscal quarter of the Company. The Administrative Agent will disburse any
Standby or Commercial L/C fees received pursuant to this subsection 3.9(a) to
the respective Lenders promptly following the receipt of any such fees in the
case of a Standby L/C and, in the case of a Commercial L/C, following the end
of the calendar month in which such Commercial L/C fees were received.
Notwithstanding the foregoing, the Company agrees to pay standard issuance,
amendment and negotiation fees to the Issuing Lender.
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(b) For purposes of any payment of fees required pursuant to
this subsection 3.9, the Administrative Agent agrees to provide to the Company
a statement of any such fees to be so paid; provided that the failure by the
Administrative Agent to provide the Company with any such invoice shall not
relieve the Company of its obligation to pay such fees.
3.10 Letter of Credit Reserves. (a) If any Change in Law
shall either (i) impose, modify, deem or make applicable any reserve, special
deposit, assessment or similar requirement against letters of credit issued by
the Issuing Lender or (ii) impose on the Issuing Lender any other condition
regarding this Agreement (with respect to Letters of Credit) or any Letter of
Credit, and the result of any event referred to in clause (i) or (ii) above
shall be to increase the cost of the Issuing Lender of issuing or maintaining
any Letter of Credit (which increase in cost shall be the result of the Issuing
Lender's reasonable allocation of the aggregate of such cost increases
resulting from such events), then, upon demand by the Issuing Lender, the
Company shall immediately pay to the Issuing Lender, from time to time as
specified by the Issuing Lender, additional amounts which shall be sufficient
to compensate the Issuing Lender for such increased cost, together with
interest on each such amount from the date demanded until payment in full
thereof at a rate per annum equal to the rate applicable to Alternate Base Rate
Loans pursuant to subsection 4.5(b). The Company shall not be required to make
any payments to the Issuing Lender for any additional amounts pursuant to this
subsection 3.10(a) unless the Issuing Lender has given written notice to the
Company of its intent to request such payments prior to or within 60 days after
the date on which the Issuing Lender became entitled to claim such amounts. A
certificate, setting forth in reasonable detail the calculation of the amounts
involved, submitted by the Issuing Lender to the Company concurrently with any
such demand by the Issuing Lender, shall be conclusive, absent manifest error,
as to the amount thereof.
(b) In the event that any Change in Law with respect to the
Issuing Lender shall, in the opinion of the Issuing Lender, require that any
obligation under any Letter of Credit be treated as an asset or otherwise be
included for purposes of calculating the appropriate amount of capital to be
maintained by the Issuing Lender or any corporation controlling the Issuing
Lender, and such Change in Law shall have the effect of reducing the rate of
return on the Issuing Lender's or such corporation's capital, as the case may
be, as a consequence of the Issuing Lender's obligations under such Letter of
Credit to a level below that which the Issuing Lender or such corporation, as
the case may be, could have achieved but for such Change in Law (taking into
account the Issuing Lender's or such corporation's policies, as the case may
be, with respect to capital adequacy) by an amount deemed by the Issuing Lender
to be material, then from time to time following notice by the Issuing Lender
to the Company of such Change in Law, within 15 days after demand by the
Issuing Lender, the Company shall pay to the Issuing Lender such additional
amount or amounts as will compensate the Issuing Lender or such corporation, as
the case may be, for such reduction. The Issuing Lender agrees that, upon the
occurrence of any event giving rise to the operation of paragraph (a) or (b) of
this subsection 3.10 with respect to the Issuing Lender, it will, if requested
by the Company and to the extent permitted by law or by the relevant
Governmental Authority, endeavor in good faith to avoid or minimize the
increase in costs or reduction in payments resulting from such event; provided,
however, that such avoidance or minimization can be made in such a manner that
the Issuing Lender, in its sole determination, suffers no economic, legal or
regulatory disadvantage. The Company shall not be required to
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make any payments to the Issuing Lender for any additional amounts pursuant to
this subsection 3.10(b) unless the Issuing Lender has given written notice to
the Company of its intent to request such payments prior to or within 60 days
after the date on which the Issuing Lender became entitled to claim such
amounts. A certificate, in reasonable detail setting forth the calculation of
the amounts involved, submitted by the Issuing Lender to the Company
concurrently with any such demand by the Issuing Lender, shall be conclusive,
absent manifest error, as to the amount thereof.
(c) The Company and each Participating Lender agrees that the
provisions of the foregoing paragraphs (a) and (b) shall apply equally to each
Participating Lender in respect of its L/C Participating Interest in such
Letter of Credit, as if the references in such paragraphs and provisions
referred to, where applicable, such Participating Lender or, in the case of
paragraph (b), any corporation controlling such Participating Lender.
3.11 Further Assurances. The Company hereby agrees, from
time to time, to do and perform any and all acts and to execute any and all
further instruments reasonably requested by the Issuing Lender more fully to
effect the purposes of this Agreement and the issuance of Letters of Credit
hereunder.
3.12 Obligations Absolute. The payment obligations of the
Company under this Agreement with respect to the Letters of Credit shall be
unconditional and irrevocable and shall be paid strictly in accordance with the
terms of this Agreement under all circumstances, including, without limitation,
the following circumstances:
(i) the existence of any claim, set-off, defense
or other right which the Company or any of its Subsidiaries may have
at any time against any beneficiary, or any transferee, of any Letter
of Credit (or any Persons for whom any such beneficiary or any such
transferee may be acting), the Issuing Lender, the Administrative
Agent or any Lender, or any other Person, whether in connection with
this Agreement, any Credit Document, the transactions contemplated
herein, or any unrelated transaction;
(ii) any statement or any other document presented
under any Letter of Credit proving to be forged, fraudulent or invalid
or any statement therein being untrue or inaccurate in any respect;
(iii) payment by the Issuing Lender under any
Letter of Credit against presentation of a draft or certificate or
other document which does not comply with the terms of such Letter of
Credit or is insufficient in any respect, except where such payment
constitutes gross negligence or willful misconduct on the part of the
Issuing Lender; or
(iv) any other circumstances or happening
whatsoever, whether or not similar to any of the foregoing, except for
any such circumstances or happening constituting gross negligence or
willful misconduct on the part of the Issuing Lender.
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3.13 Assignments. No Participating Lender's participation in
any Letter of Credit or any of its rights or duties hereunder shall be
subdivided, assigned or transferred (other than in connection with a transfer
of part or all of such Participating Lender's Revolving Credit Commitment in
accordance with subsection 11.6(c)) without the prior written consent of the
Issuing Lender, which consent will not be unreasonably withheld. Such consent
may be given or withheld without the consent or agreement of any other
Participating Lender. Notwithstanding the foregoing, a Participating Lender
may subparticipate its L/C Participating Interest without obtaining the prior
consent or agreement of the Issuing Lender.
3.14 Participations. Each Lender's obligation to purchase
participating interests pursuant to subsection 3.6 shall be absolute and
unconditional and shall not be affected by any circumstance, including, without
limitation, (i) any set-off, counterclaim, recoupment, defense or other right
which such Lender may have against the Issuing Lender, the Company or any other
Person for any reason whatsoever; (ii) the occurrence or continuance of an
Event of Default; (iii) any adverse change in the condition (financial or
otherwise) of the Company; (iv) any breach of this Agreement by the Company or
any other Lender; or (v) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing.
SECTION 4. GENERAL PROVISIONS APPLICABLE TO LOANS
4.1 Procedure for Borrowing. (a) The Company may borrow
under the Commitments on any Business Day, provided that, with respect to any
borrowing, the Company shall give the Administrative Agent irrevocable notice
(which notice must be received by the Administrative Agent prior to 2:00 p.m.
(or, with respect to Swing Line Loans, 3:00 p.m.), New York City time), (i)
three Business Days prior to the requested Borrowing Date if all or any part of
the Loans are to be Eurodollar Loans and (ii) one Business Day prior to the
requested Borrowing Date (or, in the case of Swing Line Loans and Loans made on
the Closing Date, on the requested Borrowing Date) if the borrowing is to be
solely of Alternate Base Rate Loans and specifying (A) the amount of the
borrowing, (B) whether such Loans are initially to be Eurodollar Loans or
Alternate Base Rate Loans or a combination thereof, (C) if the borrowing is to
be entirely or partly Eurodollar Loans, the length of the Interest Period for
such Eurodollar Loans and (D) whether the Loan is a Term Loan (with respect to
Loans made on the Closing Date), a Swing Line Loan or a Revolving Credit Loan;
provided, however, that the Loans made on the Closing Date shall be made
initially as Alternate Base Rate Loans. Upon receipt of such notice the
Administrative Agent shall promptly notify each Lender. Not later than 2:00
p.m., New York City time, on the Borrowing Date specified in such notice, each
Lender shall make available to the Administrative Agent at the office of the
Administrative Agent specified in subsection 11.2 (or at such other location as
the Administrative Agent may direct) an amount in immediately available funds
equal to the amount of the Loan to be made by such Lender (except that proceeds
of Swing Line Loans will be made available to the Company in accordance with
subsection 3.4(a)). Loan proceeds received by the Administrative Agent
hereunder shall promptly be made available to the Company by the Administrative
Agent's crediting the account of the Company, at the office of the
Administrative Agent specified in subsection 11.2, with the aggregate amount
actually received by
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the Administrative Agent from the Lenders and in like funds as received by the
Administrative Agent.
(b) Any borrowing of Eurodollar Loans hereunder shall be in
such amounts and be made pursuant to such elections so that, after giving
effect thereto, (i) the aggregate principal amount of all Eurodollar Loans
having the same Interest Period shall not be less than $2,000,000 or a whole
multiple of $1,000,000 in excess thereof and (ii) no more than sixteen Interest
Periods shall be in effect at any one time.
4.2 Conversion and Continuation Options. (a) Subject to
subsection 4.12, the Company may elect from time to time to convert Eurodollar
Loans into Alternate Base Rate Loans by giving the Administrative Agent
irrevocable notice of such election, to be received by the Administrative Agent
prior to 2:00 p.m., New York City time, at least three Business Days prior to
the proposed conversion date. The Company may elect from time to time to
convert all or a portion of the Alternate Base Rate Loans (other than Swing
Line Loans) then outstanding to Eurodollar Loans by giving the Administrative
Agent irrevocable notice of such election, to be received by the Administrative
Agent prior to 2:00 p.m., New York City time, at least three Business Days
prior to the proposed conversion date, specifying the Interest Period selected
therefor, and, unless a Default or Event of Default has occurred and is
continuing and the Administrative Agent or the Required Lenders have given
written notice thereof to the Company, such conversion shall be made on the
requested conversion date or, if such requested conversion date is not a
Business Day, on the next succeeding Business Day. Upon receipt of any notice
pursuant to this subsection 4.2, the Administrative Agent shall promptly notify
each Lender thereof. All or any part of the outstanding Loans (other than
Swing Line Loans) may be converted as provided herein, provided that partial
conversions of Alternate Base Loans shall be in the aggregate principal amount
of $1,000,000 or a whole multiple of $100,000 in excess thereof and the
aggregate principal amount of the resulting Eurodollar Loans outstanding in
respect of any one Interest Period shall be at least $2,000,000 or a whole
multiple of $1,000,000 in excess thereof.
(b) Any Eurodollar Loans may be continued as such upon
the expiration of the then current Interest Period with respect thereto by the
Company giving notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in subsection
1.1, of the length of the next Interest Period to be applicable to such Loans,
provided that no Eurodollar Loan may be continued as such (i) when any Event of
Default has occurred and is continuing and the Administrative Agent or the
Required Lenders have, by written notice to the Company, determined that such a
continuation is not appropriate, (ii) if, after giving effect thereto,
subsection 4.1(b) would be contravened or (iii) after the date that is one
month prior to the Revolving Credit Termination Date (in the case of
continuations of Revolving Credit Loans) or the date of the final installment
of principal of the Term Loans, as applicable.
(c) Notwithstanding anything in this Agreement to the
contrary, unless otherwise agreed to by the Administrative Agent, no Loan shall
be made as, converted to or continued as a Eurodollar Loan during the period
commencing on the Closing Date and ending on the 33rd day following the Closing
Date; provided that all or a portion of the Loans made on the
<PAGE> 39
34
Closing Date may, at the Company's option, subject to the other provisions of
this Agreement, be converted to Eurodollar Loans with an Interest Period of one
month on or after the third day following the Closing Date.
4.3 Changes of Commitment Amounts. (a) The Company shall
have the right, upon not less than five Business Days' notice to the
Administrative Agent, to terminate or, from time to time, permanently reduce
the Revolving Credit Commitments, subject to the provisions of this subsection
4.3. To the extent, if any, that the sum of the amount of the Revolving Credit
Loans, Swing Line Loans and L/C Obligations then outstanding and the amounts
available to be drawn under outstanding Letters of Credit exceeds the amount of
the Revolving Credit Commitments as then reduced, the Company shall be required
to make a prepayment equal to such excess amount, the proceeds of which shall
be applied first, to payment of the Swing Line Loans then outstanding, second,
to payment of the Revolving Credit Loans then outstanding, third, to payment of
any L/C Obligations then outstanding, and fourth, to cash collateralize any
outstanding Letters of Credit on terms reasonably satisfactory to the
Administrative Agent. Any such termination of the Revolving Credit Commitments
shall be accompanied by prepayment in full of the Revolving Credit Loans, Swing
Line Loans and L/C Obligations then outstanding and by cash collateralization
of any outstanding Letters of Credit on terms reasonably satisfactory to the
Administrative Agent. Upon termination of the Revolving Credit Commitments,
any Letter of Credit then outstanding which has been so cash collateralized
shall no longer be considered a "Letter of Credit" as defined in subsection 1.1
and any L/C Participating Interests heretofore granted by the Issuing Lender to
the Lenders in such Letter of Credit shall be deemed terminated (subject to
automatic reinstatement in the event that such cash collateral is returned and
the Issuing Lender is not fully reimbursed for any such L/C Obligations) but
the Letter of Credit fees payable under subsection 3.9 shall continue to accrue
to the Issuing Lender and the Participating Lenders (or, in the event of any
such automatic reinstatement, as provided in subsection 3.9) with respect to
such Letter of Credit until the expiry thereof.
(b) In the case of termination of the Revolving Credit
Commitments, interest accrued on the amount of any prepayment relating thereto
and any unpaid commitment fee accrued hereunder shall be paid on the date of
such termination. Any such partial reduction of the Revolving Credit
Commitments shall be in an amount of $2,000,000, or a whole multiple of
$1,000,000 in excess thereof, and shall, in each case, reduce permanently the
amount of the Revolving Credit Commitments then in effect.
4.4 Optional and Mandatory Prepayments; Repayments of Term
Loans. (a) Subject to subsection 4.12, the Company may at any time and from
time to time prepay Loans, in whole or in part, without premium or penalty,
upon at least one Business Day's (or, in the case of Swing Line Loans, by 2:00
p.m., New York City time, on the same Business Day) irrevocable notice to the
Administrative Agent in the case of Alternate Base Rate Loans, and three
Business Days' irrevocable notice to the Administrative Agent in the case of
Eurodollar Loans, specifying the date and amount of prepayment and whether the
prepayment is of Revolving Credit Loans or Term Loans. Upon receipt of such
notice the Administrative Agent shall promptly notify each Lender thereof. If
such notice is given, the Company shall make such prepayment, and the payment
amount specified in such notice shall be due and payable, on the date specified
therein.
<PAGE> 40
35
Partial prepayments (i) of Term Loans shall be in an aggregate principal amount
equal to the lesser of (A) (I) $2,000,000, or a whole multiple of $1,000,000 in
excess thereof with respect to Eurodollar Loans or (II) $1,000,000, or a whole
multiple of $100,000 in excess thereof with respect to Alternate Base Rate
Loans and (B) the aggregate unpaid principal amount of the Term Loans and (ii)
of Revolving Credit Loans shall be in an aggregate principal amount equal to
the lesser of (A) (I) $2,000,000 or a whole multiple of $1,000,000 in excess
thereof with respect to Eurodollar Loans or (II) $1,000,000, or a whole
multiple of $100,000 in excess thereof with respect to Alternate Base Rate
Loans and (B) the aggregate unpaid principal amount of the Revolving Credit
Loans, as the case may be. Prepayments of the Term Loans pursuant to this
subsection 4.4(a) shall be applied to the remaining installments thereof
ratably according to the amounts of such installments.
(b) (i) Unless the Section 4.4 Lenders shall otherwise
agree, if Holdings, the Company or any of its Subsidiaries shall issue any
Capital Stock subsequent to the Closing Date, 50% of the Net Proceeds thereof
(excluding amounts provided by the Initial Shareholders or their Affiliates or
by management employees of such issuer) shall be promptly applied toward the
prepayment of the Term Loans (applied to the remaining installments thereof
ratably according to the amounts thereof); provided, that Net Proceeds of such
issuance shall be deemed to be Net Proceeds of such issuance for purposes of
this subsection 4.4(b)(i) only after deducting therefrom the redemption or
repurchase or cancellation of the preferred stock of the Company held by
Holdings (and the concurrent redemption or repurchase by Holdings of the
Holdings Subordinated Debt with the proceeds of such repurchase, redemption or
cancellation) and the redemption of up to 35% of the Permanent Subordinated
Debt under the "equity clawback" provision and, in each case, the payment of
any premium or penalties or accrued interest or dividends with respect thereto.
(ii) Unless the Section 4.4 Lenders and the
Company shall otherwise agree, if the Company or any of its Subsidiaries shall
incur or permit the incurrence of any Indebtedness subsequent to the Closing
Date (other than Indebtedness permitted pursuant to subsections 8.1(b), (c),
(d) (except as otherwise provided in subsection 8.1(d)), (e), (f), (g), (h),
(i), (j), (k) and subordinated Indebtedness provided by the Initial
Shareholders or their Affiliates), 100% of the Net Proceeds thereof shall be
promptly applied toward the prepayment of the Loans and reduction of the
Commitments as set forth in clause (v) of this subsection 4.4(b).
(iii) Unless the Section 4.4 Lenders shall
otherwise agree, the Company or any of its Subsidiaries shall receive Net
Proceeds from any Asset Sale subsequent to the Closing Date, such Net Proceeds
shall be promptly applied toward the prepayment of the Loans and reduction of
the Commitments as set forth in clause (v) of this subsection 4.4(b); provided
that such Net Proceeds need not be applied to the prepayment of the Loans and
the reduction of the Commitments until the earlier of the date that the
aggregate amount of Net Proceeds received by the Company or any of its
Subsidiaries from any Asset Sales exceeds $2,000,000 (and has not yet been
applied to the prepayment of the Loans and the reduction of the Commitments
hereunder) and the date which is six months after the last application of Net
Proceeds pursuant to this subsection 4.4(b)(iii).
<PAGE> 41
36
(iv) So long as there are any Term Loans
outstanding, unless the Section 4.4 Lenders and the Company shall otherwise
agree, if there shall be Excess Cash Flow as at the end of any fiscal year
commencing with the Company's fiscal year ending on December 31, 1997, 75% of
such Excess Cash Flow, less the portion of any Excess Cash Flow which has been
previously applied toward prepayments of the Term Loans pursuant to this clause
(iv), shall be applied toward prepayment of the Term Loans (applied to the
remaining installments thereof ratably according to the amounts thereof). Each
such prepayment shall be made not later than 120 days after the end of such
fiscal year.
(v) Except as otherwise provided in this
subsection 4.4(b), prepayments made pursuant to this subsection 4.4(b) shall be
applied by the Company, first, to the prepayment of the Term Loans (applied to
the remaining installments thereof ratably according to the amounts thereof)
and, second, to reduce permanently the Revolving Credit Commitments. Any such
reduction of the Revolving Credit Commitments shall be accompanied by
prepayment of, first, the Swing Line Loans, second, the Revolving Credit Loans
and, third, the L/C Obligations to the extent, if any, that the sum of the
aggregate outstanding principal amount of Revolving Credit Loans, the aggregate
outstanding principal amount of all Swing Line Loans, the aggregate amount
available to be drawn under all outstanding Letters of Credit and the aggregate
outstanding amount of all L/C Obligations, in each case of all Lenders, exceeds
the amount of the aggregate Revolving Credit Commitments as so reduced,
provided that if the aggregate principal amount of Revolving Credit Loans,
Swing Line Loans and L/C Obligations then outstanding is less than the amount
of such excess (because Letters of Credit constitute a portion thereof), the
Company shall, to the extent of the balance of such excess, replace outstanding
Letters of Credit and/or deposit an amount in cash in a cash collateral account
established for the benefit of the Lenders.
(vi) If, at any time, a Borrowing Base Deficiency
shall exist, the Company shall immediately prepay the Revolving Credit Loans,
Swing Line Loans and L/C Obligations then outstanding in an aggregate principal
amount sufficient to eliminate such Borrowing Base Deficiency, provided that if
the aggregate principal amount of Revolving Credit Loans, Swing Line Loans and
L/C Obligations then outstanding is less than the amount of such Borrowing Base
Deficiency (because Letters of Credit constitute a portion thereof), the
Company shall, to the extent of the balance of such Borrowing Base Deficiency
in excess of such amount of Revolving Credit Loans, Swing Line Loans and L/C
Obligations then outstanding, immediately replace outstanding Letters of Credit
and/or deposit an amount in cash in a cash collateral account established for
the benefit of the Lenders. Prepayments of Loans made pursuant to this
subsection 4.4(b)(vi) shall be applied, first, to the aggregate outstanding
Swing Line Loans, second, to the aggregate outstanding Revolving Credit Loans
and, third, to the aggregate outstanding L/C Obligations.
(vii) The Company shall give the Administrative
Agent (which shall promptly notify each Lender) at least one Business Day's
notice of each prepayment or mandatory reduction pursuant to this subsection
4.4(b) setting forth the date and amount thereof. Except as otherwise may be
agreed by the Company and the Required Lenders, any prepayment of Loans
pursuant to this subsection 4.4 shall be applied, first, to any Alternate Base
Rate Loans then
<PAGE> 42
37
outstanding and the balance of such prepayment, if any, to the Eurodollar Loans
then outstanding; provided that prepayments of Eurodollar Loans, if not on the
last day of the Interest Period with respect thereto, shall, at the Company's
option, be prepaid subject to the provisions of subsection 4.12 or the amount
of such prepayment (after application to any Alternate Base Rate Loans) shall
be deposited with the Administrative Agent as cash collateral for the Loans on
terms reasonably satisfactory to the Administrative Agent and thereafter shall
be applied in the order of the Interest Periods next ending most closely to the
date such prepayment is required to be made and on the last day of each such
Interest Period. After such application, unless an Event of Default shall have
occurred and be continuing, any remaining interest earned on such cash
collateral shall be paid to the Company.
(c) The Term Loans shall be repaid in fourteen consecutive
semi-annual installments each on the dates set forth below (each such day, an
"Installment Payment Date") in an aggregate amount equal to the amount
specified for each such Installment Payment Date, as such amounts may be
reduced pursuant to subsection 4.4(b):
<TABLE>
<CAPTION>
Installment Payment Date Installment Amount
------------------------ ------------------
<S> <C>
June 30, 1997 $500,000
December 31, 1997 $500,000
June 30, 1998 $500,000
December 31, 1998 $500,000
June 30, 1999 $500,000
December 31, 1999 $500,000
June 30, 2000 $500,000
December 31, 2000 $500,000
June 30, 2001 $13,000,000
December 31, 2001 $13,000,000
June 30, 2002 $17,500,000
December 31, 2002 $17,500,000
June 30, 2003 $17,500,000
October 31, 2003 $17,500,000
</TABLE>
(d) Any and all amounts repaid on account of the Term Loans
pursuant to this subsection 4.4 or otherwise may not be reborrowed. Accrued
interest on the amount of any prepayments shall be paid on the Interest Payment
Date next succeeding the date of any partial prepayment and on the date on such
prepayment in the case of a prepayment in full of any Loans.
4.5 Interest Rates and Payment Dates. (a) Eurodollar Loans
shall bear interest for each day during each Interest Period applicable
thereto, commencing on (and including) the first day of such Interest Period
to, but excluding, the last day of such Interest Period, on the unpaid
principal amount thereof at a rate per annum equal to the Eurodollar Rate
determined for such Interest Period plus the Applicable Margin.
<PAGE> 43
38
(b) Alternate Base Rate Loans shall bear interest for the
period from and including the date such Loans are made to, but excluding, the
maturity date thereof, or to, but excluding, the conversion date if such Loans
are earlier converted into Eurodollar Loans on the unpaid principal amount
thereof at a rate per annum equal to the Alternate Base Rate plus the
Applicable Margin.
(c) If all or a portion of (i) the principal amount of any of
the Loans or (ii) any interest payable thereon shall not be paid when due
(whether at the stated maturity, by acceleration or otherwise) such Loan, if a
Eurodollar Loan, shall be converted into an Alternate Base Rate Loan at the end
of the then-current Interest Period for said Eurodollar Loan (which conversion
shall occur automatically and without need for compliance with the conditions
for conversion set forth in subsection 4.2), and any such overdue amount shall,
without limiting the rights of the Lenders under Section 9, bear interest
(which shall be payable on demand) at a rate per annum which is 2% above the
Alternate Base Rate plus the Applicable Margin (or, in the case of a Eurodollar
Loan, the Eurodollar Rate for the Interest Period plus the Applicable Margin
plus 2%, if higher) from the date of such non-payment until paid in full (as
well after as before judgment).
(d) Interest shall be payable in arrears on each Interest
Payment Date and on the date of payment in full of the respective Loans and in
the case of the Revolving Credit Loans on date of termination of the Revolving
Credit Commitments.
4.6 Computation of Interest and Fees. (a) Interest in
respect of Alternate Base Rate Loans, at any time that the Alternate Base Rate
is determined by reference to the Prime Rate, and all fees hereunder shall be
calculated on the basis of a 365 (or 366 as the case may be) day year for the
actual days elapsed. Interest in respect of Eurodollar Loans and in respect of
Alternate Base Rate Loans, at any time that the Alternate Base Rate is
determined by reference to the Base CD Rate or the Federal Funds Effective
Rate, shall be calculated on the basis of a 360 day year for the actual days
elapsed. The Administrative Agent shall as soon as practicable notify the
Company and the Lenders of each determination of a Eurodollar Rate. Any change
in the interest rate on a Loan resulting from a change in the Alternate Base
Rate or the Eurocurrency Reserve Requirements shall become effective as of the
opening of business on the day on which such change in the Alternate Base Rate
is announced or such change in the Eurocurrency Reserve Requirements becomes
effective, as the case may be. The Administrative Agent shall as soon as
practicable notify the Company and the Lenders of the effective date and the
amount of each such change.
(b) Each determination of an interest rate by the
Administrative Agent pursuant to any provision of this Agreement shall be
conclusive and binding on the Company and the Lenders in the absence of
manifest error. The Administrative Agent shall, at the request of the Company,
deliver to the Company a statement showing the quotations used by the
Administrative Agent in determining the Eurodollar Rate.
(c) If at any time the Reference Lender shall cease to be
a Lender hereunder, such Lender shall cease to be the Reference Lender, and
then the Administrative Agent, upon
<PAGE> 44
39
Agreement with the Company, shall, by notice to the Company and the Lenders,
designate another Lender as reference Lender.
(d) Each Reference Lender shall use its best efforts to
furnish quotations of rates to the Administrative Agent as contemplated hereby.
4.7 Certain Fees. The Company agrees to pay to the
Administrative Agent, for its own account, a non- refundable agent's fee, in
the amount per annum as set forth in the fee letter, dated as of September 27,
1996, between Chase and Investcorp Investment Equity Limited payable in advance
on the Closing Date and annually thereafter.
4.8 Inability to Determine Interest Rate. In the event that
the Administrative Agent shall have determined (which determination shall be
conclusive and binding upon the Company) that (a) by reason of circumstances
affecting the interbank eurodollar market, adequate and reasonable means do not
exist for ascertaining the Eurodollar Rate for any Interest Period with respect
to (i) proposed Loans that the Company has requested be made as Eurodollar
Loans, (ii) any Eurodollar Loans that will result from the requested conversion
of all or part of the Alternate Base Rate Loans into Eurodollar Loans or (iii)
the continuation of any Eurodollar Loan as such for an additional Interest
Period, or (b) dollar deposits in the relevant amount and for the relevant
period with respect to any such Eurodollar Loan are not generally available to
the Lenders in their respective Eurodollar Lending Offices' interbank
eurodollar markets, the Administrative Agent shall forthwith give telecopy
notice of such determination, confirmed in writing, to the Company and the
Lenders at least one day prior to, as the case may be, the requested Borrowing
Date, the conversion date or the last day of such Interest Period. If such
notice is given (i) any requested Eurodollar Loans shall be made as Alternate
Base Rate Loans, (ii) any Alternate Base Rate Loans that were to have been
converted to Eurodollar Loans shall be continued as Alternate Base Rate Loans,
and (iii) any outstanding Eurodollar Loans shall be converted, on the last day
of the then current Interest Period applicable thereto, into Alternate Base
Rate Loans. Until such notice has been withdrawn by the Administrative Agent,
no further Eurodollar Loans shall be made and no Alternate Base Rate Loans
shall be converted to Eurodollar Loans.
4.9 Pro Rata Treatment and Payments. (a) Except to the
extent otherwise provided herein, each borrowing of Loans by the Company from
the Lenders and any reduction of the Commitments of the Lenders hereunder shall
be made pro rata according to the relevant Commitment Percentages of the
Lenders with respect to the Loans borrowed or the Commitments to be reduced.
(b) Whenever any payment received by the Administrative Agent
under this Agreement or any Note or any Credit Document is insufficient to pay
in full all amounts then due and payable to the Administrative Agent and the
Lenders under this Agreement:
(i) If the Administrative Agent has not received
a Payment Sharing Notice (or, if the Administrative Agent has received
a Payment Sharing Notice but the Event of Default specified in such
Payment Sharing Notice has been cured or waived in
<PAGE> 45
40
accordance with the provisions of this Agreement), such payment shall
be distributed by the Administrative Agent and applied by the
Administrative Agent and the Lenders in the following order: First,
to the payment of fees and expenses due and payable to the
Administrative Agent under and in connection with this Agreement and
the other Credit Documents; Second, to the payment of all expenses due
and payable under subsection 11.5, ratably among the Lenders in
accordance with the aggregate amount of such payments owed to each
such Lender; Third, to the payment of fees due and payable under
subsections 3.2 and 3.9, ratably among the Lenders in accordance with
the Commitment Percentage of each Lender of the Commitment for which
such payment is owed and, in the case of the Issuing Lender, the
amount retained by the Issuing Lender for its own account pursuant to
subsection 3.9; Fourth, to the payment of interest then due and
payable on the Loans and on the L/C Obligations, ratably in accordance
with the aggregate amount of interest owed to each such Lender; and
Fifth, to the payment of the principal amount of the Loans and the L/C
Obligations which is then due and payable, ratably among the Lenders
in accordance with the aggregate principal amount owed to each such
Lender; or
(ii) If the Administrative Agent has received a
Payment Sharing Notice which remains in effect, all payments received
by the Administrative Agent under this Agreement or any Note shall be
distributed by the Administrative Agent and applied by the
Administrative Agent and the Lenders in the following order: First, to
the payment of all amounts described in clauses "First" through
"Third" of the foregoing clause (i), in the order set forth therein;
Second, to the payment of the interest accrued on all Loans and L/C
Obligations, regardless of whether any such amount is then due and
payable, ratably among the Lenders in accordance with the aggregate
accrued interest plus the aggregate principal amount owed to such
Lender; and Third, to the payment of the principal amount of all Loans
and L/C Obligations, regardless of whether any such amount is then due
and payable, ratably among the Lenders in accordance with the
aggregate principal amount owed to such Lender.
(c) If any Lender (a "Non-Funding Lender") has (x) failed to
make a Revolving Credit Loan required to be made by it hereunder, and the
Administrative Agent has determined that such Lender is not likely to make such
Revolving Credit Loan or (y) given notice to the Company or the Administrative
Agent that it will not make, or that it has disaffirmed or repudiated any
obligation to make, any Revolving Credit Loan, in each case by reason of the
provisions of the Financial Institutions Reform, Recovery and Enforcement Act
of 1989, as amended, or otherwise, (i) any payment made on account of the
principal of the Revolving Credit Loans outstanding shall be made as follows:
(A) in the case of any such payment made on any date when and
to the extent that, in the determination of the Administrative Agent,
the Company would be able, under the terms and conditions hereof, to
reborrow the amount of such payment under the Commitments and to
satisfy any applicable conditions precedent set forth in Section 6 to
such reborrowing, such payment shall be made on account of the
outstanding Revolving Credit Loans held by the Lenders other than the
Non-Funding Lender pro rata according
<PAGE> 46
41
to the respective outstanding principal amounts of the Revolving
Credit Loans of such Lenders; and
(B) otherwise, such payment shall be made on account of the
outstanding Revolving Credit Loans held by the Lenders pro rata
according to the respective outstanding principal amounts of such
Revolving Credit Loans; and
(ii) any payment made on account of interest on the Revolving Credit Loans
shall be made pro rata according to the respective amounts of accrued and
unpaid interest due and payable on the Revolving Credit Loans with respect to
which such payment is being made. The Company agrees to give the
Administrative Agent such assistance in making any determination pursuant to
subparagraph (i)(A) of this paragraph as the Administrative Agent may
reasonably request. The Administrative Agent shall notify the Lenders of any
such determination, which shall be conclusive and binding on the Lenders.
(d) All payments (including prepayments) to be made by the
Company on account of principal, interest and fees shall be made without
set-off or counterclaim and shall be made to the Administrative Agent, for the
account of the Lenders at the Administrative Agent's office located at 270 Park
Avenue, New York, New York 10017, in lawful money of the United States of
America and in immediately available funds. The Administrative Agent shall
promptly distribute such payments in accordance with the provisions of
subsection 4.9(b) promptly upon receipt in like funds as received. If any
payment hereunder (other than payments on Eurodollar Loans) would become due
and payable on a day other than a Business Day, such payment shall become due
and payable on the next succeeding Business Day and, with respect to payments
of principal, interest thereon shall be payable at the then applicable rate
during such extension. If any payment on a Eurodollar Loan becomes due and
payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day (and with respect to payments of
principal, interest thereon shall be payable at the then applicable rate during
such extension), unless the result of such extension would be to extend such
payment into another calendar month in which event such payment shall be made
on the immediately preceding Business Day.
(e) Unless the Administrative Agent shall have been notified
in writing by any Lender prior to a borrowing that such Lender will not make
the amount which would constitute its Commitment Percentage of such borrowing
available to the Administrative Agent, the Administrative Agent may assume that
such Lender is making such amount available to the Administrative Agent in
accordance with subsection 4.1 and the Administrative Agent may, in reliance
upon such assumption, make available to the Company thereof a corresponding
amount. If such amount is not made available to the Administrative Agent by
the required time on the Borrowing Date therefor, such Lender shall pay to the
Administrative Agent, on demand, such amount with interest thereon at a rate
equal to the daily average Federal Funds Effective Rate for the period until
such Lender makes such amount immediately available to the Administrative
Agent. A certificate of the Administrative Agent submitted to any Lender with
respect to any amounts owing under this subsection 4.9(e) shall be conclusive,
absent manifest error. If such Lender's Commitment Percentage of such
borrowing is not in fact made available to the
<PAGE> 47
42
Administrative Agent by such Lender within three Business Days of such
Borrowing Date, the Administrative Agent shall also be entitled to recover such
amount with interest thereon at the rate per annum applicable to Alternate Base
Rate Loans hereunder, on demand, from the Company, without prejudice to any
rights which the Company or the Administrative Agent may have against such
Lender hereunder. Nothing contained in this subsection 4.9 shall relieve any
Lender which has failed to make available its ratable portion of any borrowing
hereunder from its obligation to do so in accordance with the terms hereof.
(f) The failure of any Lender to make the Loan to be made by
it on any Borrowing Date shall not relieve any other Lender of its obligation,
if any, hereunder to make its Loan on such Borrowing Date, but no Lender shall
be responsible for the failure of any other Lender to make the Loan to be made
by such other Lender on such Borrowing Date.
(g) All payments and optional prepayments (other than
prepayments as set forth in subsection 4.11 with respect to increased costs) of
Eurodollar Loans hereunder shall be in such amounts and be made pursuant to
such elections so that, after giving effect thereto, the aggregate principal
amount of all Eurodollar Loans with the same Interest Period shall not be less
than $2,000,000 or a whole multiple of $1,000,000 in excess thereof.
4.10 Illegality. Notwithstanding any other provision herein,
if any Change in Law occurring after the date that any lender becomes a Lender
party to this Agreement, shall make it unlawful for such Lender to make or
maintain Eurodollar Loans as contemplated by this Agreement, the commitment of
such Lender hereunder to make Eurodollar Loans or to convert all or a portion
of Alternate Base Rate Loans into Eurodollar Loans shall forthwith be suspended
until such time, if any, as such illegality shall no longer exist and such
Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted
automatically to Alternate Base Rate Loans for the duration of the respective
Interest Periods (or, if permitted by applicable law, at the end of such
Interest Periods) and all payments of principal which would otherwise be
applied to such Eurodollar Loans shall be applied instead to such Lender's
Alternate Base Rate Loans. The Company hereby agrees to pay any Lender,
promptly upon its demand, any amounts payable pursuant to subsection 4.12 in
connection with any conversion in accordance with this subsection 4.10 (such
Lender's notice of such costs, as certified in reasonable detail as to such
amounts to the Company through the Administrative Agent, to be conclusive
absent manifest error).
4.11 Requirements of Law. (a) In the event that any Change
in Law 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 occurring after the date that any lender becomes a Lender party to
this Agreement:
(i) does or shall subject any such Lender or its
Eurodollar Lending Office to any tax of any kind whatsoever with
respect to this Agreement, any Note or any Eurodollar Loans made by
it, or change the basis of taxation of payments to such Lender or its
Eurodollar Lending Office of principal, the commitment fee, interest
or any other amount payable hereunder (except for (x) net income and
franchise taxes imposed on the net income of such Lender or its
Eurodollar Lending Office by the jurisdiction under the
<PAGE> 48
43
laws of which such Lender is organized or any political subdivision or
taxing authority thereof or therein, or by any jurisdiction in which
such Lender's Eurodollar Lending Office is located or any political
subdivision or taxing authority thereof or therein, including changes
in the rate of tax on the overall net income of such Lender or such
Eurodollar Lending Office, and (y) taxes resulting from the
substitution of any such system by another system of taxation,
provided that the taxes payable by Lenders subject to such other
system of taxation are not generally charged to borrowers from such
Lenders having loans or advances bearing interest at a rate similar to
the Eurodollar Rate);
(ii) does or shall impose, modify or hold
applicable any reserve, special deposit, compulsory loan or similar
requirement against assets held by, or deposits or other liabilities
in or for the account of, advances or loans by, or other credit
extended by, or any other acquisition of funds by, any office of such
Lender which are not otherwise included in the determination of the
Eurodollar Rate; or
(iii) does or shall impose on such Lender any other
condition;
and the result of any of the foregoing is to increase the cost to such Lender
or its Eurodollar Lending Office of making, converting, renewing or maintaining
advances or extensions of credit or to reduce any amount receivable hereunder,
in each case, in respect of its Eurodollar Loans, then, in any such case, the
Company shall promptly pay such Lender, upon its demand, any additional amounts
necessary to compensate such Lender for such additional cost or reduced amount
receivable which such Lender deems to be material as determined by such Lender
with respect to such Eurodollar Loans, together with interest on each such
amount from the date demanded until payment in full thereof at a rate per annum
equal to the Alternate Base Rate plus 1%.
(b) In the event that any Change in Law occurring after the
date that any lender becomes a Lender party to this Agreement with respect to
any such Lender shall, in the opinion of such Lender, require that any
Commitment of such Lender be treated as an asset or otherwise be included for
purposes of calculating the appropriate amount of capital to be maintained by
such Lender or any corporation controlling such Lender, and such Change in Law
shall have the effect of reducing the rate of return on such Lender's or such
corporation's capital, as the case may be, as a consequence of such Lender's
obligations hereunder to a level below that which such Lender or such
corporation, as the case may be, could have achieved but for such Change in Law
(taking into account such Lender's or such corporation's policies, as the case
may be, with respect to capital adequacy) by an amount deemed by such Lender to
be material, then from time to time following notice by such Lender to the
Company of such Change in Law as provided in paragraph (c) of this subsection
4.11, within 15 days after demand by such Lender, the Company shall pay to such
Lender such additional amount or amounts as will compensate such Lender or such
corporation, as the case may be, for such reduction.
(c) The Company shall not be required to make any payments to
any Lender for any additional amounts pursuant to this subsection 4.11 unless
such Lender has given written notice to the Company, through the Administrative
Agent, of its intent to request such payments
<PAGE> 49
44
prior to or within 60 days after the date on which such Lender became entitled
to claim such amounts. If any Lender has notified the Company through the
Administrative Agent of any increased costs pursuant to paragraph (a) of this
subsection 4.11, the Company at any time thereafter may, upon at least three
Business Days' notice to the Administrative Agent (which shall promptly notify
the Lenders thereof), and subject to subsection 4.12, prepay (or convert into
Alternate Base Rate Loans) all (but not a part) of the Eurodollar Loans then
outstanding. Each Lender agrees that, upon the occurrence of any event giving
rise to the operation of paragraph (a) of this subsection 4.11 with respect to
such Lender, it will, if requested by the Company and to the extent permitted
by law or by the relevant Governmental Authority, endeavor in good faith to
avoid or minimize the increase in costs or reduction in payments resulting from
such event (including, without limitation, endeavoring to change its Eurodollar
Lending Office); provided, however, that such avoidance or minimization can be
made in such a manner that such Lender, in its sole determination, suffers no
economic, legal or regulatory disadvantage. If any Lender requests
compensation from the Company under this subsection 4.11, the Company may, by
notice to such Lender (with a copy to the Administrative Agent), suspend the
obligation of such Lender thereafter to make or continue Loans of the Type with
respect to which such compensation is requested, or to convert Loans of any
other Type into Loans of such Type, until the Requirement of Law giving rise to
such request ceases to be in effect, provided that such suspension shall not
affect the right of such Lender to receive the compensation so requested.
(d) Each Lender that is not a United States Person (as
defined in Section 7701(a)(30) of the Code) for federal income tax purposes
either (1) in the case of a Lender that is a "bank" within the meaning of
Section 881(c)(3)(A) of the Code, (i) represents to the Company (for the
benefit of the Company and the Administrative Agent) that under applicable law
and treaties no taxes are required to be withheld by the Company or the
Administrative Agent with respect to any payments to be made to such Lender in
respect of the Loans or the L/C Participating Interests, (ii) agrees to furnish
to the Company, with a copy to the Administrative Agent, either U.S. Internal
Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein
such Lender claims entitlement to complete exemption from U.S. federal
withholding tax on all interest payments hereunder) and (iii) agrees (for the
benefit of the Company and the Administrative Agent), to the extent it may
lawfully do so at such times, to provide the Company, with a copy to the
Administrative Agent, a new Form 4224 or Form 1001 upon the expiration or
obsolescence of any previously delivered form and comparable statements in
accordance with applicable U.S. laws and regulations and amendments duly
executed and completed by such Lender, and to comply from time to time with all
applicable U.S. laws and regulations with regard to such withholding tax
exemption or (2) in the case of a Lender that is not a "bank" within the
meaning of Section 881(c)(3)(A) of the Code, (i) represents to the Company (for
the benefit of the Company and the Administrative Agent) that it is not a bank
within the meaning of Section 881(c)(3)(A) of the Code, (ii) agrees to furnish
to the Company, with a copy to the Administrative Agent, (A) a certificate
substantially in the form of Exhibit L hereto (any such certificate, a
"Subsection 4.11(d)(2) Certificate") and (B) two accurate and complete original
signed copies of Internal Revenue Service Form W-8, certifying to such Lender's
legal entitlement at the Closing Date to an exemption from U.S. withholding
tax under the provisions of Section 881(c) of the Code with respect to all
payments to be made under this Agreement, and (iii) agrees, to the extent
legally entitled to do so, upon reasonable request by the
<PAGE> 50
45
Company, to provide to the Company (for the benefit of the Company and the
Administrative Agent) such other forms as may be required in order to establish
the legal entitlement of such Lender to an exemption from withholding with
respect to payments under this Agreement. Notwithstanding any provision of
this subsection 4.11 to the contrary, the Company shall have no obligation to
pay any amount to or for the account of any Lender (or the Eurodollar Lending
Office of any Lender) on account of any taxes pursuant to this subsection 4.11,
to the extent that such amount results from (i) the failure of any Lender to
comply with its obligations pursuant to this subsection 4.11, (ii) any
representation or warranty made or deemed to be made by any Lender pursuant to
this subsection 4.11(d) proving to have been incorrect, false or misleading in
any material respect when so made or deemed to be made or (iii) any Change in
Law 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,
the effect of which would be to subject to any taxes any payment made pursuant
to this Agreement to any Lender making the representation and covenants set
forth in subsection 4.11(d)(2), which payment would not be subject to such
taxes were such Lender eligible to make and comply with, and actually made and
complied with, the representation and covenants set forth in subsection
4.11(d)(1) hereinabove.
(e) A certificate in reasonable detail as to any amounts
submitted by such Lender, through the Administrative Agent, to the Company,
shall be conclusive in the absence of manifest error. The covenants contained
in this subsection 4.11 shall survive the termination of this Agreement and
repayment of the Loans.
4.12 Indemnity. The Company agrees to indemnify each Lender
and to hold such Lender harmless from any loss or expense (but without
duplication of any amounts payable as default interest) which such Lender may
sustain or incur as a consequence of (a) default by the Company in payment of
the principal amount of or interest on any Eurodollar Loans of such Lender,
including, but not limited to, any such loss or expense arising from interest
or fees payable by such Lender to lenders of funds obtained by it in order to
make or maintain its Eurodollar Loans hereunder, (b) default by the Company in
making a borrowing after the Company has given a notice in accordance with
subsection 4.1 or in making a conversion of Alternate Base Rate Loans to
Eurodollar Loans or in continuing Eurodollar Loans as such, in either case,
after the Company has given notice in accordance with subsection 4.2, (c)
default by the Company in making any prepayment after the Company has given a
notice in accordance with subsection 4.4 or (d) a payment or prepayment of a
Eurodollar Loan or conversion (including without limitation, a conversion
pursuant to subsection 4.10) of any Eurodollar Loan into an Alternate Base
Rate Loan, in either case on a day which is not the last day of an Interest
Period with respect thereto, including, but not limited to, any such loss or
expense arising from interest or fees payable by such Lender to lenders of
funds obtained by it in order to maintain its Eurodollar Loans hereunder (but
excluding loss of profit). This covenant shall survive termination of this
Agreement and repayment of the Loans.
4.13 Repayment of Loans; Evidence of Debt. (a) The Company
hereby unconditionally promises to pay to the Administrative Agent for the
account of each Lender (i) the then unpaid principal amount of each Revolving
Credit Loan of such Lender on the Revolving Credit Termination Date, (ii) the
principal amount of the Term Loan of such Lender, in fourteen
<PAGE> 51
46
consecutive installments, payable on each Installment Payment Date (or the then
unpaid principal amount of such Term Loan, or the date that the Term Loans
become due and payable pursuant to Section 9 and on the Maturity Date and (iii)
the then unpaid principal amount of the Swing Line Loans of the Swing Line
Lender on the Revolving Credit Termination Date. The Company hereby further
agrees to pay interest on the unpaid principal amount of the Loans from time to
time outstanding from the date hereof until payment in full thereof at the
rates per annum, and on the dates, set forth in subsection 4.5.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing indebtedness of the Company to such
Lender resulting from each Loan of such Lender from time to time, including the
amounts of principal and interest payable and paid to such Lender from time to
time under this Agreement.
(c) The Administrative Agent shall maintain the Register
pursuant to subsection 11.6(d), and a subaccount therein for each Lender, in
which shall be recorded (i) the amount of each Revolving Credit Loan and Term
Loan made hereunder, the Type thereof and each Interest Period applicable
thereto, (ii) the amount of any principal or interest due and payable or to
become due and payable from the Company to each Lender hereunder and (iii) both
the amount of any sum received by the Administrative Agent hereunder from the
Company and each Lender's share thereof.
(d) The entries made in the Register and the accounts of each
Lender maintained pursuant to subsection 4.13(b) shall, to the extent permitted
by applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Company therein recorded; provided, however, that the
failure of any Lender or the Administrative Agent to maintain the Register or
any such account, or any error therein, shall not in any manner affect the
obligation of the Company to repay (with applicable interest) the Loans made to
such Company by such Lender in accordance with the terms of this Agreement.
(e) The Company agrees that, upon the request to the
Administrative Agent by any Lender, the Company will execute and deliver to
such Lender (i) a promissory note of the Company evidencing the Revolving
Credit Loans of such Lender, substantially in the form of Exhibit A with
appropriate insertions as to date and principal amount (a "Revolving Credit
Note"), and/or (ii) a promissory note of the Company evidencing the Term Loan
of such Lender, substantially in the form of Exhibit B with appropriate
insertions as to date and principal amount (a "Term Loan Note"), and/or (iii)
in the case of the Swing Line Lender, a promissory note of the Company
evidencing the Swing Line Loans of the Swing Line Lender, substantially in the
form of Exhibit C with appropriate insertions as to date and principal amount
(the "Swing Line Note ").
4.14 Replacement of Lenders. In the event any Lender or the
Issuing Lender exercises its rights pursuant to subsection 4.10 or requests
payments pursuant to subsections 3.10 or 4.11, the Company may require, at the
Company's expense and subject to subsection 4.12, such Lender or the Issuing
Lender to assign, at par plus accrued interest and fees, without recourse (in
accordance with subsection 11.6) all of its interests, rights and obligations
hereunder (including all of its Commitments and the Loans and other amounts at
the time owing to it hereunder and its
<PAGE> 52
47
Notes and its interest in the Letters of Credit) to a bank, financial
institution or other entity specified by the Company, provided that (i) such
assignment shall not conflict with or violate any law, rule or regulation or
order of any court or other Governmental Authority, (ii) the Company shall have
received the written consent of the Administrative Agent, which consent shall
not be unreasonably withheld, to such assignment, (iii) the Company shall have
paid to the assigning Lender or the Issuing Lender all monies other than
principal, interest and fees accrued and owing hereunder to it (including
pursuant to subsections 3.10, 4.10 and 4.11) and (iv) in the case of a required
assignment by the Issuing Lender, the Letters of Credit shall be canceled and
returned to the Issuing Lender.
SECTION 5. REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to enter into this Agreement
and to make the Loans and to induce the Issuing Lender to issue, and the
Participating Lenders to participate in, the Letters of Credit, the Company
hereby represents and warrants to each Lender and the Administrative Agent, as
of the Closing Date and as of the making of any extension of credit hereunder:
5.1 Financial Condition. (a) The consolidated balance sheet
of the Company and its consolidated Subsidiaries as at January 28, 1996 and the
related consolidated statement of operations for the fiscal year ended on such
date, audited by Price Waterhouse LLP, a copy of which has heretofore been
furnished to each Lender, present fairly in accordance with GAAP the
consolidated financial condition of the Company and its consolidated
Subsidiaries as at such date, and the consolidated results of their operations
and their consolidated cash flows for the fiscal year then ended. All such
financial statements have been prepared in accordance with GAAP applied
consistently throughout the periods involved (except as approved by such
accountants and as disclosed therein). Neither the Company nor any of its
consolidated Subsidiaries had, at the date of the most recent balance sheet
referred to above, any material Contingent Obligation, contingent liability or
liability for taxes, or any long-term lease or unusual forward or long-term
commitment, including, without limitation, any material interest rate or
foreign currency swap or exchange transaction, which is not reflected in the
foregoing statements or in the notes thereto or expressly permitted to be
incurred hereunder.
(b) The unaudited consolidated balance sheets of the Company
as at July 28, 1996, certified by a Responsible Officer of the Company, copies
of which have heretofore been furnished to each Lender, present fairly in
accordance with GAAP the financial position of the Company and its consolidated
Subsidiaries as at such dates. Such balance sheets, including the related
schedules and notes thereto, have been prepared in accordance with GAAP (except
as approved by such Responsible Officer and disclosed therein). The Company
and its consolidated Subsidiaries did not have at the date of such balance
sheets, any material Contingent Obligation, contingent liability or liability
for taxes, or any long-term lease or unusual forward or long-term commitment,
including, without limitation, any interest rate or foreign currency exchange
transaction, which is not reflected in such balance sheets or in the notes
thereto. During the period from July 28, 1996 to the Closing Date, no
dividends or other distributions have been
<PAGE> 53
48
declared, paid or made upon the Capital Stock of the Company or any of its
consolidated Subsidiaries nor has any of the Capital Stock of the Company or
any of its consolidated Subsidiaries been redeemed, retired, purchased or
otherwise acquired for value by the Company or any of its consolidated
Subsidiaries, respectively except as described in the Stock Purchase Agreement.
(c) The unaudited consolidated pro forma balance sheet of the
Company and its consolidated Subsidiaries as at the Closing Date, certified by
a Responsible Officer of the Company (the "Pro Forma Balance Sheet"), a copy of
which has heretofore been furnished to each Lender, is the unaudited balance
sheet of the Company and its consolidated Subsidiaries, adjusted to give effect
(as if such events had occurred on such date) to (i) the Closing Date
Transactions, (ii) and the issuance of the Letters of Credit to be incurred or
issued, as the case may be, on the Closing Date; and (iii) the incurrence of
the Subordinated Debt and all other Indebtedness that the Company and its
consolidated Subsidiaries expects to incur, and the payment of all amounts the
Company and its consolidated Subsidiaries expects to pay, in connection with
the Closing Date Transactions. The Pro Forma Balance Sheet, together with the
notes thereto, was prepared based on good faith assumptions in accordance with
GAAP and is based on the best information available to the Company and its
consolidated Subsidiaries as of the date of delivery thereof, and reflects on a
pro forma basis the financial position of the Company and its consolidated
Subsidiaries as of the Closing Date as adjusted, as described above, assuming
that the events specified in the preceding sentence had actually occurred at
the Closing Date.
5.2 No Change. Since January 28, 1996, (a) there has been no
change, and (as of the Closing Date only) no development or event, which has
had or could reasonably be expected to have a material adverse effect on the
business, assets, condition (financial or otherwise) or results of operations
of the Company and its Subsidiaries taken as a whole and (b) no dividends or
other distributions have been declared except as described in the Stock
Purchase Agreement, paid or made upon the Capital Stock of the Company nor has
any of the Capital Stock of the Company been redeemed, retired, repurchased or
otherwise acquired for value by the Company or any of its Subsidiaries, except
as permitted by subsection 8.11 and as described in the Stock Purchase
Agreement.
5.3 Corporate Existence; Compliance with Law. Each of the
Company and its Subsidiaries (a) is a corporation duly organized and validly
existing under the laws of the jurisdiction of its incorporation, (b) has full
corporate power and authority and possesses all governmental franchises,
licenses, permits, authorizations and approvals necessary to enable it to use
its corporate name and to own, lease or otherwise hold its properties and
assets and to carry on its business as presently conducted other than such
franchises, licenses, permits, authorizations and approvals the lack of which,
individually or in the aggregate, would not have a material adverse effect on
the business, assets, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries, taken as a whole, (c) is duly
qualified and in good standing to do business in each jurisdiction in which the
nature of its business or the ownership, leasing or holding of its properties
makes such qualification necessary, except such jurisdictions where the failure
so to qualify would not have a material adverse effect on the business, assets,
condition (financial or otherwise) or results of operations of the Company and
its Subsidiaries, taken as a
<PAGE> 54
49
whole, and (d) except as disclosed in the Environmental Reports, is in
compliance with all applicable statutes, laws, ordinances, rules, orders,
permits and regulations of any governmental authority or instrumentality,
domestic or foreign (including, without limitation, those related to Hazardous
Materials and substances), except where noncompliance would not be reasonably
likely to have a material adverse effect on the business, assets, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries, taken as a whole. Except as disclosed in the Environmental
Reports, none of the Company or any of its Subsidiaries has received any
written communication from a Governmental Authority that alleges that the
Company or any of its Subsidiaries is not in compliance, in all material
respects, with all material federal, state, local or foreign laws, ordinances,
rules and regulations.
5.4 Corporate Power; Authorization. Each of the Company and
its Subsidiaries has the corporate power and authority to make, deliver and
perform each of the Credit Documents to which it is a party, and the Company
has the corporate power and authority and legal right to borrow hereunder and
to have Letters of Credit issued for its account hereunder. Each of the
Company and its Subsidiaries has taken all necessary corporate action to
authorize the execution, delivery and performance of each of the Credit
Documents to which it is or will be a party and the Company has taken all
necessary corporate action to authorize the borrowings hereunder and the
issuance of Letters of Credit for its account hereunder. No consent or
authorization of, or filing with, any Person (including, without limitation,
any Governmental Authority) is required in connection with the execution,
delivery or performance by the Company or any of its Subsidiaries, or for the
validity or enforceability against the Company or any of its Subsidiaries, of
any Credit Document except for consents, authorizations and filings which have
been obtained or made and are in full force and effect and except (i) such
consents, authorizations and filings, the failure to obtain or perform (x)
which would not have a material adverse effect on the business, assets,
condition (financial or otherwise) or results of operations of the Company and
its Subsidiaries taken as a whole and (y) which would not adversely affect the
validity or enforceability of any of the Credit Documents or the rights or
remedies of the Administrative Agent or the Lenders thereunder and (ii) such
filings as are necessary to perfect the Liens of the Lenders created pursuant
to this Agreement and the Security Documents.
5.5 Enforceable Obligations. This Agreement and the Stock
Purchase Agreement have been, and each of the other Credit Documents and any
other agreement to be entered into by any Credit Party pursuant to the Stock
Purchase Agreement will be, duly executed and delivered on behalf of such
Credit Party that is party thereto. The Stock Purchase Agreement has been duly
executed and delivered, to the best knowledge of the Company, on behalf of the
other parties thereto. This Agreement constitutes, and each of the other
Credit Documents and any other agreement to be entered into by any Credit Party
pursuant to the Stock Purchase Agreement will constitute upon execution and
delivery, the legal, valid and binding obligation of such Credit Party, and is
enforceable against such Credit Party in accordance with its terms, except as
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or similar laws affecting creditors' rights generally and by
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law). The Stock Purchase Agreement constitutes the
legal, valid and binding obligation of, to the best knowledge of the Company,
the parties thereto enforceable against such Persons in accordance with its
terms, except, in each case, as may be
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50
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting creditors' rights generally and by general principles of
equity (regardless of whether enforcement is sought in a proceeding in equity
or at law).
5.6 No Legal Bar. The execution, delivery and performance of
each Credit Document, the incurrence or issuance of and use of the proceeds of
the Loans, the Bridge Subordinated Debt, any Permanent Subordinated Debt and of
drawings under the Letters of Credit and the transactions contemplated by the
Investment Documents, the Credit Documents and the Bridge Subordinated Debt
Documents, (a) will not violate any Requirement of Law or any Contractual
Obligation applicable to or binding upon the Company or any Subsidiary of the
Company or any of their respective properties or assets, in any manner which,
individually or in the aggregate, (i) would have a material adverse effect on
the ability of the Company or any such Subsidiary to perform its obligations
under the Credit Documents, the Stock Purchase Agreement, or any other
agreement to be entered into pursuant to the Stock Purchase Agreement to which
it is a party, (ii) would give rise to any liability on the part of the
Administrative Agent or any Lender or (iii) would have a material adverse
effect on the business, assets, condition (financial or otherwise) or results
of operations of the Company and its Subsidiaries taken as a whole, and (b)
will not result in the creation or imposition of any Lien on any of its
properties or assets pursuant to any Requirement of Law applicable to it, as
the case may be, or any of its Contractual Obligations, except for the Liens
arising under the Security Documents.
5.7 No Material Litigation. No litigation by, investigation
known to the Company by, or proceeding of, any Governmental Authority is
pending against the Company or any of its Subsidiaries (including after giving
effect to the Closing Date Transactions) with respect to the validity, binding
effect or enforceability of any Investment Document, any Credit Document, the
Loans made hereunder, the use of proceeds thereof, of the Bridge Subordinated
Debt, any Permanent Subordinated Debt or of any drawings under a Letter of
Credit and the other transactions contemplated hereby or by the Stock Purchase
Agreement. No lawsuits (except as described in the Offering Memorandum),
claims, proceedings or investigations pending or, to the best knowledge of the
Company, threatened as of the Closing Date against or affecting the Company or
any Subsidiary of the Company or any of their respective properties, assets,
operations or businesses (including after giving effect to the Closing Date
Transactions) in which there is a probability of an adverse determination, is
reasonably likely, if adversely decided, to have a material adverse effect on
the business, assets, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries taken as a whole.
5.8 Investment Company Act. Neither the Company nor any
Subsidiary of the Company is an "investment company" or a company "controlled"
by an "investment company" (as each of the quoted terms is defined or used in
the Investment Company Act of 1940, as amended).
5.9 Federal Regulation. No part of the proceeds of any of
the Loans or any drawing under a Letter of Credit will be used for any purpose
which violates the provisions of Regulation G, T, U or X of the Board. Neither
the Company nor any of its Subsidiaries is engaged or will engage, principally
or as one of its important activities, in the business of
<PAGE> 56
51
extending credit for the purpose of "purchasing" or "carrying" any "margin
stock" within the respective meanings of each of the quoted terms under said
Regulation U.
5.10 No Default. The Company and each of its Subsidiaries
have performed all material obligations required to be performed by them under
their respective Contractual Obligations (including after giving effect to the
Closing Date Transactions) and they are not (with or without the lapse of time
or the giving of notice, or both) in breach or default in any respect
thereunder, except to the extent that such breach or default would not have a
material adverse effect on the business, assets, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries taken
as a whole. Neither the Company nor any of its Subsidiaries (including after
giving effect to the Closing Date Transactions) is in default under any
material judgment, order or decree of any Governmental Authority domestic or
foreign, applicable to it or any of its respective properties, assets,
operations or business, except to the extent that any such defaults would not,
in the aggregate, have a material adverse effect on the business, assets,
condition (financial or otherwise) or results of operations of the Company and
its Subsidiaries taken as a whole.
5.11 Taxes. Each of the Company and its Subsidiaries
(including after giving effect to the Closing Date Transactions) has filed or
caused to be filed all material tax returns which, to the best knowledge of the
Company, are required to be filed and has paid all taxes shown to be due and
payable on said returns or on any assessments made against it or any of its
property and all other taxes, fees or other charges imposed on it or any of its
property by any Governmental Authority (other than any the amount of which is
currently being contested in good faith by appropriate proceedings and with
respect to which reserves (or other sufficient provisions) in conformity with
GAAP have been provided on the books of the Company or its Subsidiaries
(including after giving effect to the Closing Date Transactions), as the case
may be); no tax Lien has been filed, and, to the best knowledge of the Company,
no written claim is being asserted, with respect to any such taxes, fees or
other charges.
5.12 Subsidiaries. As of the Closing Date, the only
Subsidiaries of the Company are those listed on Schedule 5.12. On the Closing
Date and at all times prior to any occurrence of an IPO pursuant to which the
Capital Stock of the Company is sold in a public offering, Holdings owns 100%
of the issued and outstanding Capital Stock of the Company.
5.13 Ownership of Property; Liens. As of the Closing Date
and as of the making of any extension of credit hereunder (subject to transfers
and dispositions of property permitted under subsection 8.5) each of the
Company and its Subsidiaries has good and valid title to all of its material
assets (other than real property or interests in real property) in each case
free and clear of all mortgages, liens, security interests or encumbrances of
any nature whatsoever except Permitted Liens. With respect to real property or
interests in real property, as of the Closing Date, each of the Company and its
Subsidiaries has (i) fee title to all of the real property listed on Schedule
5.13 under the heading "Fee Properties" (each, a "Fee Property"), and (ii) good
and valid title to the leasehold estates in all of the real property leased by
it and listed on Schedule 5.13 under the heading "Leased Properties" (each, a
"Leased Property"), in each case free and clear of all mortgages, liens,
security interests, easements, covenants, rights-of-way and other
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similar restrictions of any nature whatsoever, except Permitted Liens. The Fee
Properties and the Leased Properties constitute, as of the Closing Date, all of
the real property owned in fee or leased by the Company and its Subsidiaries.
5.14 ERISA. The "amount of unfunded benefit liabilities"
(within the meaning of Section 4001(a)(18) of ERISA) of any Single Employer
Plan of the Company or any Commonly Controlled Entity would not result in a
material liability to the Company if any or all such Single Employer Plans were
terminated. None of the Company, any Subsidiary of the Company or any Commonly
Controlled Entity would be liable for any amount pursuant to Sections 4063 or
4064 of ERISA, if any Single Employer Plan were to terminate. Neither the
Company nor any Commonly Controlled Entity has been involved in any transaction
that would cause the Company to be subject to material liability with respect
to a Single Employer Plan to which the Company or any Commonly Controlled
Entity contributed or was obligated to contribute during the six-year period
ending on the date this representation is made under Sections 4062 or 4069 of
ERISA. Neither the Company nor any Commonly Controlled Entity has incurred any
material liability under Title IV of ERISA which could become or remain a
material liability of the Company after the Closing Date and the consummation
of the Closing Date Transactions. None of the Company, any Subsidiary of the
Company, or, to the best knowledge of the Company, any director, officer or
employee thereof, or any of the Plans or any trust created thereunder, or any
fiduciary thereof, has engaged in a transaction or taken any other action or
omitted to take any action involving any Plan which could constitute a
prohibited transaction within the meaning of Section 406 of ERISA which is not
otherwise exempted and which would result in a material liability to the
Company, or would cause the Company to be subject to either a material
liability or material civil penalty assessed pursuant to Sections 409 or 502(i)
or (l) of ERISA or a material tax imposed pursuant to Sections 4975 or 4976 of
the Code. Each of the Plans (to the best knowledge of the Company with respect
to any Multiemployer Plan) has been operated and administered in all material
respects in accordance with applicable laws, including but not limited to ERISA
and the Code. There are no material pending or, to the best knowledge of the
Company, threatened claims by or on behalf of any of the Plans or any
fiduciary, by any employee or beneficiary covered under any such Plan, or
otherwise involving any such Plan or fiduciary for which the Company could have
any material liability (other than routine claims for benefits). To the best
knowledge of the Company, no condition exists, and no event has occurred with
respect to any Multiemployer Plan which presents a material risk of a complete
or partial withdrawal under Subtitle E of Title IV of ERISA for which the
Company could have any material liability, nor has the Company or any Commonly
Controlled Entity been notified that any such Multiemployer Plan is insolvent
or in reorganization within the meaning of Section 4241 of ERISA. Neither the
Company nor any Commonly Controlled Entity nor any Subsidiary has been a party
to any transaction or agreement to which the provisions of Section 4204 of
ERISA were applicable (a "4204 Agreement"). None of the Company, or any
Commonly Controlled Entity or any of their respective Subsidiaries is obligated
to contribute to a Multiemployer Plan, on behalf of any current or former
employee of the Company, any Commonly Controlled Entity or such Subsidiary.
The liability to which the Company, any Commonly Controlled Entity or any of
their respective Subsidiaries would become subject under ERISA if all such
Persons were to withdraw completely from all Plans on the Closing Date (after
giving effect to the Closing Date Transactions) is not in excess of $2,000,000.
None of the Plans or any trust established thereunder has incurred any
"accumulated funding
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deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, as of the last day of the most recent fiscal year of
each of the Plans. No contribution failure has occurred with respect to any
Plan sufficient to give rise to a lien under Section 302(f) of ERISA.
5.15 Collateral Documents. (a) Upon execution and delivery
thereof by the parties thereto, each of the Pledge Agreements will be effective
to create in favor of the Administrative Agent, for the ratable benefit of the
Lenders, a legal, valid and enforceable security interest in the pledged stock
described therein and, when stock certificates representing or constituting the
pledged stock described in each of the Pledge Agreements are delivered to the
Administrative Agent, such security interest shall, subject to the existence of
Permitted Liens, constitute a perfected first lien on, and security interest
in, all right, title and interest of the pledgor party thereto in the pledged
stock described therein.
(b) Upon execution and delivery thereof by the parties
thereto, each of the Security Agreements will be effective to create in favor
of the Administrative Agent, for the ratable benefit of the Lenders, a legal,
valid and enforceable security interest in the collateral described therein and
Uniform Commercial Code financing statements have been filed in each of the
jurisdictions listed on Schedule 5.15(b), or arrangements have been made for
such filing in such jurisdictions, and upon such filing, and upon the taking of
possession by the Administrative Agent of any such collateral the security
interests in which may be perfected only by possession, such security interests
will, subject to the existence of Permitted Liens, constitute perfected first
liens on, and security interests in, all right, title and interest of the
debtor party thereto in the collateral described therein, except to the extent
that a security interest cannot be perfected therein by the filing of a
financing statement or the taking of possession under the Uniform Commercial
Code of the relevant jurisdiction.
5.16 Copyrights, Permits, Trademarks and Licenses. Schedule
5.16 sets forth a true and complete list of all material trademarks (registered
or unregistered), trade names, service marks and copyrights and applications
therefor owned, used or filed by or licensed to the Company and its
Subsidiaries (after giving effect to the Closing Date Transactions) and, with
respect to registered trademarks (if any), contains a list of all jurisdictions
in which such trademarks are registered or applied for and all registration and
application numbers. Except as disclosed on Schedule 5.16, the Company or a
Subsidiary (after giving effect to the Closing Date Transactions) owns or has
the right to use, without payment to any other party, trademarks (registered or
unregistered), trade names, service marks, copyrights and applications therefor
referred to in such Schedule. To the best knowledge of the Company, no claims
are pending by any Person with respect to the ownership, validity,
enforceability or the Company's or any Subsidiary's use of any such trademarks
(registered or unregistered), trade names, service marks, copyrights, or
applications therefor, challenging or questioning the validity or effectiveness
of any of the foregoing, in any jurisdiction, domestic or foreign.
5.17 Environmental Matters. Except as set forth in the
Environmental Reports and except to the extent that the facts and circumstances
giving rise to the failure of any of the following to be true and correct would
not be reasonably likely to have a material adverse effect
<PAGE> 59
54
on the business, assets, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries taken as a whole:
(a) To the best knowledge of the Company, no parcel of real
property owned or operated by the Company or any of its Subsidiaries contains,
and has not previously contained, in, on or under including, without
limitation, the soil and groundwater thereunder, any Hazardous Materials in
amounts or concentrations that constitute or constituted a material violation
of, or could reasonably give rise to material liability under, Environmental
Laws.
(b) To the best knowledge of the Company, each parcel of real
property owned or operated by the Company or any of its Subsidiaries and all
operations and facilities at such properties taken as a whole are in material
compliance with all Environmental Laws, and there is no contamination or
violation of any Environmental Law which could materially interfere with the
continued operation of, or materially impair the fair saleable value of, the
such property taken as a whole.
(c) To the best knowledge of the Company, neither the Company
nor any of its Subsidiaries has received or is aware of any complaint, notice
of violation, alleged violation, or notice of investigation or of potential
liability under Environmental Laws with regard to any parcel of real property
owned or operated by the Company or any of its Subsidiaries or the operations
of the Company or its Subsidiaries, nor does the Company or any of its
Subsidiaries have knowledge that any such action is being contemplated,
considered or threatened.
(d) To the best knowledge of the Company, Hazardous Materials
have not been generated, treated, stored, disposed of, at, on or under any
parcel of real property owned or operated by the Company or any of its
Subsidiaries, nor have any Hazardous Materials been transported from such
properties, in material violation of or in a manner that could reasonably give
rise to material liability under any Environmental Laws.
(e) There are no governmental administrative actions or
judicial proceedings pending or, to the best knowledge of the Company and its
Subsidiaries, threatened, under any Environmental Law to which the Company or
any of its Subsidiaries is a party with respect to any parcel of real property
owned or operated by the Company or any of its Subsidiaries, nor are there any
consent decrees or other decrees, consent orders, administrative orders or
other orders, or other administrative or judicial requirements, other than
permits authorizing operations at facilities at the Mortgaged Property,
outstanding under any Environmental Law with respect to such properties.
5.18 Accuracy and Completeness of Information. The factual
statements contained in the financial statements referred to in subsection
5.1(a), the Credit Documents, the Stock Purchase Agreement and any other
certificates or documents furnished or to be furnished to the Administrative
Agent or the Lenders from time to time in connection with this Agreement, taken
as a whole, do not and will not, to the best knowledge of the Company, as of
the date when made, contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained
therein not misleading in light of the circumstances in
<PAGE> 60
55
which the same were made, all except as otherwise qualified herein or therein,
such knowledge qualification being given only with respect to factual
statements made by Persons other than the Company or any of its Subsidiaries.
SECTION 6. CONDITIONS PRECEDENT
6.1 Conditions to Initial Loans and Letters of Credit. The
obligation of each Lender to make its Loans and the obligation of the Issuing
Lender to issue any Letter of Credit on the Closing Date are subject to the
satisfaction, or waiver by such Lender, immediately prior to or concurrently
with the making of such Loans or the issuance of such Letters of Credit, as the
case may be, of the following conditions:
(a) Agreement; Notes; Investment Documents. The
Administrative Agent shall have received (w) a counterpart of this
Agreement for each Lender duly executed and delivered by a duly
authorized officer of the Company, (x) for the account of each
Revolving Credit Lender requesting the same pursuant to subsection
4.13, a Revolving Credit Note of the Company conforming to the
requirements hereof and executed by a duly authorized officer of the
Company, (y) for the account of each Lender holding a Term Loan and
requesting the same pursuant to subsection 4.13, a Term Loan Note of
the Company conforming to the requirements hereof and executed by a
duly authorized officer of the Company, and (z) for the account of
Chase, a Swing Line Note, conforming to the requirements hereof and
executed by a duly authorized officer of the Company. The
Administrative Agent shall have received, with a copy for each Lender,
a copy of the Stock Purchase Agreement and each exhibit or schedule
thereto, certified by a Responsible Officer of the Company.
(b) Closing Date Transactions. The Closing Date Transactions
(other than the "phantom stock" payments) shall have been consummated.
After the Investor Investment, (i) the Investors shall own not less
than 51% of the voting stock of Holdings and (ii) Holdings shall own
all of the capital stock of the Company. All of the conditions
precedent set forth in Article V of the Stock Purchase Agreement shall
have been satisfied or waived, and no material provision of the Stock
Purchase Agreement shall have been amended, supplemented, waived or
otherwise modified without the prior written consent of the
Administrative Agent and the Documentation Agent, which consent shall
not be unreasonably withheld.
(c) Subordinated Debt; Other Indebtedness; Capital Structure.
(i)(x) The Bridge Subordinated Debt Agreement shall have been
executed and delivered by the parties thereto in form and substance
satisfactory to the Administrative Agent and the Documentation Agent
(it being agreed that the terms and conditions of the Bridge
Subordinated Debt included in the Subordinated Indebtedness Term Sheet
furnished to the Administrative Agent are satisfactory to the
Administrative Agent and the Documentation Agent in all respects)
shall be in full force and effect and none of the provisions thereof
shall have been amended, waived, supplemented or otherwise modified
without the prior
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56
written consent of the Administrative Agent; and the Company shall
have issued the Bridge Subordinated Debt in an aggregate principal
amount of at least $125,000,000 or (y) the Company shall have issued
Permanent Subordinated Debt in an aggregate principal amount of at
least $125,000,000.
(ii) After giving effect to the Closing Date
Transactions, Holdings and its Subsidiaries shall have no material
indebtedness (not including trade payables) other than the Holdings
Subordinated Debt, approximately $25,000,000 of capital leases,
approximately $17,500,000 of indebtedness due to Carmel Trust and
other Affiliates of Holdings, indebtedness under this Agreement and
the Bridge Subordinated Debt or the Permanent Subordinated Debt.
(iii) The terms and conditions, and
documentation, of all equity securities of the Company or any of its
Subsidiaries to be outstanding at or after the Closing Date, the
certificate of incorporation, by-laws, other governing documents and
the corporate and capital structure of the Company and its
Subsidiaries, in each case after giving effect to the consummation of
the Closing Date Transactions, shall be in form and substance
satisfactory to the Administrative Agent and the Documentation Agent
(the execution and delivery of this Agreement by the Lenders, the
Documentation Agent and the Administrative Agent being deemed to
evidence the satisfaction of the Administrative Agent and the
Documentation Agent with such of the above-referenced matters as shall
have been disclosed and made available to the Administrative Agent and
the Documentation Agent prior to the date hereof).
(d) Fees. The Administrative Agent, the Documentation Agent
and the Lenders shall have received all fees, expenses and other
consideration required to be paid or delivered on or before the
Closing Date.
(e) Lien Searches. The Administrative Agent shall have
received the results of searches requested by the Agent of Uniform
Commercial Code, tax and judgment filings made with respect to each of
Holdings, the Company and its Subsidiaries in the jurisdictions set
forth on Schedule 5.15(b), together with copies of financing
statements disclosed by such searches and such searches shall disclose
no Liens on any assets encumbered by any Security Document, except for
Liens permitted hereunder or, if unpermitted Liens are disclosed, the
Administrative Agent shall have received satisfactory evidence of
release of such Liens.
(f) Solvency Opinion. The Administrative Agent shall have
received an opinion or opinions of Murray, Devine & Co. in form and
substance satisfactory to it which shall document the solvency of the
Company and its Subsidiaries after giving effect to the consummation
of the transactions contemplated by the consummation of the Closing
Date Transactions and the financings contemplated hereby.
(g) Holdings Pledge Agreement. The Administrative Agent
shall have received the Holdings Pledge Agreement executed and
delivered by a duly authorized officer of
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57
Holdings, together with stock certificates representing 100% of all
issued and outstanding shares of Capital Stock of the Company, and
undated stock powers for each certificate, executed in blank and
delivered by a duly authorized officer of Holdings and the
acknowledgment and consent of the Company thereunder, in the form
annexed to the Holdings Pledge Agreement.
(h) Company Pledge Agreement. The Administrative Agent shall
have received the Company Pledge Agreement executed and delivered by a
duly authorized officer of the Company, together with stock
certificates representing 100% of all issued and outstanding shares of
Capital Stock of each of the Domestic Subsidiaries of the Company, and
undated stock powers for each certificate, executed in blank and
delivered by a duly authorized officer of the Company and the
acknowledgment and consent of the issuer thereunder, in the form
annexed to the Company Pledge Agreement.
(i) Company Security Agreement. The Administrative Agent
shall have received the Company Security Agreement, executed and
delivered by a duly authorized officer of the Company.
(j) Subsidiary Security Agreement. The Administrative Agent
shall have received a Security Agreement, executed and delivered by a
duly authorized officer of each of the Domestic Subsidiaries of the
Company.
(k) Holdings Guarantee. The Administrative Agent shall have
received the Holdings Guarantee, executed and delivered by a duly
authorized officer of Holdings.
(l) Subsidiary Guarantee. The Administrative Agent shall
have received a Guarantee, executed and delivered by a duly authorized
officer of each of the Domestic Subsidiaries of the Company.
(m) Legal Opinions. The Administrative Agent shall have
received, dated the Closing Date and addressed to the Administrative
Agent and the Lenders, an opinion of Gibson, Dunn & Crutcher, counsel
to Holdings and the Company, in substantially the form of Exhibit K-1
with such changes thereto as may be approved by the Administrative
Agent and its counsel. The Administrative Agent shall have received,
dated the Closing Date and addressed to the Administrative Agent and
the Lenders, an opinion of Arizona counsel to the Company, in
substantially the form of Exhibit K-2 with such changes as may be
approved by the Administrative Agent and its counsel.
(n) Closing Certificate. The Administrative Agent shall have
received a Closing Certificate of the Company and Holdings dated the
Closing Date, in substantially the form of Exhibits M-1 and M-2,
respectively, with appropriate insertions and attachments, in form and
substance satisfactory to the Administrative Agent and its counsel,
executed by the President or any Vice President and the Secretary or
any Assistant Secretary of the Company and Holdings, respectively.
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58
(o) Consents, Authorizations and Filings, etc. Except for
the financing statements contemplated by the Company Security
Agreement, all consents, authorizations and filings, if any, required
in connection with the execution, delivery and performance by Holdings
or the Company, and the validity and enforceability against Holdings
and the Company, of the Credit Documents to which any of them is a
party, shall have been obtained or made, and such consents,
authorizations and filings shall be in full force and effect, except
such consents, authorizations and filings, the failure to obtain which
would not have a material adverse effect on the business, assets,
condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries, taken as a whole.
(p) Insurance. The Administrative Agent shall have received
(i) a schedule describing all insurance maintained by the Company and
its Subsidiaries pursuant to subsection 7.5 and (ii) binders (or other
customary evidence as to the obtaining and maintenance by the Company
of such insurance) for each policy set forth on such schedule insuring
against casualty and other usual and customary risks.
(q) Financial Statements. The Lenders shall have received
(i) audited consolidated financial statements of the Company for its
two most recently completed fiscal years, which financial statements
shall have been prepared in accordance with generally accepted
accounting principles and shall be in form and substance satisfactory
to the Administrative Agent, (ii) unaudited interim consolidated
financial statements of the Company for each fiscal month and
quarterly period ended during the portion of the current fiscal year
ending 30 days preceding the Closing Date, and such financial
statements shall not reflect any material adverse change in the
consolidated financial condition of the Company as reflected in the
financial statements or projections previously delivered to the
Lenders and (iii) satisfactory pro forma balance sheets of Holdings
and, on a consolidated basis, of the Company and its subsidiaries as
of the Closing Date reflecting and giving effect to the Closing Date
Transactions and other transactions contemplated hereby.
(r) Real Estate Financing. The Administrative Agent shall
have received a copy of the executed Real Estate Financing Agreement.
(s) Borrowing Base. The Administrative Agent shall be
satisfied as to form and substance of the Borrowing Base and the forms
of the Borrowing Base Certificate and Supplemental Reporting on or
before the Closing Date and on the Closing Date and after giving
effect to the extensions of credit hereunder on the Closing Date, the
Borrowing Base shall exceed by at least $70,000,000 the sum of (i)
aggregate principal amount of all Revolving Credit Loans and Swing
Line Loans outstanding at such time, (ii) the aggregate unexpired and
undrawn face of all Letters of Credit outstanding at such time and
(iii) the aggregate amount of L/C Obligations outstanding at such
time.
6.2 Conditions to All Loans and Letters of Credit. The
obligation of each Lender to make any Loan (other than any Revolving Credit
Loan the proceeds of which are to be used to repay Refunded Swing Line Loans)
and the obligation of the Issuing Lender to issue any Letter of
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Credit is subject to the satisfaction of the following conditions precedent on
the relevant Borrowing Date:
(a) Representations and Warranties. Each of the
representations and warranties made in or pursuant to Section 5 or
which are contained in any other Credit Document shall be true and
correct in all material respects on and as of the date of such Loan or
of the issuance of such Letter of Credit as if made on and as of such
date (unless stated to relate to a specific earlier date, in which
case, such representations and warranties shall be true and correct in
all material respects as of such earlier date).
(b) No Default or Event of Default. No Default or Event of
Default shall have occurred and be continuing on such Borrowing Date
or after giving effect to such Loan to be made or such Letter of
Credit to be issued on such Borrowing Date.
Each borrowing by the Company hereunder and the issuance of each Letter of
Credit by the Issuing Lender hereunder shall constitute a representation and
warranty by the Company as of the date of such borrowing or issuance that the
conditions in clauses (a) and (b) and of this subsection 6.2 have been
satisfied.
SECTION 7. AFFIRMATIVE COVENANTS
The Company hereby agrees that, so long as the Commitments
remain in effect, any Loan, Note or L/C Obligation remains outstanding and
unpaid, any amount (unless cash in an amount equal to such amount has been
deposited to a cash collateral account established by the Administrative Agent)
remains available to be drawn under any Letter of Credit or any other amount is
owing to any Lender or the Administrative Agent hereunder or under any of the
other Credit Documents, it shall, and, in the case of the agreements contained
in subsections 7.3 through 7.6, 7.8 and 7.9, the Company shall cause each of
its Subsidiaries to:
7.1 Financial Statements. Furnish to the Administrative
Agent (with sufficient copies for each Lender which the Administrative Agent
shall promptly furnish to each Lender):
(a) as soon as available, but in any event within 90 days
(or, in the case of the first fiscal year ending after the Closing
Date, 120 days) after the end of each fiscal year of the Company, a
copy of the consolidated balance sheet of the Company and its
consolidated Subsidiaries as at the end of such fiscal year and the
related consolidated statements of stockholders' equity and cash flows
and the consolidated statements of income of the Company and its
Subsidiaries for such fiscal year, setting forth in each case in
comparative form the figures for the previous year and, in the case of
the consolidated balance sheet referred to above, reported on, without
a "going concern" or like qualification or exception, or qualification
arising out of the scope of the audit, or qualification which would
affect the computation of financial covenants, by independent
certified public accountants of nationally recognized standing;
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(b) as soon as available, but in any event not later than 45
days (or, in the case of a quarterly period occurring during the first
fiscal year ending after the Closing Date, 60 days) after the end of
each of the first three quarterly periods of each fiscal year of the
Company, the unaudited consolidated balance sheet of the Company and
its Subsidiaries as at the end of each such quarter and the related
unaudited consolidated statements of income and cash flows of the
Company and its Subsidiaries for such quarterly period and the portion
of the fiscal year of the Company through such date, setting forth in
each case in comparative form the figures for the corresponding
quarter in, and year to date portion of, the previous year, and the
figures for such periods in the budget prepared by the Company and
furnished to the Administrative Agent, certified by the chief
financial officer, controller or treasurer of the Company as being
fairly stated in all material respects;
(c) as soon as practicable, and in any event within 30 days
after the end of each calendar month of each year, commencing with the
first full month ended following the Closing Date, the unaudited
consolidated balance sheet of the Company and its Subsidiaries as at
the end of such month and the related unaudited consolidated statement
of income of the Company and its Subsidiaries for such month and for
the portion of the fiscal year of the Company through such date in the
form and detail similar to those customarily prepared by management of
the Company for internal use, setting forth in each case in
comparative form the consolidated figures for the corresponding month
of, and year to date portion of, the previous year and the figures for
such periods in the budget prepared by the Company and furnished to
the Administrative Agent, certified by the chief financial officer,
controller or treasurer of the Company as being fairly stated in all
material respects; and
(d) (i) as soon as available, but in any event not later than
30 days after the beginning of each fiscal year of the Company to
which such budget relates, a preliminary consolidated operating budget
for the Company and its Subsidiaries taken as a whole and (ii) as soon
as available, any material revision to or any final revision of, any
such preliminary annual operating budget or any such consolidated
operating budget.
all such financial statements to be complete and correct in all material
respects (subject, in the case of interim statements, to normal year-end audit
adjustments) and to be prepared in reasonable detail and (except in the case of
the statements referred to in paragraphs (c) and (d) of this subsection 7.1)
in accordance with GAAP.
7.2 Certificates; Other Information. Furnish to the
Administrative Agent (with sufficient copies for each Lender which the
Administrative Agent shall promptly deliver to each Lender):
(a) concurrently with the delivery of the consolidated
financial statements referred to in subsection 7.1(a), a letter from
the independent certified public accountants reporting on such
financial statements stating that in making the examination necessary
to express their opinion on such financial statements no knowledge was
obtained of any Default or
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Event of Default under subsections 4.4(b), 8.1, 8.3, and 8.6 through
8.11, except as specified in such letter;
(b) concurrently with the delivery of the financial
statements referred to in subsections 7.1(a) and (b), a certificate of
the chief financial officer of the Company (i) stating that, to the
best of such officer's knowledge, each of the Company and its
Subsidiaries has observed or performed all of its respective covenants
and other agreements, and satisfied every material condition,
contained in this Agreement, the Notes and the other Credit Documents
to be observed, performed or satisfied by it, and that such officer
has obtained no knowledge of any Default or Event of Default except as
specified in such certificate, (ii) showing in detail as of the end of
the related fiscal period the figures and calculations supporting such
statement in respect of subsections 8.7 through 8.12 and any other
calculations reasonably requested by the Administrative Agent with
respect to the quantitative aspects of the other covenants contained
herein and (iii) if not specified in the financial statements
delivered pursuant to subsection 7.1, specifying the aggregate amount
of interest paid or accrued by the Company and its Subsidiaries, and
the aggregate amount of depreciation, depletion and amortization
charged on the books of the Company and its Subsidiaries, during such
accounting period;
(c) promptly upon receipt thereof, copies of all final
reports submitted to the Company or to any of its Subsidiaries by
independent certified public accountants in connection with each
annual, interim or special audit of the books of the Company or any of
its Subsidiaries made by such accountants, including, without
limitation, any final comment letter submitted by such accountants to
management in connection with their annual audit;
(d) promptly upon their becoming available, copies of all
financial statements, reports, notices and proxy statements sent or
made available to holders of the Subordinated Debt and the public
generally by the Company or any of its Subsidiaries, if any, and all
regular and periodic reports and all final registration statements and
final prospectuses, if any, filed by the Company or any of its
Subsidiaries with any securities exchange or with the Securities and
Exchange Commission or any Governmental Authority succeeding to any of
its functions;
(e) concurrently with the delivery of the financial
statements referred to in subsections 7.1(a) and (b), and within 45
days following each calendar month with respect to which the financial
statements referred to in subsection 7.1(c) are required to be
delivered, a management summary describing and analyzing the
performance of the Company and its Subsidiaries during the periods
covered by such financial statements;
(f) within 45 days after the end of each fiscal quarter, a
summary of all Asset Sales during such fiscal quarter including the
amount of all Net Proceeds from such Asset Sales not previously
applied to prepayments of the Loans and reductions of the Commitments
pursuant to the proviso to subsection 4.4(b)(iii);
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(g) within 10 days after the end of each calendar month and,
if requested by the Administrative Agent, at any other time when the
Administrative Agent reasonably believes that the then existing
Borrowing Base is materially inaccurate (which requests may not be
made more frequently than once per calendar week), as soon as
reasonably available but in no event later than 10 days after the date
of such request, a borrowing base certificate calculating the
Borrowing Base as of the last day in such calendar month,
substantially in the form of Exhibit N hereto (a "Borrowing Base
Certificate"), executed by a Responsible Officer of the Borrower;
(h) within 30 days after the end of each calendar month, the
Supplemental Reporting as of the last day in such calendar month,
executed by a Responsible Officer of the Borrower; and
(i) promptly, such additional financial and other information
as any Lender may from time to time reasonably request.
7.3 Payment of Obligations. Pay, discharge or otherwise
satisfy at or before maturity or before they become delinquent, as the case may
be, all its obligations and liabilities of whatever nature including tax
liabilities, except (a) when the amount or validity thereof is currently being
contested in good faith by appropriate proceedings and reserves in conformity
with GAAP with respect thereto have been provided on the books of the Company
or any of its Subsidiaries, as the case may be, (b) for delinquent obligations
which do not have a material adverse effect on the business, assets, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries taken as a whole and (c) for trade and other accounts payable in
the ordinary course of business.
7.4 Conduct of Business and Maintenance of Existence.
Continue to engage in business of the same general type as now conducted by it
(after giving effect to the Closing Date Transactions), and preserve, renew and
keep in full force and effect its corporate existence and take all reasonable
action to maintain all material rights, material privileges, franchises,
copyrights, trademarks and trade names necessary or desirable in the normal
conduct of its business except for rights, privileges, franchises, copyrights,
trademarks and tradenames the loss of which would not in the aggregate have a
material adverse effect on the business, assets, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries taken
as a whole, and except as otherwise permitted by subsections 8.4 and 8.5; and
comply with all applicable Requirements of Law and Contractual Obligations
except to the extent that the failure to comply therewith would not, in the
aggregate, have a material adverse effect on the business, assets, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries taken as a whole.
7.5 Maintenance of Property; Insurance. (a) Keep all
property useful and necessary in its business in good working order and
condition (ordinary wear and tear excepted); and
<PAGE> 68
63
(b) Maintain with financially sound and reputable insurance
companies (x) insurance on all its property in at least such amounts and with
only such deductibles as are usually maintained by, and against at least such
risks (but including, in any event, public liability insurance) as are usually
insured against in the same general area, by companies engaged in the same or a
similar business and (y) the flood insurance, if any, required pursuant to
subsection 7.10(b)(ii); and furnish to each Lender, (i) annually, a schedule
disclosing (in a manner substantially similar to that used in the schedule
provided pursuant to subsection 6.1(o)) all insurance against products
liability risk maintained by the Company and its Subsidiaries pursuant to this
subsection 7.5(b) or otherwise and (ii) upon written request of any Lender,
full information as to the insurance carried; provided that the Company may
implement programs of self insurance in the ordinary course of business and in
accordance with industry standards for a company of similar size so long as
reserves are maintained in accordance with GAAP for the liabilities associated
therewith.
7.6 Inspection of Property; Books and Records; Discussions.
(a) Keep proper books of records and account in which full, complete and
correct entries in conformity with all material Requirements of Law shall be
made of all dealings and transactions in relation to its business and
activities; and permit representatives of any Lender upon reasonable notice
(but, with respect to all Lenders, no more frequently than monthly unless a
Default or Event of Default shall have occurred and be continuing) to visit and
inspect any of its properties and examine and, to the extent reasonable, make
abstracts from any of its books and records, including, without limitation, in
connection with any collateral review or appraisal described in paragraph (b)
below, and to discuss the business, operations, properties and financial and
other condition of the Company and its Subsidiaries with officers and employees
of the Company and its Subsidiaries and with its independent certified public
accountants, in each case at any reasonable time, upon reasonable notice, and
as often as may reasonably be desired.
(b) At any time upon the request of the Administrative Agent,
permit the Administrative Agent or its professionals (including investment
bankers, consultants, accountants, lawyers and appraisers) retained by the
Administrative Agent to conduct evaluations and appraisals of (i) the Company's
practices in the computation of the Borrowing Base, (ii) the assets included in
the Borrowing Base, (iii) systems and procedures relating to the Borrowing Base
items, and (iv) other related procedures deemed necessary by the Administrative
Agent and pay the reasonable fees and expenses in connection therewith
(including, without limitation, the fees and expenses associated with services
performed by the Administrative Agent's Collateral Monitoring Department);
provided, however, that the Administrative Agent shall not be entitled to
conduct such evaluations and appraisals more frequently than twice per year
unless (x) a Default or Event of Default has occurred and is continuing or (y)
the Administrative Agent determines that any material event or material change
has occurred with respect to the Credit Parties, their inventory practices or
the performance of the Collateral and that as a result of such event or change
more frequent evaluations or appraisals are required to effectively monitor the
Borrowing Base, in which case the Company will permit the Administrative Agent
to conduct such evaluations and appraisals at such reasonable times and as
often as may be reasonably requested, in each case so long as any Revolving
Credit Loans or Letters of Credit shall be outstanding or shall have been
requested by the Company hereunder.
<PAGE> 69
64
(c) In connection with any evaluation and appraisal relating
to the computation of the Borrowing Base, agree to maintain such additional
reserves (for purposes of computing the Borrowing Base) in respect of Eligible
Inventory and make such other adjustments to its parameters for including
Eligible Inventory in the Borrowing Base as the Administrative Agent shall
require based upon the results of such evaluation and appraisal, provided that
the reasons for any such additional reserves or adjustments shall be specified
in writing.
7.7 Notices. Promptly give notice to the Administrative
Agent and each Lender:
(a) of the occurrence of any Default or Event of Default;
(b) of any (i) default or event of default under any
instrument or other agreement, guarantee or collateral document of the
Company or any of its Subsidiaries which default or event of default
has not been waived and would have a material adverse effect on the
business, assets, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries taken as a whole, or
any other default or event of default under any such instrument,
agreement, guarantee or other collateral document which, but for the
proviso to clause (e) of Section 9, would have constituted a Default
or Event of Default under this Agreement, or (ii) litigation,
investigation or proceeding which may exist at any time between the
Company or any of its Subsidiaries and any Governmental Authority, or
receipt of any notice of any environmental claim or assessment against
the Company or any of its Subsidiaries by any Governmental Authority,
which in any such case would have a material adverse effect on the
business, assets, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries taken as a whole;
(c) of any litigation or proceeding against the Company or
any of its Subsidiaries (i) in which more than $2,000,000 of the
amount claimed is not covered by insurance or (ii) in which injunctive
or similar relief is sought which if obtained would have a material
adverse effect on the business, assets, condition (financial or
otherwise) or results of operations of the Company and its
Subsidiaries taken as a whole;
(d) of the following events, as soon as practicable after,
and in any event within 30 days after, the Company knows or has reason
to know thereof: (i) the occurrence of any Reportable Event with
respect to any Plan which Reportable Event could reasonably result in
material liability to the Company and its Subsidiaries taken as a
whole or (ii) the institution of proceedings or the taking of any
other action by PBGC, the Company or any Commonly Controlled Entity to
terminate, withdraw or partially withdraw from any Plan and, with
respect to a Multiemployer Plan, the Reorganization or Insolvency of
the Plan, in each of the foregoing cases which could reasonably result
in material liability to the Company and its Subsidiaries taken as a
whole, and in addition to such notice, deliver to the Administrative
Agent and each Lender whichever of the following may be applicable:
(A) a certificate of a Responsible Officer of the Company setting
forth details as to such Reportable Event and the action that the
Company or such Commonly Controlled Entity proposes to take with
respect thereto, together with a copy of any notice of such
<PAGE> 70
65
Reportable Event that may be required to be filed with PBGC or (B) any
notice delivered by PBGC evidencing its intent to institute such
proceedings or any notice to PBGC that such Plan is to be terminated,
as the case may be; and
(e) of a material adverse change known to the Company or its
Subsidiaries in the business, assets, condition (financial or
otherwise) or results of operations of the Company and its
Subsidiaries taken as a whole.
Each notice pursuant to this subsection 7.7 shall be accompanied by a statement
of a Responsible Officer of the Company setting forth details of the occurrence
referred to therein and (in the cases of clauses (a) through (d)) stating what
action the Company proposes to take with respect thereto.
7.8 Environmental Laws. (a) Comply with, and use reasonable
efforts to insure compliance by all tenants and subtenants, if any, with, all
applicable Environmental Laws and obtain and comply with and maintain, and
require that all tenants and subtenants obtain and comply with and maintain,
all licenses, approvals, registrations or permits required by Environmental
Laws, except to the extent that failure to do so would not be reasonably likely
to have a material adverse effect on the business, assets, condition (financial
or otherwise) or results of operations of the Company and its Subsidiaries
taken as a whole or on the validity or enforceability of any of the Credit
Documents or the rights and remedies of the Administrative Agent or the Lenders
thereunder;
(b) Conduct and complete all investigations, studies,
sampling and testing, and all remedial, removal and other actions, lawfully
required under applicable Environmental Laws, and promptly comply with all
lawful orders and directives of all Governmental Authorities respecting
Environmental Laws, except to the extent that the same are being contested in
good faith by appropriate proceedings; and
(c) In regard to this Agreement or in any way relating to the
Company or its Subsidiaries or their current or former operations, defend,
indemnify and hold harmless the Administrative Agent and the Lenders, and their
respective employees, agents, officers and directors, from and against any
claims, demands, penalties, fines, liabilities, settlements, damages, costs and
expenses of whatever kind or nature known or unknown, contingent or otherwise,
arising out of, or in any way relating to Hazardous Material or Environmental
Laws, including, without limitation, any orders, requirements or demands of
Governmental Authorities related thereto, including, without limitation,
reasonable attorney's and consultant's fees, investigation and laboratory fees,
remediation costs, court costs and litigation expenses, except to the extent
that any of the foregoing arise out of the gross negligence or willful
misconduct of the party seeking indemnification therefor. The agreements in
this subsection 7.8(c) shall survive repayment of the Loans and all other
amounts payable hereunder.
7.9 Landlord Lien Waivers. Each of the Company and its
Subsidiaries shall use commercially reasonable efforts (without being required
to make concessions or additional payments to landlords) to obtain Landlord
Lien Waivers with respect to each parcel of real
<PAGE> 71
66
property subject to Liens described in clause (c)(i) of the definition of
"Eligible Inventory" leased by it existing on or after the Closing Date within
90 days 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 hereto).
7.10 Lockbox Accounts. Each of the Company and its
Subsidiaries shall use commercially reasonable efforts to execute a lockbox
agreement within 45 days after the Closing Date (or upon the opening of such
account with respect to accounts not in existence on the Closing Date) with
each bank at which the Company or such Subsidiary maintains an account into
which proceeds of Collateral payable in the United States are deposited, which
agreements shall be reasonably acceptable to the Administrative Agent in form
and substance.
SECTION 8. NEGATIVE COVENANTS
The Company hereby agrees that it shall not, and the Company
shall not permit any of its Subsidiaries to, directly or indirectly so long as
the Commitments remain in effect or any Loan, Note or L/C Obligation remains
outstanding and unpaid, any amount (unless cash in an amount equal to such
amount has been deposited to a cash collateral account established by the
Administrative Agent) remains available to be drawn under any Letter of Credit
or any other amount is owing to any Lender or the Administrative Agent
hereunder or under any other Credit Document (it being understood that each of
the permitted exceptions to each of the covenants in this Section 8 is in
addition to, and not overlapping with, any other of such permitted exceptions
except to the extent expressly provided):
8.1 Indebtedness. Create, incur, assume or suffer to exist
any Indebtedness, except:
(a) the Indebtedness outstanding on the Closing Date and
reflected on Schedule 8.1(a), but excluding the refinancing of any
such Indebtedness;
(b) Indebtedness consisting of the Loans and in connection
with the Letters of Credit and this Agreement;
(c) Indebtedness (i) of the Company to any Subsidiary and
(ii) of any Subsidiary to the Company or any other Subsidiary;
(d) Indebtedness of the Company in respect of:
(i) up to $125,000,000 principal
amount of Bridge Subordinated Debt issued on the Closing
Date, and additional principal amount of Bridge Subordinated
Debt issued in lieu of cash interest on the outstanding Bridge
Subordinated Debt;
<PAGE> 72
67
(ii) any Permanent Subordinated Debt
the net proceeds of which are used, first, to prepay, redeem,
retire or repurchase the outstanding principal amount of the
Bridge Subordinated Debt (if any) or the then outstanding
Permanent Subordinated Debt (if any) (including fees and
expenses in connection therewith) and, second, if the net
proceeds of such Permanent Subordinated Debt are used to
prepay, redeem, retire or repurchase outstanding Bridge
Subordinated Debt or Permanent Subordinated Debt to the extent
there are additional net proceeds after such repayment,
redemption, retirement or repurchase to prepay the Loans and
reduce the Commitments in accordance with subsection
4.4(b)(ii);
(e) (i) Indebtedness of the Company and its Subsidiaries for
(A) industrial revenue bonds or other similar governmental and
municipal bonds and (B) the deferred purchase price of newly acquired
property of the Company and its Subsidiaries (pursuant to purchase
money mortgages or otherwise, whether owed to the seller or otherwise)
used in the ordinary course of business of the Company and its
Subsidiaries (provided such financing is entered into within 180 days
of the acquisition of such property) in an amount (based on the
remaining balance of the obligations therefor on the books of the
Company and its Subsidiaries) which in the case of preceding clauses
(A) and (B) shall not exceed $10,000,000 in the aggregate at any one
time outstanding and (ii) Indebtedness of the Company and its
Subsidiaries in respect of Financing Leases to the extent subsections
8.7 and 8.10 would not be contravened;
(f) Indebtedness of the Company and Subsidiaries in an
aggregate principal amount at any one time outstanding not in excess
of $10,000,000;
(g) Indebtedness in respect of letters of credit (other than
Letters of Credit issued hereunder) not to exceed an aggregate amount
equal to $5,000,000;
(h) (i) Indebtedness assumed in connection with acquisitions
permitted by subsection 8.6(h) (so long as such Indebtedness was not
incurred in anticipation of such acquisitions), (ii) Indebtedness of
newly acquired Subsidiaries acquired in such acquisitions (so long as
such Indebtedness was not incurred in anticipation of such
acquisition) and (iii) Indebtedness owed to the seller in any
acquisition permitted by subsection 8.6(h) constituting part of the
purchase price thereof, all of which Indebtedness permitted by this
subsection 8.1(h) shall not exceed in the aggregate at any time
$5,000,000;
(i) Indebtedness in connection with workmen's compensation
obligations and general liability exposure of the Company and its
Subsidiaries; and
(j) Indebtedness in an aggregate principal amount not to
exceed $1,000,000 under the promissory note made by the Company in
favor of Transatlantic, Ltd.; and
(k) subordinated Indebtedness in an aggregate principal
amount not to exceed $10,000,000 plus any additional principal amount
of such subordinated Indebtedness
<PAGE> 73
68
issued in lieu of cash interest thereon (and any refinancing thereof
shall be permitted in the amount of such sum), which subordinated
Indebtedness (i) is subordinated to the Indebtedness hereunder on
terms not less favorable to the Lenders than the subordination
provisions of the Subordinated Debt, (ii) has an interest rate not
exceeding 12% per annum and (iii) has a maturity date after the
Maturity Date.
8.2 Limitation on Liens. Create, incur, assume or suffer to
exist any Lien upon any of its property, assets, income or profits, whether now
owned or hereafter acquired, except:
(a) Liens for taxes, assessments or other governmental
charges not yet delinquent or which are being contested in good faith
and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of the Company or such Subsidiary,
as the case may be, in accordance with GAAP;
(b) carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other like Liens arising in the ordinary
course of business in respect of obligations which are not yet due or
which are bonded or which are being contested in good faith and by
appropriate proceedings if adequate reserves with respect thereto are
maintained on the books of the Company or such Subsidiary, as the case
may be, in accordance with GAAP;
(c) pledges or deposits in connection with workmen's
compensation, unemployment insurance and other social security
legislation;
(d) deposits to secure the performance of bids, tenders,
trade or government contracts (other than for borrowed money), leases,
licenses, statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature incurred in the ordinary
course of business;
(e) easements (including, without limitation, reciprocal
easement agreements), rights-of-way, building, zoning and similar
restrictions, utility agreements, covenants, reservations,
restrictions, encroachments, changes, and other similar encumbrances
or title defects incurred, or leases or subleases granted to others,
in the ordinary course of business, which do not in the aggregate
materially detract from the aggregate (i) value of the properties of
the Company and its Subsidiaries, taken as a whole or (ii) materially
interfere with or adversely affect in any material respect the
ordinary conduct of the business of the Company and its Subsidiaries
taken as a whole;
(f) Liens in favor of the Administrative Agent and the
Lenders pursuant to the Credit Documents and bankers' liens arising by
operation of law;
(g) Liens on property of the Company or any of its
Subsidiaries created solely for the purpose of securing Indebtedness
permitted by subsection 8.1(e) or 8.1(h)(i) or (ii) (so long as such
Lien was not incurred in anticipation of the related acquisition),
representing or incurred to finance, refinance or refund the purchase
price of property, provided that no such Lien shall extend to or cover
other property of the Company or such Subsidiary other
<PAGE> 74
69
than the respective property so acquired, and the principal amount of
Indebtedness secured by any such Lien shall at no time exceed the
original purchase price of such property;
(h) Liens existing on the Closing Date after giving effect to
the consummation of the Closing Date Transactions, and described in
subsection 5.13 or Schedule 8.2, provided that no such Lien shall
extend to or cover other property of the Company or the respective
Subsidiary other than the respective property so encumbered, and the
principal amount of Indebtedness secured by any such Lien shall at no
time exceed the original principal amount of the Indebtedness so
secured;
(i) Liens on documents of title and the property covered
thereby (and Proceeds thereof) securing Indebtedness in respect of the
Commercial L/Cs or securing reimbursement obligations in respect of
letters of credit permitted under this Agreement;
(j) (i) mortgages, liens, security interests, restrictions,
encumbrances or any other matters of record that have been placed by
any developer, landlord or other third party on property over which
the Company or any Subsidiary of the Company has easement rights or on
any Leased Property and subordination or similar agreements relating
thereto and (ii) any condemnation or eminent domain proceedings
affecting any real property;
(k) Liens in connection with workmen's compensation
obligations and general liability exposure of the Company and its
Subsidiaries; and
(l) Liens on Fee Properties and/or Leased Properties
consisting of (i) any conditions that may be shown by a current,
accurate survey or physical inspection of such Fee Property or Leased
Property, (ii) as to Leased Property, the terms and provisions of the
respective lease therefor and any matters affecting the fee title and
any estate superior to the leasehold estate related thereto, and (iii)
title defects, or leases or subleases granted to others, which are not
material to the Fee Properties or Leased Properties, as the case may
be, taken as a whole.
8.3 Limitation on Contingent Obligations. Create, incur,
assume or suffer to exist any Contingent Obligation except:
(a) the Guarantees;
(b) other guarantees by the Company incurred in the ordinary
course of business for an aggregate amount not to exceed $2,000,000 at
any one time;
(c) guarantees by the Company of obligations of its
Subsidiaries;
(d) Contingent Obligations existing on the Closing Date and
described in Schedule 8.3(d);
<PAGE> 75
70
(e) guarantees of obligations to third parties in
connection with relocation of employees of the Company or any of its
Subsidiaries, in an amount which, together with all loans and advances
made pursuant to subsection 8.6(f), shall not exceed $2,000,000 at any
time outstanding;
(f) Contingent Obligations in connection with workmen's
compensation obligations and general liability exposure of the Company
and its Subsidiaries; and
(g) subordinated guarantees of the Subordinated Debt issued
by Subsidiaries of the Company which have also issued Guarantees,
provided such subordinated guarantees are subordinated to the
Guarantees on the same basis as the Subordinated Debt is subordinated
to the Loans;
(h) guarantees by the Company of loans to employees of the
Company and its Subsidiaries, the proceeds of which are used to
purchase stock of Holdings, in an aggregate amount not to exceed, when
added to the amount of loans made by the Company to employees pursuant
to subsection 8.6(g), at any one time outstanding $8,000,000; and
(i) guarantees by the Company of loans to employees of the
Company and its Subsidiaries, the proceeds of which are used for
travel and other ordinary expenses for which advances to employees are
generally made, in an aggregate amount not to exceed, when added to
the amount of loans made by the Company to employees pursuant to
subsection 8.6(i), at any one time outstanding $1,000,000.
8.4 Prohibition of Fundamental Changes. Enter into any
merger or consolidation or amalgamation, or liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution), or engage in any type of
business other than of the same general type now conducted by it, except (a)
for the transactions otherwise permitted pursuant to clause (b) of subsection
8.5, (b) any Subsidiary of the Company may be merged with and into the Company
or a Subsidiary of the Company, (c) any Subsidiary with a net book value not
greater than $100,000 may be dissolved and (d) the Company may be
reincorporated under the laws of Delaware, provided that the Administrative
Agent, in its sole discretion, determines that such reincorporation will not
alter the obligations of any Credit Party under any Credit Document or cause a
material impairment of the value of the Collateral taken as a whole, after
giving effect to such reincorporation.
8.5 Prohibition on Sale of Assets. Convey, sell, lease
(other than a sublease of real property), assign, transfer or otherwise dispose
of (including through a transaction of merger or consolidation of any
Subsidiary of the Company) any of its property, business or assets (including,
without limitation, tax benefits and receivables but excluding leasehold
interests), whether now owned or hereafter acquired, except:
(a) for (i) sales or other dispositions of inventory made in
the ordinary course of business and (ii) sales or other dispositions
of uneconomic, obsolete or worn-out property in the ordinary course of
business;
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71
(b) that any Subsidiary of the Company may sell, lease,
transfer or otherwise dispose of any or all of its assets (upon
voluntary liquidation or otherwise) to, or merge with and into, the
Company or a wholly-owned Subsidiary of the Company and any Subsidiary
of the Company may sell or otherwise dispose of, or part with control
of any or all of, the stock of any Subsidiary to a wholly-owned
Subsidiary of the Company, provided that no such transaction may be
effected if it would result in the transfer of any assets of, or any
stock of, a Subsidiary to, or the merger with and into, another
Subsidiary all of the Capital Stock of which owned by the Company or
any Subsidiary has not been pledged to the Administrative Agent and
which has not guaranteed the obligations of the Company under the
Notes and this Agreement, and granted liens or security interests in
favor of the Administrative Agent, for the benefit of the Lenders, on
substantially all of its assets to secure such guarantee, pursuant to
a guarantee, security agreement and other documentation reasonably
satisfactory to the Administrative Agent;
(c) leases of Fee Properties and other real property owned in
fee and subleases of Leased Properties;
(d) any condemnation or eminent domain proceedings affecting
any real property, provided, however, that the parties hereto agree
that the net proceeds received in connection with such proceeding
shall be deemed not to constitute "Net Proceeds" if such net proceeds
are reinvested in new or existing properties within eighteen months;
(e) substantially like-kind exchanges of real property
provided that any cash received by the Company or any Subsidiary of
the Company in connection with such an exchange (net of all costs and
expenses incurred in connection with such transaction or with the
commencement of operation of real property received in such exchange)
shall be deemed to be Net Proceeds and shall be applied as provided
for herein; and
(f) for the sale or other disposition of any property the
aggregate amount of the net proceeds received in respect of which
shall not exceed $1,000,000; and
(g) for the sale of (i) the Fee Properties and (ii)
properties described in clause (i) of the proviso to subsection 8.7.
8.6 Limitation on Investments, Loans and Advances. Make any
advance, loan, extension of credit or capital contribution to, or purchase any
stock, bonds, notes, debentures or other securities of, or make any other
investment in (including, without limitation, any acquisition of all or any
substantial portion of the assets, and any acquisition of a business or a
product line, of other companies, other than the acquisition of inventory in
the ordinary course of business), any Person, except:
(a) the Company may make loans or advances to any Subsidiary,
and any Subsidiary may make loans or advances to the Company or any
other Subsidiary, to the
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72
extent in each case the Indebtedness created thereby is permitted by
paragraph (c) of subsection 8.1;
(b) (i) any Subsidiary may make investments in the Company
(by way of capital contribution or otherwise) and (ii) the Company and
any Subsidiary may make investments in, or create, any wholly-owned
Domestic Subsidiary (by way of capital contribution or otherwise) or
make investments permitted by subsection 8.5(b), provided that, in any
such case, (x) if stock is issued or otherwise acquired in connection
with such investment, or if the stock of such Subsidiary was not
previously pledged to the Administrative Agent, such stock is pledged
to the Administrative Agent for the benefit of the Lenders so that
100% of the Capital Stock of such Subsidiary is pledged to the
Administrative Agent and (y) such Subsidiary guarantees the
obligations of the Company under the Notes and this Agreement, and
grants liens or security interests in favor of the Administrative
Agent, for the benefit of the Lenders, on substantially all of its
assets to secure such guarantee, pursuant to a guarantee, a security
agreement and other documentation reasonably satisfactory to the
Administrative Agent;
(c) the Company and its Subsidiaries may invest in, acquire
and hold Cash Equivalents;
(d) the Company or any of its Subsidiaries may make payroll
advances in the ordinary course of business;
(e) the Company or any of its Subsidiaries may acquire and
hold receivables owing to it, if created or acquired in the ordinary
course of business and payable or dischargeable in accordance with
customary trade terms, (provided that nothing in this clause (e) shall
prevent the Company or any Subsidiary from offering such concessionary
trade terms, or from receiving such investments in connection with the
bankruptcy or reorganization of their respective suppliers or
customers or the settlement of disputes with such customers or
suppliers arising in the ordinary course of business, as management
deems reasonable in the circumstances); and
(f) the Company or any of its Subsidiaries may make
relocation and other loans to officers and employees of the Company or
any such Subsidiary, provided that the aggregate principal amount of
all such loans and advances outstanding at any one time, together with
the guarantees of such loans and advances made pursuant to subsection
8.3(e), shall not exceed $2,000,000 at any one time outstanding;
(g) the Company may make loans to employees of the Company
and its Subsidiaries the proceeds of which are used by such employees
to purchase stock of Holdings, provided that the aggregate principal
amount of all such loans shall not exceed, together with any
guarantees of loans made pursuant to subsection 8.3(h), at any one
time outstanding $8,000,000;
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73
(h) the Company and its Subsidiaries may make acquisitions of
companies engaged primarily in businesses similar to the businesses in
which the Company and its Subsidiaries are engaged to the extent that
the amount expended to make such Acquisitions constitutes a Capital
Expenditure permitted pursuant to subsection 8.7; and
(i) the Company make loans to employees of the Company and
its Subsidiaries, the proceeds of which are used by such employees for
travel and other ordinary expenses for which advances to employees are
generally made in an aggregate principal amount not to exceed when
added to the amount of guarantees made by the Company pursuant to
subsection 8.3(i), at any one time outstanding $1,000,000.
8.7 Capital Expenditures. Make or commit to make any Capital
Expenditures, except that the Company and its Subsidiaries may make or commit
to make Capital Expenditures not exceeding the amount set forth below (the
"Base Amount") for each of the fiscal years of the Company (or other period)
set forth below:
<TABLE>
<CAPTION>
Fiscal Year
or Period Base Amount
----------- -----------
<S> <C>
Closing Date $35,000,000
through end of
fiscal year 1997
1998 $30,000,000
1999 $30,000,000
2000 $30,000,000
2001 $30,000,000
2002 $30,000,000
2003 $30,000,000
</TABLE>
provided, however, that (i) for any fiscal year of the Company, the Base Amount
for such fiscal year set forth above shall be increased by an amount equal to
the aggregate amount of proceeds received by the Company or any of its
Subsidiaries in such fiscal year with respect to sales of real property by the
Company or such Subsidiary, which real property had been originally acquired or
developed by the Company or such Subsidiary with the proceeds of Revolving
Credit Loans, but only if such acquisition and development costs had been
originally included as Capital Expenditures in the fiscal year or years when
such acquisition and development costs were incurred and (ii) for any fiscal
year of the Company, the Base Amount for such fiscal year set forth above (as
increased with respect to such fiscal year pursuant to clause (i) of this
proviso) may be increased by an amount not in excess of $15,000,000 by carrying
over to such fiscal year the unused portion of the Base Amount for the
immediately preceding fiscal year (as increased pursuant to this proviso).
8.8 Consolidated EBITDA. At the last day of any fiscal
quarter set forth below, commencing with the first full fiscal quarter of the
1997 fiscal year of the Company beginning on or after the Closing Date, permit
Consolidated EBITDA for the period of four fiscal quarters
<PAGE> 79
74
ending on such day (or, if shorter, the period commencing on the first day of
the first fiscal quarter commencing on or after the Closing Date and ending on
such day) to be less than the amount set forth opposite such fiscal quarter
below:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Quarter Amount
- ---------- -------------- ------
<S> <C> <C>
1997 First $21,000,000
Second $32,000,000
Third $45,000,000
Fourth $50,000,000
1998 First $54,000,000
Second $60,000,000
Third $65,000,000
Fourth $70,000,000
1999 First $74,000,000
Second $75,000,000
Third $75,000,000
Fourth $75,000,000
2000 First $75,000,000
Second $75,000,000
Third $75,000,000
Fourth $75,000,000
2001 First $75,000,000
Second $75,000,000
Third $75,000,000
Fourth $75,000,000
2002 First $75,000,000
Second $75,000,000
Third $75,000,000
Fourth $75,000,000
2003 First $75,000,000
Second $75,000,000
Third $75,000,000
Fourth $75,000,000
</TABLE>
8.9 Debt to EBITDA. At the last day of any fiscal quarter
set forth below, commencing with the first fiscal quarter of the 1997 fiscal
year of the Company, permit the ratio of Consolidated Funded Indebtedness as at
such day to Consolidated EBITDA for the period of four fiscal quarters ending
on such day to be greater than the ratio set forth below for such fiscal
quarter; provided, that (i) for the first fiscal quarter set forth below,
Consolidated EBITDA for the period of four fiscal quarters ending on the last
day of such fiscal quarter shall be deemed to be the Consolidated EBITDA for
such fiscal quarter multiplied by four, (ii) for the second fiscal quarter set
forth below, Consolidated EBITDA for the period of four fiscal quarters ending
on the last day of such fiscal quarter shall be deemed to be the Consolidated
EBITDA for the first two fiscal quarters set forth below multiplied by two, and
(iii) for the third fiscal quarter set forth
<PAGE> 80
75
below, Consolidated EBITDA for the period of four fiscal quarters ending on
the last day of such fiscal quarter shall be deemed to be the Consolidated
EBITDA for the first three fiscal quarters set forth below multiplied by four
thirds; and provided further, that, with respect to any acquisition permitted
by subsection 8.6(h), the last four fiscal quarters of Consolidated EBITDA (as
may be adjusted for post-acquisition cost savings reasonably agreed to by the
Company and the Administrative Agent) of the acquired company shall be added
for the purposes of calculating this ratio:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Quarter Ratio
----------- -------------- -----
<S> <C> <C>
1997 First 6.00 to 1
Second 6.00 to 1
Third 6.00 to 1
Fourth 5.75 to 1
1998 First 5.75 to 1
Second 5.75 to 1
Third 5.75 to 1
Fourth 4.50 to 1
1999 First 4.50 to 1
Second 4.50 to 1
Third 4.50 to 1
Fourth 4.00 to 1
2000 First 4.00 to 1
Second 4.00 to 1
Third 4.00 to 1
Fourth 4.00 to 1
2001 First 4.00 to 1
Second 4.00 to 1
Third 4.00 to 1
Fourth 4.00 to 1
2002 First 4.00 to 1
Second 4.00 to 1
Third 4.00 to 1
Fourth 4.00 to 1
2003 First 4.00 to 1
Second 4.00 to 1
Third 4.00 to 1
Fourth 4.00 to 1
</TABLE>
8.10 Interest Coverage. At the last day of any fiscal
quarter set forth below, permit the Interest Coverage Ratio to be less than the
ratio set forth below for such fiscal quarter:
<PAGE> 81
76
<TABLE>
<CAPTION>
Interest
Coverage
Fiscal Year Fiscal Quarter Ratio
----------- -------------- ---------
<S> <C> <C>
1997 First 1.75 to 1
Second 1.75 to 1
Third 1.75 to 1
Fourth 1.75 to 1
1998 First 1.75 to 1
Second 1.75 to 1
Third 1.75 to 1
Fourth 2.25 to 1
1999 First 2.25 to 1
Second 2.25 to 1
Third 2.25 to 1
Fourth 2.75 to 1
2000 First 2.75 to 1
Second 2.75 to 1
Third 2.75 to 1
Fourth 2.75 to 1
2001 First 2.75 to 1
Second 2.75 to 1
Third 2.75 to 1
Fourth 2.75 to 1
2002 First 2.75 to 1
Second 2.75 to 1
Third 2.75 to 1
Fourth 2.75 to 1
2003 First 2.75 to 1
Second 2.75 to 1
Third 2.75 to 1
Fourth 2.75 to 1
</TABLE>
8.11 Limitation on Dividends. Declare any dividends on any
shares of any class of stock, or make any payment on account of, or set apart
assets for a sinking or other analogous fund for, the purchase, redemption,
retirement or other acquisition of any shares of any class of stock, or any
warrants or options to purchase such stock, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or property or in obligations of the Company or
any of its Subsidiaries; except that:
(a) Subsidiaries may pay dividends to the Company or to
Subsidiaries which are directly or indirectly wholly owned by the
Company;
(b) the Company may pay or make dividends or distributions to
any holder of its capital stock in the form of additional shares of
Capital Stock of the same class and type, provided such shares of
Capital Stock are pledged to the Administrative Agent for the benefit
of the Lenders; and
<PAGE> 82
77
(c) the Company may pay dividends or make other
distributions:
(i) to Holdings in amounts equal to
amounts required for Holdings to pay franchise taxes and other
fees required to maintain its corporate existence and provide
for other operating costs of up to $500,000 per fiscal year;
(ii) to Holdings in amounts equal to
amounts required for Holdings to pay Federal, state and local
income taxes to the extent such income taxes are attributable
to the income of the Company and its Subsidiaries;
(iii) to Holdings in amounts equal to
amounts expended by Holdings to repurchase Capital Stock of
Holdings owned by former employees of the Company or its
Subsidiaries or their assigns, estates and heirs, provided
that the aggregate amount paid, loaned or advanced to Holdings
pursuant to this clause (iii) shall not, in the aggregate,
exceed the sum of $5,000,000 plus any amounts contributed by
Holdings to the Company as a result of resales of such
repurchased shares of Capital Stock;
(iv) to Holdings in amounts equal to
amounts required for Holdings to make phantom stock payments
in an aggregate amount not to exceed $10,000,000 on or around
the Closing Date as described in the recitals hereto and
$10,000,000 during the 1997 fiscal year of the Company;
(v) the Company may pay cash dividends
on its preferred stock to Holdings to enable Holdings to pay
scheduled interest payments on the Holdings Subordinated Debt
to the holders of the Holdings Subordinated Debt, provided
that (A) such dividends are made in respect of a fiscal
quarter the financial statements for which have been delivered
pursuant to subsections 7.1(a) and (b), (B) after giving
effect to the payment of such dividends no Default or Event of
Default has occurred and is continuing and, assuming that such
dividends had been paid on the last day of such fiscal
quarter, would have occurred and be continuing on such last
day and (C) within 20 days Holdings uses such dividends to pay
current or accrued cash dividends on the Holdings Subordinated
Debt; and
(vi) if the Company is prohibited from
paying cash dividends pursuant to subsection 8.11(c)(v)
because of the occurrence of a Default or Event of Default,
the Company may pay the cash dividends which it would have
otherwise paid on its preferred stock to Holdings on a prior
date on any succeeding date to enable Holdings to pay interest
at a non-default rate per annum not in excess of 12% to the
holders of the Holdings Subordinated Debt in respect of any
prior period (or accrued deferred interest in respect of any
prior period), provided that (A) so long as, after giving
effect thereto, no Default or Event of Default has occurred
and is continuing (including compliance with the Interest
Coverage Ratio set forth in subsection 8.10 on a pro forma
basis assuming such dividends that are proposed to be paid at
such time pursuant to this clause (vi) but
<PAGE> 83
78
were not paid under subsection 8.11(c)(v) had been paid on the
last day of the most recently ended fiscal quarter of the
Company (for purposes of calculating compliance with the
Interest Coverage Ratio pursuant to this subsection
8.11(c)(vi) only, the denominator of the Interest Coverage
Ratio shall include the amount of such dividends paid in cash
by the Company to Holdings pursuant to this subsection
8.11(c)(vi)), (B) the financial statements required to be
delivered in respect of such fiscal quarter have been
delivered pursuant to subsections 7.1(a) or (b) and (C) within
20 days Holdings uses such dividends to pay current or accrued
interest on the Holdings Subordinated Debt.
8.12 Transactions with Affiliates. Enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate except
for transactions which are otherwise permitted under this Agreement and which
are in the ordinary course of the Company's or a Subsidiary's business and
which are upon fair and reasonable terms no less favorable to the Company or
such Subsidiary than it would obtain in a hypothetical comparable arm's length
transaction with a Person not an Affiliate; provided, however, that nothing in
this subsection 8.12 shall prohibit the Company or any of its Subsidiaries from
engaging in the following transactions: (x) the performance of the Company's
or such Subsidiary's obligations under any employment contract, collective
bargaining agreement, employee benefit plan, related trust agreement or any
other similar arrangement heretofore or hereafter entered into in the ordinary
course, (y) payment of compensation to employees, officers, directors or
consultants in the ordinary course of business and (z) maintenance of benefit
programs or arrangements for employees, officers or directors, including,
without limitation, vacation plans, health and life insurance plans, deferred
compensation plans, and retirement or savings plans and similar plans.
8.13 Prepayments and Amendments of Subordinated Debt. (a)
Optionally prepay, optionally retire, optionally redeem, optionally purchase,
optionally defease or optionally exchange, or make any mandatory prepayment of
any Subordinated Debt (other than (x) redemption of the Bridge Subordinated
Debt with proceeds of the Permanent Subordinated Debt (y) any refinancing of
the Permanent Subordinated Debt contemplated in the definition thereof and (z)
any redemption of the Permanent Subordinated Debt with the proceeds of the
issuance of Capital Stock to the extent permitted by subsection 4.4(b)) or pay
any interest on Subordinated Debt in cash if such interest may be paid by the
issuance of additional Subordinated Debt or (b) amend, supplement or otherwise
modify any documentation governing any Subordinated Debt (other than (i)
amendments to such Subordinated Debt which reduce the interest rate or extend
the maturity thereof and (ii) waivers of compliance by the Company with any of
the terms or conditions of such Subordinated Debt (except those terms or
conditions which by their terms run to the benefit of the Lenders).
8.14 Limitation on Changes in Fiscal Year. Permit the fiscal
year of the Company to end on a day other than the Sunday closest to January
31.
<PAGE> 84
79
8.15 Limitation on Lines of Business. Enter into any
business, either directly or through any Subsidiary, except for those
businesses in which the Company is engaged on the date of this Agreement or
which are directly related thereto.
SECTION 9. EVENTS OF DEFAULT
Upon the occurrence and during the continuance of any of the
following events:
(a) The Company shall fail (i) to pay any principal of any
Note when due in accordance with the terms hereof or thereof or to
reimburse the Issuing Lender in accordance with subsection 3.8 or (ii)
pay any interest on any Loan or any other amount payable hereunder
within five days after any such interest or other amount becomes due
in accordance with the terms thereof or hereof; or
(b) Any representation or warranty made or deemed made by any
Credit Party in any Credit Document shall prove to have been incorrect
in any material respect on or as of the date made or deemed made; or
(c) The Company shall default in the observance or
performance of any agreement contained in subsection 7.7(a) or Section
8 of this Agreement or Holdings shall default in the observance or
performance of any agreement contained in Section 5 of the Holdings
Pledge Agreement or the Company shall default in the observance or
performance of any agreement contained in subsections 3(a), (h)
through (k) and (o) of the Company Security Agreement or Holdings
shall default in the observance or performance of any agreement
contained in Section 10 of the Holdings Guarantee, or, with respect to
any Subsidiary which becomes a Credit Party on or after the Closing
Date, the Company or such Subsidiary shall default in the observance
or performance of the corresponding provisions of the pledge
agreement, guarantee and security agreement to which it is a party; or
(d) Any Credit Party shall default in the observance or
performance of any other agreement contained in any Credit Document
and such default shall continue unremedied for a period of 30 days; or
(e) The Company or any of its Subsidiaries shall (i) default
in any payment of principal of or interest on or other amounts in
respect of any Indebtedness (other than the Loans, the L/C Obligations
and any inter-company debt) or Interest Rate Agreement or in the
payment of any Contingent Obligation, beyond the period of grace, if
any, provided in the instrument or agreement under which such
Indebtedness, Interest Rate Agreement or Contingent Obligation was
created; or (ii) default in the observance or performance of any other
agreement or condition relating to any such Indebtedness, Interest
Rate Agreement or Contingent Obligation or contained in any instrument
or agreement evidencing, securing or relating thereto, or any other
event shall occur or condition exist, the effect of which default or
other event or condition is to cause, or to permit the holder or
holders of such Indebtedness or beneficiary or beneficiaries of such
Contingent Obligation (or a
<PAGE> 85
80
trustee or agent on behalf of such holder or holders or beneficiary or
beneficiaries) to cause, with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity, any
applicable grace period having expired, or such Contingent Obligation
to become payable, any applicable grace period having expired; in each
case, provided that the aggregate principal amount of all such
Indebtedness, Interest Rate Agreements and Contingent Obligations
under which a payment default exists as in (a) above or which would
then become due or payable equals or exceeds $5,000,000; or
(f) (i) The Company or any of its Subsidiaries or Holdings
shall commence any case, proceeding or other action (A) under any
existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it as bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its
debts or (B) seeking appointment of a receiver, trustee, custodian or
other similar official for it or for all or any substantial part of
its assets, or the Company or any of its Subsidiaries or Holdings
shall make a general assignment for the benefit of its creditors; or
(ii) there shall be commenced against the Company or any of its
Subsidiaries or Holdings any case, proceeding or other action of a
nature referred to in clause (i) above which (A) results in the entry
of an order for relief or any such adjudication or appointment or (B)
remains undismissed, undischarged or unbonded for a period of 60 days;
or (iii) there shall be commenced against the Company or any of its
Subsidiaries or Holdings any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets which
results in the entry of an order for any such relief which shall not
have been vacated, discharged, or stayed or bonded pending appeal
within 60 days from the entry thereof; or (iv) the Company or any of
its Subsidiaries or Holdings shall take any action in furtherance of,
or indicating its consent to, approval of, or acquiescence in, any of
the acts set forth in clause (i), (ii), or (iii) above; or (v) the
Company or any of its Subsidiaries or Holdings shall generally not, or
shall be unable to, or shall admit in writing its inability to, pay
its debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of
the Code) involving any Plan which is not otherwise exempted, (ii) any
"accumulated funding deficiency" (as defined in Section 302 of ERISA),
whether or not waived, shall exist with respect to any Plan, (iii) a
Reportable Event shall occur with respect to, or proceedings shall
commence to have a trustee appointed, or a trustee shall be appointed,
to administer or to terminate, any Single Employer Plan, which
Reportable Event or commencement of proceedings or appointment of a
trustee is likely to result in the termination of such Single Employer
Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan
shall terminate for purposes of Title IV of ERISA, (v) the Company or
any Commonly Controlled Entity shall incur any material liability in
connection with a withdrawal from, or the Insolvency or Reorganization
of, a Multiemployer Plan; and in each case in clauses (i) through (v)
above, such event or condition, together with all other such events or
conditions relating
<PAGE> 86
81
to a Plan, if any, would be reasonably likely to subject the Company
or any of its Subsidiaries to any tax, penalty or other liabilities in
the aggregate material in relation to the business, assets, condition
(financial or otherwise) or results of operations of the Company and
its Subsidiaries taken as a whole; or
(h) One or more judgments or decrees shall be entered against
the Company or any of its Subsidiaries involving in the aggregate a
liability (not paid or fully covered by insurance) of $5,000,000 or
more and all such judgments or decrees shall not have been vacated,
discharged, stayed or bonded pending appeal within the time required
by the terms of such judgment; or
(i) Any Credit Document shall cease, for any reason, to be in
full force and effect or any Credit Party or any of its Subsidiaries
shall so assert in writing, or any Pledge Agreement or Security
Agreement shall cease to be effective to grant a perfected Lien on the
collateral described therein with the priority purported to be created
thereby (other than as a result of any action or inaction on the part
of the Administrative Agent or the Lenders), subject to such
exceptions as may be permitted therein, and in the case of any
Security Agreement such condition shall continue unremedied for 30
days after notice thereof to the Company by the Administrative Agent
or any Lender; or
(j) There shall have occurred a Change in Control; or
(k) Holdings shall engage in any business or activity other
than owning the Capital Stock of the Company and activities reasonably
incidental thereto;
(l) (i) There shall have occurred any amendment, supplement
or other modification of the Bridge Subordinated Debt Documents or the
Bridge Subordinated Debt, or any other Subordinated Debt or the
documents governing such Subordinated Debt, which in any such case
shall not have been consented to in advance in writing by the
Administrative Agent and the Required Lenders, except (A) as otherwise
expressly permitted by subsection 8.13 or (B) to the extent such
amendment, supplement or modification gives effect to any prepayment,
retirement or redemption of Subordinated Debt expressly permitted by
this Agreement or (ii) the subordination provisions of any Bridge
Subordinated Debt Document or any document governing any Subordinated
Debt shall cease, for any reason, to be valid or any Credit Party or
any of its Subsidiaries shall so assert in writing;
then, and in any such event, (a) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Company,
automatically (i) the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under
this Agreement, the Notes and the other Credit Documents shall immediately
become due and payable, and (ii) all obligations of the Company in respect of
the Letters of Credit, although contingent and unmatured, shall become
immediately due and payable and the Issuing Lender's obligations to issue the
Letters of Credit shall immediately terminate and (b) if such event is any
other Event of Default, so long as any such Event of Default shall be
<PAGE> 87
82
continuing, either or both of the following actions may be taken: (i) with the
consent of the Required Lenders, the Administrative Agent may, or upon the
request of the Required Lenders, the Administrative Agent shall, by notice to
the Company, declare the Commitments and the Issuing Lender's obligations to
issue the Letters of Credit to be terminated forthwith, whereupon the
Commitments and such obligations shall immediately terminate; and (ii) with the
consent of the Required Lenders, the Administrative Agent may, or upon the
request of the Required Lenders, the Administrative Agent shall, by notice of
default to the Company, (A) declare all or a portion of the Loans hereunder
(with accrued interest thereon) and all other amounts owing under this
Agreement and the Notes to be due and payable forthwith, whereupon the same
shall immediately become due and payable, and (B) declare all or a portion of
the obligations of the Company in respect of the Letters of Credit, although
contingent and unmatured, to be due and payable forthwith, whereupon the same
shall immediately become due and payable and/or demand that the Company
discharge any or all of the obligations supported by the Letters of Credit by
paying or prepaying any amount due or to become due in respect of such
obligations. All payments under this Section 9 on account of undrawn Letters
of Credit shall be made by the Company directly to a cash collateral account
established by the Administrative Agent for such purpose for application to the
Company's reimbursement obligations under subsection 3.8 as drafts are
presented under the Letters of Credit, with the balance, if any, to be applied
to the Company's obligations under this Agreement and the Notes as the
Administrative Agent shall determine with the approval of the Required Lenders.
Except as expressly provided above in this Section 9, presentment, demand,
protest and all other notices of any kind are hereby expressly waived.
SECTION 10. THE ADMINISTRATIVE AGENT; THE ISSUING LENDER
10.1 Appointment. Each Lender hereby irrevocably designates
and appoints Chase as the Administrative Agent and Lehman as the Documentation
Agent under this Agreement and irrevocably authorizes Chase as Administrative
Agent for such Lender, to take such action on its behalf under the provisions
of the Credit Documents and to exercise such powers and perform such duties as
are expressly delegated to the Administrative Agent by the terms of the Credit
Documents, together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary elsewhere in this
Agreement, neither the Administrative Agent nor the Documentation Agent shall
have any duties or responsibilities, except those expressly set forth herein,
or any fiduciary relationship with any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into the Credit Documents or otherwise exist against the Administrative Agent
or the Documentation Agent.
10.2 Delegation of Duties. The Administrative Agent may
execute any of its duties under this Agreement and each of the other Credit
Documents by or through agents or attorneys-in-fact and shall be entitled to
advice of counsel concerning all matters pertaining to such duties. The
Administrative Agent shall not be responsible for the negligence or misconduct
of any agents or attorneys-in-fact selected by it with reasonable care, except
as otherwise provided in subsection 10.3.
<PAGE> 88
83
10.3 Exculpatory Provisions. None of the Administrative
Agent or any of its officers, directors, employees, agents, attorneys-in-fact
or Affiliates shall be (i) liable for any action lawfully taken or omitted to
be taken by it or such Person under or in connection with the Credit Documents
(except for its or such Person's own gross negligence or willful misconduct) or
(ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by any Credit Party or any
officer thereof contained in the Credit Documents or in any certificate,
report, statement or other document referred to or provided for in, or received
by the Administrative Agent under or in connection with the Credit Documents or
for the value, validity, effectiveness, genuineness, enforceability or
sufficiency of the Credit Documents or for any failure of any Credit Party to
perform its obligations thereunder. The Administrative Agent shall not be
under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, any Credit Document or to inspect the properties, books or records of any
Credit Party.
10.4 Reliance by Administrative Agent. The Administrative
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any Note, the writings maintained in the Register, writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex
or teletype message, statement, order or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Company), independent
accountants and other experts selected by the Administrative Agent. The
Administrative Agent may deem and treat the payee of any Note as the owner
thereof for all purposes unless a written notice of assignment, negotiation or
transfer thereof shall have been filed with the Administrative Agent. The
Administrative Agent shall be fully justified in failing or refusing to take
any action under any Credit Document unless it shall first receive such advice
or concurrence of the Required Lenders (or, where a higher percentage of the
Lenders is expressly required hereunder, such Lenders) as it deems appropriate
or it shall first be indemnified to its satisfaction by the Lenders against any
and all liability and expense which may be incurred by it by reason of taking
or continuing to take any such action. The Administrative Agent shall in all
cases be fully protected in acting, or in refraining from acting, under any
Credit Document in accordance with a request of the Required Lenders (or, where
a higher percentage of the Lenders is expressly required hereunder, such
Lenders), and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders and all future holders of the
Notes.
10.5 Notice of Default. The Administrative Agent shall not
be deemed to have knowledge or notice of the occurrence of any Default or Event
of Default hereunder unless the Administrative Agent has received written
notice from a Lender or the Company referring to this Agreement, describing
such Default or Event of Default and stating that such notice is a "notice of
default". In the event that the Administrative Agent receives such a notice,
the Administrative Agent shall promptly give notice thereof to the Lenders.
The Administrative Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Required Lenders;
provided that unless and until the Administrative Agent shall have received
such directions, the Administrative Agent may (but shall not be obligated to)
take such action, or
<PAGE> 89
84
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of the Lenders.
10.6 Non-Reliance on Administrative Agent and Other Lenders.
Each Lender expressly acknowledges that none of the Administrative Agent, the
Documentation Agent or any of their respective officers, directors, employees,
agents, attorneys-in-fact or Affiliates has made any representations or
warranties to it and that no act by the Administrative Agent, the Documentation
Agent or any such Person hereinafter taken, including any review of the affairs
of the Credit Parties, shall be deemed to constitute any representation or
warranty by the Administrative Agent, the Documentation Agent or any such
Person to any Lender. Each Lender represents to the Administrative Agent and
the Documentation Agent that it has, independently and without reliance upon
the Administrative Agent, the Documentation Agent or any such Person or any
other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of
Holdings, the Company and its Subsidiaries and made its own decision to make
its Loans hereunder and enter into this Agreement. Each Lender also represents
that it will, independently and without reliance upon the Administrative Agent,
the Documentation Agent or any such Person or any other Lender, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under the Credit Documents, and to make such investigation as
it deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of Holdings, the Company and
its Subsidiaries. Except for notices, reports and other documents expressly
required to be furnished to the Lenders by the Administrative Agent, the
Administrative Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business,
operations, property, financial and other condition or creditworthiness of the
Credit Parties which may come into the possession of the Administrative Agent
or any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates.
10.7 Indemnification. The Lenders agree to indemnify the
each of the Administrative Agent and the Documentation Agent in its capacity as
such (to the extent not reimbursed by the Credit Parties and without limiting
the obligation of the Credit Parties to do so), ratably according to the
respective amounts of their respective Commitments (or, to the extent such
Commitments have been terminated, according to the respective outstanding
principal amounts of the Loans and the L/C Obligations and the respective
obligations, whether as Issuing Lender or a Participating Lender, under the
Letter of Credit), from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever which may at any time (including without
limitation at any time following the payment of the Notes) be imposed on,
incurred by or asserted against the Administrative Agent or the Documentation
Agent in any way relating to or arising out of the Credit Documents or any
documents contemplated by or referred to herein or the transactions
contemplated hereby or any action taken or omitted by the Administrative Agent
or the Documentation Agent under or in connection with any of the foregoing;
provided that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the
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85
Administrative Agent's or the Documentation Agent's respective gross negligence
or willful misconduct. The agreements in this subsection 10.7 shall survive
the payment of the Notes and all other amounts payable hereunder.
10.8 The Administrative Agent in its Individual Capacity.
The Administrative Agent, the Documentation Agent and their respective
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with Holdings, the Company and its Subsidiaries as though the
Administrative Agent was not the Administrative Agent hereunder and the
Documentation Agent was not the Documentation Agent hereunder. With respect to
its Loans made or renewed by it and any Note issued to either of them, the
Administrative Agent and the Documentation Agent shall each have the same
rights and powers, duties and liabilities under the Credit Documents as any
Lender and may exercise the same as though it were not the Administrative Agent
and the Documentation Agent, respectively, and the terms "Lender" and "Lenders"
shall include the Administrative Agent and the Documentation Agent in their
respective individual capacities.
10.9 Successor Agent. The Administrative Agent may resign as
Administrative Agent upon 30 days' notice to the Lenders. If the
Administrative Agent shall resign as Administrative Agent under the Credit
Documents, then the Required Lenders shall appoint from among the Lenders a
successor agent for the Lenders which successor agent shall, so long as no
Event of Default has occurred and is continuing, be approved by the Company,
which shall not unreasonably withhold its approval, whereupon such successor
agent shall succeed to the rights, powers and duties of the Administrative
Agent and the term "Administrative Agent" shall mean such successor agent
effective upon its appointment and approval, and the former Administrative
Agent's rights, powers and duties as Administrative Agent shall be terminated,
without any other or further act or deed on the part of such former
Administrative Agent or any of the parties to this Agreement or any holders of
the Notes. After any retiring Administrative Agent's resignation hereunder as
Administrative Agent, the provisions of this Section 10 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under the Credit Documents.
10.10 Issuing Lender as Issuer of Letters of Credit. Each
Lender which is a holder of a Revolving Credit Commitment (collectively
"Revolving Credit Lenders") hereby acknowledges that the provisions of this
Section 10 shall apply to the Issuing Lender, in its capacity as issuer of the
Letters of Credit, in the same manner as such provisions are expressly stated
to apply to the Administrative Agent, except that obligations to indemnify the
Issuing Lender shall be ratable among the Revolving Credit Lenders in
accordance with their respective Revolving Credit Commitments (or, if the
Revolving Credit Commitments have been terminated, the outstanding principal
amount of their respective Revolving Credit Loans and L/C Obligations and their
respective participating interests in the outstanding Letters of Credit).
SECTION 11. MISCELLANEOUS
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11.1 Amendments and Waivers. Except as otherwise expressly
set forth in this Agreement, no Credit Document nor any terms thereof may be
amended, supplemented, waived or modified except in accordance with the
provisions of this subsection 11.1. With the written consent of the Required
Lenders, the Administrative Agent and the respective Credit Parties or their
Subsidiaries may, from time to time, enter into written amendments, supplements
or modifications hereto for the purpose of adding any provisions to any Credit
Document to which they are parties or changing in any manner the rights of the
Lenders or of any such Credit Party or its Subsidiaries thereunder or waiving,
on such terms and conditions as the Administrative Agent may specify in such
instrument, any of the requirements of any such Credit Document or any Default
or Event of Default and its consequences; provided, however, that:
(a) no such waiver and no such amendment, supplement or
modification shall release collateral not required or permitted by any
Credit Document to be released and which, in the aggregate with all
other collateral released pursuant to this clause (a) (other than
collateral released pursuant to the proviso to this clause (a)) during
the calendar year in which such proposed release would be effected and
the immediately preceding calendar year, has fair market value on the
proposed date of release in excess of 20% of the fair market value of
all collateral on such date without the written consent of the
Supermajority Lenders; provided that, notwithstanding the foregoing,
this clause (a) shall not be applicable to and no consent shall be
required for (i) releases of collateral in connection with any Asset
Sales permitted by subsection 8.5 as in effect on the Closing Date,
(ii) releases of collateral in accordance with subsection 11.11 or
(iii) upon the reincorporation of the Company or any Subsidiary in a
new jurisdiction or the creation of a new Subsidiary of the Company,
any release of collateral in connection with the transfer of such
released collateral to such reincorporated entity or new Subsidiary in
compliance with subsection 8.4, provided that the Administrative
Agent, in its sole discretion, determines that such release and
transfer, together with any grant and perfection of a new Lien therein
in favor of the Administrative Agent, will cause no material
impairment of the value of the collateral taken as a whole, after
giving effect to such release and transfer;
(b) no such waiver and no such amendment, supplement or
modification shall extend the final maturity date of any Note or the
scheduled payment date of any installment of any Loan, or reduce the
rate or extend the time of payment of interest thereon, or change the
method of calculating interest thereon, or reduce any fee payable to
the Lenders hereunder, or reduce the principal amount thereof, or
change the amount of any Lender's Commitment or Commitment Percentage,
or amend, modify or waive any provision of subsection 4.9(b) or this
subsection 11.1 or reduce the percentage specified in the definition
of Required Lenders or reduce the percentage specified in the
definition of Supermajority Lenders or reduce the percentage specified
in the definition of Section 4.4 Lenders or consent to the assignment
or transfer by any Credit Party of any of its rights and obligations
under any Credit Document, in each case, without the prior written
consent of each Lender directly affected thereby;
(c) no such waiver and no such amendment, supplement or
modification affecting the then Administrative Agent or Issuing Lender
shall amend, modify or waive any
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provision of Section 10 without the written consent of such
Administrative Agent or Issuing Lender;
(d) without the consent of the Lenders which are holders of
the Revolving Credit Loans only, the Lenders which are holders of all
the Term Loans may amend this Agreement and the Term Loan Notes to
extend the maturities of the installments of the Term Loans; and
without the consent of the Lenders which are holders of the Term
Loans, all the Revolving Credit Lenders may amend this Agreement and
the Revolving Credit Notes to extend the Revolving Credit Termination
Date; and
(e) no such waiver, and no such amendment, supplement or
modification shall amend, modify or waive the Section 4.4 Lenders'
ability to act pursuant to subsection 4.4(b)(i), (ii), (iii) or (iv)
without the written consent of the Section 4.4 Lenders.
Any such waiver and any such amendment, supplement or modification described in
this subsection 11.1 shall apply equally to each of the Lenders and shall be
binding upon each Credit Party and its Subsidiaries, the Lenders, the
Administrative Agent and Issuing Lender and all future holders of the Notes
and the Loans. Any extension of a Letter of Credit by the Issuing Lender shall
be treated hereunder as a new Letter of Credit. In the case of any waiver, the
Credit Parties, the Lenders, the Administrative Agent and Issuing Lender shall
be restored to their former position and rights hereunder and under the
outstanding Notes, and any Default or Event of Default waived shall be deemed
to be cured and not continuing; but no such waiver shall extend to any
subsequent or other Default or Event of Default, or impair any right consequent
thereon.
11.2 Notices. All notices, requests and demands to or upon
the respective parties hereto to be effective shall be in writing (including by
telecopy or telex, if one is listed), and, unless otherwise expressly provided
herein, shall be deemed to have been duly given or made when delivered by hand,
or three Business Days after being deposited in the mail, postage prepaid, or,
in the case of telecopy notice, when sent, confirmation of receipt received,
or, in the case of telex notice, when sent, answerback received, addressed as
follows in the case of the Company and the Administrative Agent and as set
forth in Schedule I in the case of any Lender, or to such other address as may
be hereafter notified by the respective parties hereto and any future holders
of the Notes:
The Company: CSK Auto, Inc.
645 E. Missouri Avenue
Suite 400
Phoenix, Arizona 85012
Attention: Treasurer
Telecopy: (602) 234-1713
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With a copy to: Gibson, Dunn & Crutcher
200 Park Avenue
New York, New York 10166
Attention: Charles K. Marquis, Esq.
Telex: 177920 GIBTRASK NYK
Telecopy: (212) 949-7606
The Administrative Agent: The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Attention: William Rindfuss
Telecopy: (212) 270-1474
With a copy to: The Chase Manhattan Bank Agent Bank
Services
140 East 45th Street, 29th Floor
New York, New York 10017
Attention: Sandra Miklave
Telecopy: (212) 622-0002
provided that any notice, request or demand to or upon the Administrative Agent
or the Lenders pursuant to subsections 3.4, 3.5, 4.1, 4.2, 4.3 and 4.4 shall
not be effective until received and provided that the failure to provide the
copies of notices to the Company provided for in this subsection 11.2 shall not
result in any liability to the Administrative Agent.
11.3 No Waiver; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of the Administrative Agent or any
Lender, any right, remedy, power or privilege hereunder, shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not
exclusive of any rights, remedies, powers and privileges provided by law.
11.4 Survival of Representations and Warranties. All
representations and warranties made hereunder and in any document, certificate
or statement delivered pursuant hereto or in connection herewith shall survive
the execution and delivery of this Agreement, the Letters of Credit and the
Notes.
11.5 Payment of Expenses and Taxes. The Company agrees (a)
to pay or reimburse the Administrative Agent for all its reasonable
out-of-pocket costs and expenses incurred in connection with the development,
preparation and execution of, and any amendment, supplement or modification to,
the Credit Documents and any other documents prepared in connection herewith,
and the consummation of the transactions contemplated hereby and thereby,
including, without limitation, the reasonable fees and disbursements of one
counsel to the Administrative Agent, (b) to pay or reimburse each Lender and
the Administrative Agent for all their costs and expenses incurred in
connection with, and to pay, indemnify, and hold the
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89
Administrative Agent and each Lender harmless from and against any and all
other liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever
arising out of or in connection with, the enforcement or preservation of any
rights under any Credit Document and any such other documents, including,
without limitation, reasonable fees and disbursements of counsel to the
Administrative Agent and each Lender incurred in connection with the foregoing
and in connection with advising the Administrative Agent with respect to its
rights and responsibilities under this Agreement and the documentation relating
thereto, (c) to pay, indemnify, and to hold the Administrative Agent and each
Lender harmless from, any and all recording and filing fees and any and all
liabilities with respect to, or resulting from any delay in paying, stamp,
excise and other similar taxes (other than withholding taxes), if any, which
may be payable or determined to be payable in connection with the execution and
delivery of, or consummation of any of the transactions contemplated by, or any
amendment, supplement or modification of, or any waiver or consent under or in
respect of, any Credit Document and any such other documents, and (d) to pay,
indemnify, and hold the Administrative Agent and each Lender and their
respective Affiliates, officers, directors, trustees, employees or agents
harmless from and against any and all other liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever (including, without limitation, reasonable
fees and disbursements of counsel) which may be incurred by or asserted against
the Administrative Agent or the Lenders or such Affiliates, officers,
directors, trustees, employees, and agents (x) arising out of or in connection
with any investigation, litigation or proceeding related to this Agreement, the
other Credit Documents, the proceeds of the Loans or the Subordinated Debt and
the transactions contemplated by or in respect of such use of proceeds, or any
of the other transactions contemplated hereby, whether or not the Company, the
Administrative Agent or any of the Lenders or such Affiliates, officers or
directors is a party thereto, including, without limitation, any of the
foregoing relating to the violation of, noncompliance with or liability under,
any Environmental Law applicable to the operations of the Company, any of its
Subsidiaries or any of the facilities and properties owned, leased or operated
by the Company or any of its Subsidiaries, or (y) without limiting the
generality of the foregoing, by reason of or in connection with the execution
and delivery or transfer of, or payment or failure to make payments under,
Letters of Credit (it being agreed that nothing in this subsection 11.5(d)(y)
is intended to limit the Company's obligations pursuant to subsection 3.8) (all
the foregoing, collectively, the "indemnified liabilities"), provided that the
Company shall have no obligation hereunder with respect to indemnified
liabilities of the Administrative Agent or any Lender or any of their
respective Affiliates, officers and directors arising from (i) the gross
negligence or willful misconduct of such Administrative Agent or Lender or
their respective directors or officers or (ii) legal proceedings commenced
against the Administrative Agent or a Lender by any security holder or creditor
thereof arising out of and based upon rights afforded any such security holder
or creditor solely in its capacity as such or (iii) legal proceedings commenced
against the Administrative Agent or any such Lender by any Transferee (as
defined in subsection 11.6). The agreements in this subsection 11.5 shall
survive repayment of the Loans and all other amounts payable hereunder.
11.6 Successors and Assigns; Participations and Assignments.
(a) This Agreement shall be binding upon and inure to the benefit of the
Company, the Lenders, the
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Administrative Agent, all future holders of the Notes and the Loans, and their
respective successors and assigns, except that the Company may not assign or
transfer any of its rights or obligations under this Agreement without the
prior written consent of each Lender.
(b) Any Lender may, in the ordinary course of its commercial
banking or lending business and in accordance with applicable law, at any time
sell to one or more banks or other entities ("Participants") participating
interests in any Loan owing to such Lender, any participating interest in the
Letters of Credit of such Lender, any Note held by such Lender, any Commitment
of such Lender or any other interest of such Lender hereunder. In the event of
any such sale by a Lender of participating interests to a Participant, such
Lender's obligations under this Agreement and the other Credit Documents to the
other parties to this Agreement shall remain unchanged, such Lender shall
remain solely responsible for the performance thereof, such Lender shall remain
the holder of any such Note for all purposes under this Agreement and Holdings,
the Company and the Administrative Agent shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Credit Documents. The Company
agrees that if amounts outstanding under this Agreement and the Notes are due
and unpaid, or shall have been declared or shall have become due and payable
upon the occurrence of an Event of Default, each Participant shall be deemed to
have the right of setoff in respect of its participating interest in amounts
owing under this Agreement and any Note to the same extent as if the amount of
its participating interest were owing directly to it as a Lender under this
Agreement or any Note; provided, that such right of setoff shall be subject to
the obligation of such Participant to share with the Lenders, and the Lenders
agree to share with such Participant, as provided in subsection 11.7. The
Company also agrees that each Participant shall be entitled to the benefits of
subsections 3.10, 4.11 and 4.12 with respect to its participation in the
Letters of Credit and in the Commitments and the Loans outstanding from time to
time as if it were a Lender; provided, that no Participant shall be entitled to
receive any greater amount pursuant to any such subsection than the transferor
Lender would have been entitled to receive in respect of the amount of the
participation transferred by such transferor Lender to such Participant had no
such transfer occurred. Each Lender agrees that the participation agreement
pursuant to which any Participant acquires its participating interest (or any
other document) may afford voting rights to such Participant, or any right to
instruct such Lender with respect to voting hereunder, only with respect to
matters requiring the consent of either all of the Lenders hereunder or all of
the Lenders holding the relevant Term Loans or Revolving Credit Commitments
subject to such participation.
(c) Subject to paragraph (g) of this subsection 11.6, any
Lender may, in the ordinary course of its commercial banking, lending or other
business and in accordance with applicable law, (i) at any time and from time
to time assign all or any part of its rights and obligations under this
Agreement and the Notes to any Lender or any Affiliate thereof, provided that,
in the event of a sale of less than all of such rights and obligations, such
assigning Lender after any such sale to any other Lender or any Affiliate of
such Lender shall retain Commitments and/or Loans and/or L/C Participating
Interests aggregating at least $5,000,000 (or such lesser amount as the
Administrative Agent may determine), and, (ii) with the consent of the Company
and the Administrative Agent (which in each case shall not be unreasonably
withheld or delayed) at any time and from time to time assign to one or more
additional banks, mutual funds or
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91
financial institutions or entities (each, an "Assignee"), all or any part of
its rights and obligations under this Agreement and the Notes, pursuant to an
Assignment and Acceptance, executed by such Assignee, such transferor Lender
(and, in the case of an Assignee that is not then a Lender or an Affiliate
thereof, by the Company and the Administrative Agent), and delivered to the
Administrative Agent for its acceptance and recording in the Register (as
defined below); provided that, unless otherwise consented to by the Company and
the Administrative Agent, (A) each such sale pursuant to clause (ii) of this
subsection 11.6(c) shall be in a principal amount of $5,000,000 or more unless
the Assigning Lender is transferring all of its rights and obligations and (B)
in the event of a sale of less than all of such rights and obligations, such
Lender after any such sale shall retain Commitments and/or Loans and/or L/C
Participating Interests aggregating at least $5,000,000. Upon such execution,
delivery, acceptance and recording, from and after the effective date
determined pursuant to such Assignment and Acceptance, (x) the Assignee
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender
hereunder with a Commitment, if any, as set forth therein, and (y) the
assigning Lender thereunder shall, to the extent of the interest transferred,
as reflected in such Assignment and Acceptance, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of a transferor Lender's
rights and obligations under this Agreement, such transferor Lender shall cease
to be a party hereto, except that it shall remain entitled to the benefit of
all indemnities and other provisions stated to survive the termination hereof).
(d) The Administrative Agent, which for purposes of this
subsection 11.6(d) only shall be deemed the agent of the Company, shall
maintain at the address of the Administrative Agent referred to in subsection
11.2 a copy of each Assignment and Acceptance delivered to it and a register
(the "Register") for the recordation of the names and addresses of the Lenders
and the Commitments of, and principal amounts of the Loans owing to, each
Lender from time to time. The entries in the Register shall be conclusive, in
the absence of manifest error, and the Company, the Administrative Agent and
the Lenders shall treat each Person whose name is recorded in the Register as
the owner of a Loan or other obligation hereunder as the owner thereof for all
purposes of this Agreement and the other Credit Documents, notwithstanding any
notice to the contrary. Any assignment of any Loan or other obligation
hereunder shall be effective only upon appropriate entries with respect thereto
being made in the Register. The Register shall be available for inspection by
the Company or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed
by an assigning Lender and an Assignee (and, in the case of an Assignee that is
not then a Lender or an Affiliate thereof, by the Company and the
Administrative Agent), together with payment to the Administrative Agent of a
registration and processing fee of $4,000 if the Assignee is not a Lender prior
to the execution of such supplement and $1,000 otherwise, the Administrative
Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the
effective date determined pursuant thereto record the information contained
therein in the Register and give notice of such acceptance and recordation to
the Lenders and the Company. On or prior to such effective date, the Company
at its own expense, shall execute and deliver to the Administrative Agent (in
exchange for any or all of the Term Loan Note, or Revolving Credit Notes of the
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assigning Lender, if any ) new Term Loan Note, or Revolving Credit Notes, as
the case may be, to the order of such Assignee (if requested by such Assignee)
in an amount equal to the Revolving Credit Commitment or the Term Loans, as the
case may be, assumed by it pursuant to such Assignment and Acceptance and, if
the assigning Lender has retained a Commitment or any Term Loans hereunder, new
Term Loan Note, or Revolving Credit Notes, as the case may be, to the order of
the assigning Lender in an amount equal to the Commitment or such Term Loans,
as the case may be, retained by it hereunder (if requested). Such new Notes
shall be dated the Closing Date and shall otherwise be in the form of the Notes
replaced thereby.
(f) The Lenders agree that they will use reasonable efforts
to protect the confidentiality of any confidential information concerning
Holdings, the Company and its Subsidiaries and Affiliates. Notwithstanding the
foregoing, the Company authorizes each Lender to disclose to any Participant or
Assignee (each, a "Transferee") and any prospective Transferee any and all
information in such Lender's possession concerning Holdings, the Company and
its Subsidiaries which has been delivered to such Lender by or on behalf of
Holdings or the Company pursuant to this Agreement or which has been delivered
to such Lender by or on behalf of Holdings, or the Company in connection with
such Lender's credit evaluation of Holdings, the Company and its Subsidiaries
and Affiliates prior to becoming a party to this Agreement; provided that each
Lender shall cause its respective prospective Transferees to agree in writing
to protect the confidentiality of any confidential information concerning
Holdings, the Company and its Subsidiaries.
(g) If, pursuant to this subsection 11.6, any interest in
this Agreement or any Note is transferred to any Transferee which is organized
under the laws of any jurisdiction other than the United States or any State
thereof, the transferor Lender shall cause such Transferee, concurrently with
the effectiveness of such transfer either (1) in the case of a Transferee that
is a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (i) to
represent to the transferor Lender (for the benefit of the transferor Lender,
the Administrative Agent and the Company) that under applicable law and
treaties no taxes will be required to be withheld by the Administrative Agent,
the Company or the transferor Lender with respect to any payments to be made to
such Transferee in respect of the Loans or L/C Participating Interests, (ii) to
furnish to the transferor Lender (and, in the case of any Transferee registered
in the Register, the Administrative Agent and the Company) either U.S.
Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001
(wherein such Transferee claims entitlement to complete exemption from U.S.
federal withholding tax on all interest payments hereunder) and (iii) to agree
(for the benefit of the transferor Lender, the Administrative Agent and the
Company) to provide the transferor Lender (and, in the case of any Transferee
registered in the Register, the Administrative Agent and the Company) a new
Form 4224 or Form 1001 upon the expiration or obsolescence of any previously
delivered form and comparable statements in accordance with applicable U.S.
laws and regulations and amendments duly executed and completed by such
Transferee, and to comply from time to time with all applicable U.S. laws and
regulations with regard to such withholding tax exemption or (2) in the case of
any Transferee that is not a "bank" within the meaning of Section 881(c)(3)(A)
of the Code, (i) to represent to the transferor Lender (for the benefit of the
transferor Lender, the Administrative Agent and the Company) that it is not a
"bank" within the meaning of Section 881(c)(3)(A) of the Code, (ii) to furnish
to the transferor Lender (and, in the
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case of any Transferee registered in the Register, to the Company), with a copy
to the Administrative Agent, (A) a Subsection 4.11(d)(2) Certificate and (B)
two (2) accurate and complete original signed copies of Internal Revenue
Service form W-8, certifying to such Transferee's legal entitlement on the date
of the effectiveness of such transfer to an exemption from U.S. withholding tax
under the provisions of Section 881(c) of the Code with respect to all payments
to be made under this Agreement, and (iii) to agree (for the benefit of the
transferor Lender, the Administrative Agent and the Company), to the extent
legally entitled to do so, upon reasonable request by the transferor Lender
(or, in the case of any Transferee registered in the Register, the
Administrative Agent or the Company), to provide to the transferor Lender, the
Administrative Agent and the Company such other forms as may be required in
order to establish the legal entitlement of such Transferee to an exemption
from withholding tax with respect to payments under this Agreement.
(h) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this subsection concerning assignments of
Loans and Notes relate only to absolute assignments and that such provisions do
not prohibit assignments creating security interests, including, without
limitation, any pledge or assignment by a Lender of any Loan or Note to any
Federal Reserve Bank in accordance with applicable law.
11.7 Adjustments; Set-off. (a) If any Lender (a "benefitted
Lender") shall at any time receive any payment of all or part of any of its
Loans or L/C Participating Interests, as the case may be, or interest thereon,
or receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in clause (f) of Section 9, or otherwise) in a greater proportion
than any such payment to and collateral received by any other Lender, if any,
in respect of such other Lender's Loans or L/C Participating Interests, as the
case may be, or interest thereon, such benefitted Lender shall purchase for
cash from the other Lenders such portion of each such other Lender's Loans or
L/C Participating Interests, as the case may be, or shall provide such other
Lenders with the benefits of any such collateral, or the proceeds thereof, as
shall be necessary to cause such benefitted Lender to share the excess payment
or benefits of such collateral or proceeds ratably with each of the Lenders;
provided, however, that if all or any portion of such excess payment or
benefits is thereafter recovered from such benefitted Lender, such purchase
shall be rescinded, and the purchase price and benefits returned, to the extent
of such recovery, but without interest. The Company agrees that each Lender so
purchasing a portion of another Lender's Loans and/or L/C Participating
Interests may exercise all rights of payment (including, without limitation,
rights of set-off) with respect to such portion as fully as if such Lender were
the direct holder of such portion. The Administrative Agent shall promptly
give the Company notice of any set-off, provided that the failure to give such
notice shall not affect the validity of such set-off.
(b) In addition to any rights and remedies of the Lenders
provided by law, each Lender shall have the right, without prior notice to the
Company, any such notice being expressly waived by the Company to the extent
permitted by applicable law, upon the filing of a petition under any of the
provisions of the federal bankruptcy code or amendments thereto, by or against;
the making of an assignment for the benefit of creditors by; the application
for the appointment, or the appointment, of any receiver of, or of any
substantial portion of the property of; the issuance
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of any execution against any substantial portion of the property of; the
issuance of a subpoena or order, in supplementary proceedings, against or with
respect to any substantial portion of the property of; or the issuance of a
warrant of attachment against any substantial portion of the property of; the
Company to set-off and apply against any indebtedness, whether matured or
unmatured, of the Company to such Lender, any amount owing from such Lender to
the Company, at or at any time after, the happening of any of the above
mentioned events, and as security for such indebtedness, the Company hereby
grants to each Lender a continuing security interest in any and all deposits,
accounts or moneys of the Company then or thereafter maintained with such
Lender, subject in each case to subsection 11.7(a) of this Agreement. The
aforesaid right of set-off may be exercised by such Lender against the Company
or against any trustee in bankruptcy, debtor in possession, assignee for the
benefit of creditors, receiver or execution, judgment or attachment creditor of
the Company, or against anyone else claiming through or against the Company or
such trustee in bankruptcy, debtor in possession, assignee for the benefit of
creditors, receiver, or execution, judgment or attachment creditor,
notwithstanding the fact that such right of set-off shall not have been
exercised by such Lender prior to the making, filing or issuance, or service
upon such Lender of, or of notice of, any such petition; assignment for the
benefit of creditors; appointment or application for the appointment of a
receiver; or issuance of execution, subpoena, order or warrant. Each Lender
agrees promptly to notify the Company and the Administrative Agent after any
such set-off and application made by such Lender, provided that the failure to
give such notice shall not affect the validity of such set-off and application.
11.8 Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts
and all of said counterparts taken together shall be deemed to constitute one
and the same instrument. A set of the copies of this Agreement signed by all
the parties shall be lodged with the Company and the Administrative Agent.
This Agreement shall become effective with respect to the Company, the
Administrative Agent and the Lenders when the Administrative Agent shall have
received copies of this Agreement executed by the Company and the Lenders, or,
in the case of any Lender, shall have received telephonic confirmation from
such Lender stating that such Lender has executed counterparts of this
Agreement or the signature pages hereto and sent the same to the Administrative
Agent.
11.9 Governing Law; No Third Party Rights. This Agreement
and the Notes and the rights and obligations of the parties under this
Agreement and the Notes shall be governed by, and construed and interpreted in
accordance with, the law of the State of New York. This Agreement is solely
for the benefit of the parties hereto and their respective successors and
assigns, and, except as set forth in subsection 11.6, no other Persons shall
have any right, benefit, priority or interest under, or because of the
existence of, this Agreement.
11.10 Submission to Jurisdiction; Waivers. (a) Each party
to this Agreement hereby irrevocably and unconditionally:
(i) submits for itself and its property in any
legal action or proceeding relating to this Agreement or any of the
other Credit Documents, or for recognition and enforcement of any
judgment in respect thereof, to the non-exclusive general jurisdiction
<PAGE> 100
95
of the courts of the State of New York, the courts of the United
States of America for the Southern District of New York, and appellate
courts from any thereof;
(ii) consents that any such action or proceeding
may be brought in such courts, and waives any objection that it may
now or hereafter have to the venue of any such action or proceeding in
any such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(iii) agrees that service of process in any such
action or proceeding may be effected by mailing a copy thereof by
registered or certified mail (or any substantially similar form of
mail), postage prepaid, to such party at its address set forth in
subsection 11.2 or at such other address of which the Administrative
Agent shall have been notified pursuant thereto; and
(iv) agrees that nothing herein shall affect the
right to effect service of process in any other manner permitted by
law or shall limit the right to sue in any other jurisdiction.
(b) Each party hereto unconditionally waives trial by jury in
any legal action or proceeding referred to in paragraph (a) above and any
counterclaim therein.
11.11 Releases. The Administrative Agent and the Lenders
agree to cooperate with the Company and its Subsidiaries with respect to any
sale or other disposition permitted by subsection 8.5 and promptly take such
action and execute and deliver such instruments and documents necessary to
release the liens and security interests created by the Security Documents
relating to any of the assets or property affected by any such sale permitted
by subsection 8.5 including, without limitation, any Uniform Commercial Code
amendment, release or termination or partial release or termination statements.
11.12 Interest. Each provision in this Agreement and each
other Credit Document is expressly limited so that in no event whatsoever shall
the amount paid, or otherwise agreed to be paid, by the Company for the use,
forbearance or detention of the money to be loaned under this Agreement or any
other Credit Document or otherwise (including any sums paid as required by any
covenant or obligation contained herein or in any other Credit Document which
is for the use, forbearance or detention of such money), exceed that amount of
money which would cause the effective rate of interest to exceed the highest
lawful rate permitted by applicable law (the "Highest Lawful Rate"), and all
amounts owed under this Agreement and each other Credit Document shall be held
to be subject to reduction to the effect that such amounts so paid or agreed to
be paid which are for the use, forbearance or detention of money under this
Agreement or such Credit Document shall in no event exceed that amount of money
which would cause the effective rate of interest to exceed the Highest Lawful
Rate. Notwithstanding any provision in this Agreement or any other Credit
Document to the contrary, if the maturity of the Loans or the obligations in
respect of the other Credit Documents are accelerated for any reason, or in the
event of any prepayment of all or any portion of the Loans or the obligations
in respect of the other Credit Documents by the Company or in any other event,
earned interest on the
<PAGE> 101
96
Loans and such other obligations of the Company may never exceed the Highest
Lawful Rate, and any unearned interest otherwise payable on the Loans or the
obligations in respect of the other Credit Documents that is in excess of the
Highest Lawful Rate shall be cancelled automatically as of the date of such
acceleration or prepayment or other such event and (if theretofore paid) shall,
at the option of the holder of the Loans or such other obligations, be either
refunded to the Company or credited on the principal of the Loans. In
determining whether or not the interest paid or payable, under any specific
contingency, exceeds the Highest Lawful Rate, the Company and the Lenders
shall, to the maximum extent permitted by applicable law, amortize, prorate,
allocate and spread, in equal parts during the period of the actual term of
this Agreement, all interest at any time contracted for, charged, received or
reserved in connection with this Agreement.
11.13 Special Indemnification. Notwithstanding any provision
in this Agreement to the contrary, (A) each Lender, or Transferee of any Lender
pursuant to subsection 11.6(g) of this Agreement, shall indemnify the Company
and the Administrative Agent, and hold each of them harmless against any and
all payments, expenses or taxes which the Company or the Administrative Agent
may become subject to or obligated to pay if and to the extent that, (i) on the
Closing Date or the effective date of transfer, as the case may be, such
Lender, or such Transferee of a Lender pursuant to subsection 11.6(g) of this
Agreement, (a) makes the representation and covenants set forth in subsection
4.11(d)(2) of this Agreement, or, in the case of a Transferee, pursuant to
subsection 11.6(g)(2) of this Agreement and the Assignment and Acceptance and
(b) is not in fact also qualified to make the representation and covenants set
forth in subsection 4.11(d)(1) of this Agreement or, in the case of a
Transferee, pursuant to subsection 11.6(g)(1) of this Agreement and the
Assignment and Acceptance and (ii) as a result of any Change in Law or
compliance by such Lender, or Transferee, with any request or directive
(whether or not having the force of law) from any central bank or other
Governmental Authority the Company or the Administrative Agent are required to
make any additional payments on account of U.S. withholding taxes and amounts
related thereto with respect to any payments under this Agreement, any Note, or
a Eurodollar Loan, made prior to such Change in Law or request or directive,
none of which payments would have been required if such Lender, or Transferee,
was qualified on the Closing Date or the date of the transfer, as the case may
be, to make the representation and covenants set forth in subsection 4.11(d)(1)
of this Agreement or pursuant to subsection 11.6(g)(1) of this Agreement and
the Assignment and Acceptance, as the case may be, and (B) each Lender, or
Transferee, agrees that to the extent any amount payable by such Lender or
Transferee pursuant to this subsection 11.13 remains unpaid on any Interest
Payment Date or the date on which any prepayment is made, the Company shall
have the right to set-off against any payment due to such Lender or Transferee
on such date any amounts owing to the Company pursuant to this subsection
11.13.
11.14 Permitted Payments and Transactions. Notwithstanding
any provision to the contrary contained in this Agreement, the Company and its
Subsidiaries shall be permitted to pay fees and expenses pursuant to or in
respect of, the following agreements, and, in the case of clauses (a) and (d)
below, to engage in the following transactions: (a)(i) the Management Advisory,
Strategic Planning and Consulting Services Agreement between Investcorp
International, Inc. ("III") and the Company, (ii) the Loan Finance Advisory
Agreement between
<PAGE> 102
97
III and the Company, (iii) the Mergers and Acquisitions Advisory Agreement
between III and Holdings, (iv) the Standby Commitment Fee payable by Holdings
to Invifin S.A., (v) the Loan Discount Fee payable by the Company to Auto
Equity Limited, (vi) the Stock Purchase Agreement and the exhibits and
schedules thereto, (vii) the Real Estate Financing Agreement, (viii)
Indebtedness payable to Transatlantic Finance, Ltd. in the aggregate amount of
$16.5 million and (ix) payments made under the equity participation program
resulting from the Closing Date Transactions, (b) agreements with any Person or
Persons providing for the payment of customary fees in connection with serving
as a director of the Company or any Subsidiary of the Company; (c) agreements
providing for the payment of commercially reasonable fees in connection with
any permitted financing, refinancing, sale, transfer, sale and leaseback or
other permitted disposition of any stock or assets of the Company or its
Subsidiaries; (d) the borrowing of any Indebtedness to the extent, and upon the
terms and conditions, the same is expressly permitted under subsection 8.1; and
(e) agreements providing for commercially reasonable fees in connection with
any permitted purchase or acquisition of assets by the Company or any of its
Subsidiaries.
<PAGE> 103
98
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered in New York, New York by their
proper and duly authorized officers as of the day and year first above written.
CSK AUTO, INC.
By: ------------------------------
Title:
THE CHASE MANHATTAN BANK,
as Administrative Agent, Issuing Lender
and a Lender
By: ------------------------------
Title:
LEHMAN COMMERCIAL PAPER INC.,
as Documentation Agent and a Lender
By: ------------------------------
Title: Authorized Signatory
<PAGE> 104
SCHEDULE I
LIST OF ADDRESSES FOR NOTICES;
COMMITMENT AMOUNTS
THE CHASE MANHATTAN BANK
270 Park Avenue
New York, New York 10017
Attn:
Telecopy: (212)
Commitment Amounts:
Revolving Credit Commitment
Term Loan Commitment
Commitment Percentage:
Revolving Credit
Term Loan
LEHMAN COMMERCIAL PAPER INC.
3 World Financial Center
New York, New York 10285
Attn: Michele Swanson
Telecopy: (212) 528-0819
Commitment Amount:
Revolving Credit Commitment
Term Loan Commitment
Commitment Percentage:
Revolving Credit
Term Loan
<PAGE> 1
Exhibit 10.01
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> 2
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> 1
EXHIBIT 10.02
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> 2
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> 1
EXHIBIT 10.03
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> 2
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> 1
EXHIBIT 10.05
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> 2
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> 3
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> 4
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> 1
EXHIBIT 10.06
CSK GROUP, LTD.
1996 ASSOCIATE STOCK OPTION PLAN
1. Purposes of the Plan.
This stock option plan including Exhibit I hereto (the "Plan") is
designed to provide an incentive to employees (including directors and officers
who are employees) of and consultants to CSK GROUP, LTD., 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 Class B Common Stock, $.01 par value per share, of the Company
("Common Stock") which may be issued under the Plan shall not exceed 37,000.
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 14, 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 the Board of Directors or by a
committee of the Board of Directors consisting of not less than two directors
(in either case, 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 (the "Exchange Act"), each member of the
Committee shall be a "Non-Employee Director" within the meaning of Rule 16b-3
promulgated under the Exchange Act (as the same may be in effect and
interpreted from time to time, "Rule 16b-3"). 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.
<PAGE> 2
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; how 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; to approve any provision which under Rule
16b-3 requires approval by a committee of Non-Employee Directors 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.
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,
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<PAGE> 3
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
32,000 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 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
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<PAGE> 4
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; Adjustment of Shares Subject to Options.
No option granted hereunder shall be or become exercisable,
whether or not then vested in accordance with this Paragraph 7 and/or Exhibit I
hereto, until the earlier of (a) the occurrence of the Initial Public Offering
of the Company (the "Initial Public Offering"), as the term Initial Public
Offering is defined in the Restated Certificate of Incorporation of the Company
filed with the Secretary of State of the State of Delaware on October 30, 1996
and as the same from time to time may hereafter be amended (the "Restated
Certificate of Incorporation") and (b) the seventh anniversary of the date of
grant and, in any event, only to the extent such option shall have vested in
accordance with the next succeeding paragraph of this Paragraph 7 and Exhibit I
to this Plan.
Options granted hereunder shall vest (but shall not become
exercisable except in accordance with the first paragraph of this Paragraph 7)
in accordance with Exhibit I to this Plan, which is incorporated by reference
herein and made a part hereof.
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
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<PAGE> 5
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.
Notwithstanding the foregoing, the Committee may, in its sole
discretion, permit payment of the exercise price of an option by delivery by
the optionee of a properly executed notice, together with a copy of his
irrevocable instructions to a broker acceptable to the Committee to deliver
promptly to the Company the amount of sale or loan proceeds sufficient to pay
such exercise price. In connection therewith, the Company may enter into
agreements for coordinated procedures with one or more brokerage firms.
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 (a "Relationship") has terminated
for any reason (other than as a result of the death or Disability of the
optionee) after the occurrence of the Initial Public Offering, may exercise
such option, to the extent exercisable on the date of such termination, at any
time during the 30 days commencing six months after the date of such
termination, but not thereafter. If the optionee's Relationship has terminated
for any reason (other than as a result of the death or Disability of the
optionee) prior to the occurrence of the Initial Public Offering, the option
shall expire upon such termination and the optionee shall have, in lieu
thereof, the right to receive from the Company upon completion of the Initial
Public Offering or Sale (as defined in Section 13) of the Company, an amount
equal to the product of (a) the number of shares represented by the vested
portion of such option upon termination of the Relationship, and (b) the excess
(if any) of the fair market value of a share of Common Stock upon termination
of the Relationship over the exercise price per share (such product being the
"Increased FMV"); provided, however, that if the Initial Public Offering or
Sale shall not have occurred prior to the date on which the option would
otherwise have expired, the optionee shall not be entitled to receive any
amount pursuant to this Section 8
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<PAGE> 6
unless, on or prior to the date the option would otherwise have expired, the
optionee pays to the Company an amount equal to the exercise price of all
options held by the optionee which are subject to this Section 8 (the "Option
Payment"); and provided, further, that if the Option Payment is made, the
amount payable by the Company pursuant to this Section 8 shall be increased by
the amount of such Option Payment. Notwithstanding the foregoing, if such
Relationship is terminated (a) for cause, or (b) if at any time during the
first six months after termination of the Relationship the optionee shall be
directly or indirectly employed by, associated with, or affiliated with, a
chain of automotive after market stores which in the Board of Directors'
judgment is a competitor of the Company, such optionee shall have no rights to
any payment with respect to such option.
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 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.
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<PAGE> 7
9. Death or Disability of an Optionee.
Except as may otherwise be expressly provided in the applicable
Contract, if an optionee dies while he or she is an employee of, or consultant
to, the Company, any of its Subsidiaries or a Parent, or his or her
Relationship terminates by reason of his or her Disability, in either case
after the occurrence of the Initial Public Offering, the option may be
exercised, to the extent exercisable on the date of his or her death or in the
event of his or her Disability, upon the effective date of such termination, by
his or her Legal Representative (as defined in Paragraph 20) at any time within
90 days after the date of death or the effective date of such termination, but
not thereafter. If such Relationship terminates by reason of such death or
Disability prior to the occurrence of the Initial Public Offering, the option
shall expire upon such termination and the optionee or his or her legal
representative shall have, in lieu thereof, the right to receive from the
Company upon completion of the Initial Public Offering or Sale (as defined in
Section 13) of the Company, an amount equal to the Increased FMV; provided,
however, that if the Initial Public Offering or Sale shall not have occurred
prior to the date on which the option would otherwise have expired, the
optionee or his or her legal representative shall not be entitled to receive
any amount pursuant to this Section 9 unless, on or prior to the date the
option would otherwise have expired, the optionee or his or her legal
representative pays to the Company the Option Payment; provided, further, that
if the Option Payment is made, the amount payable by the Company pursuant to
this Section 9 shall be increased by the amount of such Option Payment.
10. Compliance with Securities Laws.
The Committee may require, in its sole discretion, as a condition
to any option being exercisable 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; provided, however, that
if the Initial Public Offering has not occurred prior to the seventh
anniversary of the date of grant, the Company will take such action as shall be
necessary to permit the exercise of such options during the 30 days following
such seventh anniversary in accordance with the requirements of the Securities
Act, any applicable state securities laws and any listing or other regulatory
authority requirements referred to in this Paragraph 10.
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 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
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<PAGE> 8
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 (including, without limitation, the recapitalization of the
Company pursuant to the Restated Certificate of Incorporation in connection
with the Initial Public Offering of the Company), 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
authorized for issuance or 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 adjusted accordingly by
the Board of Directors, whose determination shall be conclusive and binding on
all parties.
13. Sale of More than 80% of the Company.
a) In the event that at any time during the term of an option and
prior to the occurrence of the Initial Public Offering, there shall be a sale
of (a) shares of capital stock by one or more stockholders, which results in
shares of capital stock having an aggregate of 80% of the
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<PAGE> 9
voting power of all outstanding shares of capital stock having been sold (by
stockholders who held such stock at the time of the option's grant) or (b) the
sale of 80% or more of the Company's assets in any one transaction or series of
related transactions, in either case to parties which at the time of such sales
were not stockholders or affiliates of any stockholder of the Company
(collectively, "Sales" and the final such sale being the "Triggering Sale"),
the Company shall purchase all of the vested portion of the option for a
purchase price equal to the difference between the average purchase price per
share of Common Stock (or if shares of Common Stock were not the shares sold,
then the value of a share of Common Stock as determined by the Board of
Directors based upon the purchase price of the shares of capital stock which
were sold) received in connection with all Sales occurring within 24 months of
the Triggering Sale (including the Triggering Sale) and the exercise price per
share of Common Stock subject to such option (the "Option Repurchase Price"),
multiplied by the number of shares of Common Stock subject to the vested
portion of the option. One half of the Option Repurchase Price shall be
payable by the Company within 30 days of consummation of the Triggering Sale
and the balance shall be payable by the Company within 30 days of the first
anniversary of the Triggering Sale, provided that the optionee's Relationship
is either continuing as of such anniversary, or has been terminated by the
Company prior thereto without cause or as a result of the death or Disability
of the optionee.
b) In addition, if the 16 corporations which purchased capital stock
of the Company on October 30, 1996 (the "Original Stockholders") realize a
compounded internal rate of return with respect to those of their original
shares of capital stock sold in the Sales (the "Internal Rate of Return") of at
least 20%, and the optionee's Relationship is either continuing as of the first
anniversary of the Triggering Sale, or has been terminated by the Company
between the date of the Triggering Sale and the first anniversary thereof
without cause or as a result of the death or Disability of the optionee, the
Company shall purchase the portion set forth below of the option which remains
unvested at the time of the Triggering Sale, at the Option Repurchase Price,
payable within 30 days of the first anniversary of the Triggering Sale.
If the Original Stockholders Internal Rate of Return is at least
20%, but less than 25%, then 50% of the unvested portion of the
option will be purchased;
If the Original Stockholders Internal Rate of Return is at least
25%, but less than 30%, then 75% of the unvested portion of the
option will be purchased; and
If the Original Stockholders Internal Rate of Return equals or
exceeds 30%, then 100% of the unvested portion of the option will
be purchased.
In the event that, at any time during the term of an option but
following the occurrence of the Initial Public Offering, there shall occur a
Triggering Sale, the portion of such option which remains unvested at the time
of the Triggering Sale shall vest upon the occurrence of the Triggering Sale.
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<PAGE> 10
c) Notwithstanding anything to the contrary contained herein, until
an optionee is notified in writing by the Company that all provisions of the
Stockholders' Agreement dated as of October 30, 1996, among the Company and all
of its stockholders as of such date (the "Stockholders' Agreement") relating to
the purchase and sale of the Company's securities (other than in a public
offering) have terminated, all shares of Common Stock issued upon the exercise
of options granted hereunder shall be subject to the following restrictions and
have the following rights:
(i) If, pursuant to the terms of the Stockholders' Agreement
in connection with an arm's-length sale to an unaffiliated third party pursuant
to a written offer to purchase at least all of the securities of the Company
held by the stockholders party to the Stockholders' Agreement, certain of the
stockholders party to the Stockholders' Agreement (the "Moving Group") have the
right to require the other holders of securities bound by the terms of the
Stockholders' Agreement (the "Selling Stockholders") to sell all of their
equity securities of the Company either to the third party or to the Moving
Stockholders and/or the Company (the "Purchaser") for consideration per share
having at least the same value as the consideration proposed to be paid by the
third party, the Moving Group shall also have the right to require each
optionee to sell, and each optionee shall sell and deliver free and clear of
all liens, claims and encumbrances, all of each optionee's Common Stock in the
same transaction to the Purchaser, provided, however, that such optionee
receives the same terms, including, without limitation, the same consideration
per share of Common Stock, as is received in such transactions by the Selling
Stockholders.
(ii) If, pursuant to the terms of the Stockholders' Agreement
in connection with a proposed sale of more than 25% of the outstanding equity
securities of the Company by certain of the stockholders party to the
Stockholders' Agreement (the "Transferring Stockholders"), such sale by such
Transferring Stockholders cannot be consummated unless (y) prior to such sale
each of the other stockholders party to the Stockholders' Agreement (the "Other
Stockholders") and the Company shall have been given notice of the proposed
transaction, which notice shall specify the number of shares that the
Transferring Stockholders desire to sell, the identity of the prospective
purchaser (the "Buyer"), and the proposed terms thereof and shall also include
a copy of the written offer from the Buyer, and (z) each of the Other
Stockholders shall have been provided a firm irrevocable right, which right
shall be exercisable by written notice (which shall specify the number of
shares (up to the total number of shares held by the Transferring Stockholders)
that the Other Stockholders desire to sell) within 60 days after giving notice
to the Other Stockholders, to sell to the Buyer, at the same time and upon the
same terms and conditions offered to the Transferring Stockholders by the
Buyer, the number of shares of Common Stock of the Other Stockholders (the
"Proportionate Amount") that bears the same ratio to the total number of shares
of Common Stock held by the Other Stockholders as the total number of shares of
Common Stock proposed to be sold by the Transferring Stockholders to the Buyer
bears to the total number of shares of Common Stock held by all of the
Transferring Stockholders, the Company will not register the transfer of
securities from the Transferring
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<PAGE> 11
Stockholders to the Buyer unless the Transferring Stockholders and the Buyer
shall have extended to each optionee the rights described above which are
required to be extended to Other Stockholders in connection with such a sale.
(iii) No Optionee shall transfer any shares of Common Stock
unless such Optionee complies with the provisions below; provided, however,
that following the consummation of an initial public offering of shares of
Common Stock (an "IPO"), each Optionee may sell any of its shares of Common
Stock pursuant to any applicable registration statement or pursuant to Rule 144
under the Securities Act without complying with any of the provisions below.
In the event that an optionee receives and desires to accept an arm's-length
written offer (a "Third Party Offer") from an unaffiliated third party (the
"Offeror") to purchase shares of Common Stock owned by the optionee, the
optionee shall promptly provide written notice thereof to the Company, which
notice shall specify the number of shares of Common Stock that the optionee
desires to sell and the terms of the Third Party Offer and shall also include a
copy of the Third Party Offer. The Company shall have the irrevocable option,
exercisable by written notice to the optionee within 60 days after the receipt
of notice from the optionee (for purposes hereof, the "Option Period"), to
purchase from such optionee all of such shares of Common Stock proposed to be
sold by such optionee at the same price, and on the same terms and conditions,
as contained in the Third Party Offer, or, if the Third Party Offer provides
for non-cash consideration or other terms and conditions not practically
obtainable by the Company, then for cash consideration and upon terms and
conditions no less favorable, in the sole judgment of the Board of Directors,
to the Optionee than those contained in the Third Party Offer. If the Company
shall fail to elect, within the Option Period and pursuant to the terms hereof,
to purchase all of the shares of Common Stock proposed to be transferred by the
optionee, then the optionee shall be free, for a period of 90 days thereafter,
to sell to the Offeror identified in the notice of the Third Party Offer, but
only to that Offeror, and only for consideration and upon terms and conditions
no less favorable to the optionee, in the sole judgment of the Board of
Directors, than those contained in the Third Party Offer, all of the shares of
Common Stock proposed to be transferred; provided that, the Offeror executes an
agreement whereby the Offeror becomes bound by the provisions hereof.
14. Amendments and Termination of the Plan.
The Plan was adopted by the Board of Directors on ________, 1996.
No option may be granted under the Plan after _____________, 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 prior or subsequent
stockholder approval required under applicable law or the Code which would
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(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, or (b) 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.
15. 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.
16. 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.
17. Legends; Payment of Expenses.
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
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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.
18. 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.
19. 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
20) or assume the prior options of such Constituent Corporation.
20. 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.
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.
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21. 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.
22. 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.
23. 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, in person or by proxy, 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 October 30, 1997, the Plan and any options granted hereunder shall
terminate.
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<PAGE> 15
EXHIBIT I
VESTING OF OPTIONS
Each option granted under the Plan to optionees to purchase Plan Shares
(as defined below) will vest as to 34% of the shares of Common Stock (rounded
up or down to the nearest whole share of Common Stock) subject to such option
on the second anniversary date of the grant of the option and as to an
additional 33% of such shares of Common Stock (rounded up or down to the
nearest whole share of Common Stock), on each of the third and fourth
anniversary dates of grant.
The term "Plan Shares" shall mean the number of shares of Common Stock
that, after adjustment by the Board of Directors in accordance with Paragraph
12 of the Plan, would be subject to an option assuming the occurrence of an
Initial Public Offering of the Company in connection with which the shares of
common stock issued and outstanding on the date of adoption of this Plan would
be adjusted such that an aggregate of 30,300,000 shares of common stock of the
Company would be issued and outstanding immediately prior to the Initial Public
Offering. Accordingly, an option to purchase Plan Shares shall entitle the
optionee to purchase such number of shares of Class B Common Stock as shall be
equal to the number of Plan Shares subject to the option divided by 30.3 at an
exercise price which shall be equal to the exercise price per Plan Share
multiplied by 30.3. To the extent that fewer or greater than 30,300,000 shares
of Capital Stock of the Company are issued and outstanding immediately prior to
an Initial Public Offering, or the date on which the option otherwise first
becomes exercisable, as the case may be (in either case, the "Outstanding
Shares"), (i) for purposes of determining the number of shares of Class B Stock
(or, after the occurrence of an Initial Public Offering, shares of Common
Stock) the optionee is entitled to purchase, the number of Plan Shares with
respect to which the optionee holds an option shall be multiplied by a
fraction, the numerator of which is the number of Outstanding Shares and the
denominator of which is 30,300,000, and (ii) for purposes of determining the
exercise price of the option, the exercise price per Plan Share shall be
multiplied by a fraction, the numerator of which is 30,300,000 and the
denominator of which is the number of Outstanding Shares. "Capital Stock"
means the Company's Class A stock, Class B stock, Class C stock, Class D stock
and Class E stock, in each case with a par value of $.01 per share.
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<PAGE> 1
EXHIBIT 10.07
CSK GROUP, LTD.
1996 EXECUTIVE STOCK OPTION PLAN
1. Purposes of the Plan.
This stock option plan including Exhibit I hereto (the "Plan") is
designed to provide an incentive to employees (including directors and officers
who are employees) of and consultants to CSK GROUP, LTD., 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 Class B Common Stock, $.01 par value per share, of the Company
("Common Stock") which may be issued under the Plan shall not exceed 21,000.
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 14, 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 the Board of Directors or by a
committee of the Board of Directors consisting of not less than two directors
(in either case, 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 (the "Exchange Act"), each member of the
Committee shall be a "Non-Employee Director" within the meaning of Rule 16b-3
promulgated under the Exchange Act (as the same may be in effect and
interpreted from time to time, "Rule 16b-3"). 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.
<PAGE> 2
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; how 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; to approve any provision which under Rule
16b-3 requires approval by a committee of Non-Employee Directors 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.
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,
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<PAGE> 3
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
18,000 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 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
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<PAGE> 4
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; Adjustment of Shares Subject to Options.
No option granted hereunder shall be or become exercisable, whether
or not then vested in accordance with this Paragraph 7 and/or Exhibit I hereto,
until the earlier of (a) the occurrence of the Initial Public Offering of the
Company (the "Initial Public Offering"), as the term Initial Public Offering is
defined in the Restated Certificate of Incorporation of the Company filed with
the Secretary of State of the State of Delaware on October 30, 1996 and as the
same from time to time may hereafter be amended (the "Restated Certificate of
Incorporation") and (b) the seventh anniversary of the date of grant and, in any
event, only to the extent such option shall have vested in accordance with the
next succeeding paragraph of this Paragraph 7 and Exhibit I to this Plan.
Options granted hereunder shall vest (but shall not become
exercisable except in accordance with the first paragraph of this Paragraph 7)
in accordance with Exhibit I to this Plan, which is incorporated by reference
herein and made a part hereof. In addition, the number of shares of Common
Stock subject to each option is subject to automatic increase upon the terms and
conditions described on Exhibit I to this Plan.
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
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<PAGE> 5
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.
Notwithstanding the foregoing, the Committee may, in its sole
discretion, permit payment of the exercise price of an option by delivery by
the optionee of a properly executed notice, together with a copy of his
irrevocable instructions to a broker acceptable to the Committee to deliver
promptly to the Company the amount of sale or loan proceeds sufficient to pay
such exercise price. In connection therewith, the Company may enter into
agreements for coordinated procedures with one or more brokerage firms.
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 (a "Relationship") has terminated
for any reason (other than as a result of the death or Disability of the
optionee) after the occurrence of the Initial Public Offering, may exercise
such option, to the extent exercisable on the date of such termination, at any
time during the 30 days commencing six months after the date of such
termination, but not thereafter. If the optionee's Relationship has terminated
for any reason (other than as a result of the death or Disability of the
optionee) prior to the occurrence of the Initial Public Offering, the option
shall expire upon such termination and the optionee shall have, in lieu
thereof, the right to receive from the Company upon completion of the Initial
Public Offering or Sale (as defined in Section 13) of the Company, an amount
equal to the product of (a) the number of shares represented by the vested
portion of such option upon termination of the Relationship, and (b) the excess
(if any) of the fair market value of a share of Common Stock upon termination
of the Relationship over the exercise price per share (such product being the
"Increased FMV"); provided, however, that if the Initial Public
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<PAGE> 6
Offering or Sale shall not have occurred prior to the date on which the option
would otherwise have expired, the optionee shall not be entitled to receive any
amount pursuant to this Section 8 unless, on or prior to the date the option
would otherwise have expired, the optionee pays to the Company an amount equal
to the exercise price of all options held by the optionee which are subject to
this Section 8 (the "Option Payment"); and provided, further, that if the
Option Payment is made, the amount payable by the Company pursuant to this
Section 8 shall be increased by the amount of such Option Payment.
Notwithstanding the foregoing, if such Relationship is terminated (a) for
cause, or (b) if at any time during the first six months after termination of
the Relationship the optionee shall be directly or indirectly employed by,
associated with, or affiliated with, a chain of automotive after market stores
which in the Board of Directors' judgment is a competitor of the Company, such
optionee shall have no rights to any payment with respect to such option.
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 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.
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<PAGE> 7
9. Death or Disability of an Optionee.
Except as may otherwise be expressly provided in the applicable
Contract, if an optionee dies while he or she is an employee of, or consultant
to, the Company, any of its Subsidiaries or a Parent, or his or her
Relationship terminates by reason of his or her Disability, in either case
after the occurrence of the Initial Public Offering, the option may be
exercised, to the extent exercisable on the date of his or her death or in the
event of his or her Disability, upon the effective date of such termination, by
his or her Legal Representative (as defined in Paragraph 20) at any time within
90 days after the date of death or the effective date of such termination, but
not thereafter. If such Relationship terminates by reason of such death or
Disability prior to the occurrence of the Initial Public Offering, the option
shall expire upon such termination and the optionee or his or her legal
representative shall have, in lieu thereof, the right to receive from the
Company upon completion of the Initial Public Offering or Sale (as defined in
Section 13) of the Company, an amount equal to the Increased FMV; provided,
however, that if the Initial Public Offering or Sale shall not have occurred
prior to the date on which the option would otherwise have expired, the
optionee or his or her legal representative shall not be entitled to receive
any amount pursuant to this Section 9 unless, on or prior to the date the
option would otherwise have expired, the optionee or his or her legal
representative pays to the Company the Option Payment; provided, further, that
if the Option Payment is made, the amount payable by the Company pursuant to
this Section 9 shall be increased by the amount of such Option Payment.
10. Compliance with Securities Laws.
The Committee may require, in its sole discretion, as a condition
to any option being exercisable 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; provided, however, that if
the Initial Public Offering has not occurred prior to the seventh anniversary of
the date of grant, the Company will take such action as shall be necessary to
permit the exercise of such options during the 30 days following such seventh
anniversary in accordance with the requirements of the Securities Act, any
applicable state securities laws and any listing or other regulatory authority
requirements referred to in this Paragraph 10.
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 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
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<PAGE> 8
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 (including, without limitation, the recapitalization of the
Company pursuant to the Restated Certificate of Incorporation in connection with
the Initial Public Offering of the Company), 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 authorized for
issuance or 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 adjusted accordingly by the Board of Directors,
whose determination shall be conclusive and binding on all parties.
13. Sale of More than 80% of the Company.
a) In the event that at any time during the term of an option and
prior to the occurrence of the Initial Public Offering, there shall be a sale
of (a) shares of capital stock by one or more stockholders, which results in
shares of capital stock having an aggregate of 80% of the
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<PAGE> 9
voting power of all outstanding shares of capital stock having been sold (by
stockholders who held such stock at the time of the option's grant) or (b) the
sale of 80% or more of the Company's assets in any one transaction or series of
related transactions, in either case to parties which at the time of such sales
were not stockholders or affiliates of any stockholder of the Company
(collectively, "Sales" and the final such sale being the "Triggering Sale"),
the Company shall purchase all of the vested portion of the option for a
purchase price equal to the difference between the average purchase price per
share of Common Stock (or if shares of Common Stock were not the shares sold,
then the value of a share of Common Stock as determined by the Board of
Directors based upon the purchase price of the shares of capital stock which
were sold) received in connection with all Sales occurring within 24 months of
the Triggering Sale (including the Triggering Sale) and the exercise price per
share of Common Stock subject to such option (the "Option Repurchase Price"),
multiplied by the number of shares of Common Stock subject to the vested
portion of the option. One half of the Option Repurchase Price shall be
payable by the Company within 30 days of consummation of the Triggering Sale
and the balance shall be payable by the Company within 30 days of the first
anniversary of the Triggering Sale, provided that the optionee's Relationship
is either continuing as of such anniversary, or has been terminated by the
Company prior thereto without cause or as a result of the death or Disability
of the optionee.
b) In addition, if the 16 corporations which purchased capital stock
of the Company on October 30, 1996 (the "Original Stockholders") realize a
compounded internal rate of return with respect to those of their original
shares of capital stock sold in the Sales (the "Internal Rate of Return") of at
least 20%, and the optionee's Relationship is either continuing as of the first
anniversary of the Triggering Sale, or has been terminated by the Company
between the date of the Triggering Sale and the first anniversary thereof
without cause or as a result of the death or Disability of the optionee, the
Company shall purchase the portion set forth below of the option which remains
unvested at the time of the Triggering Sale, at the Option Repurchase Price,
payable within 30 days of the first anniversary of the Triggering Sale.
If the Original Stockholders Internal Rate of Return is at least
20%, but less than 25%, then 50% of the unvested portion of the
option will be purchased;
If the Original Stockholders Internal Rate of Return is at least
25%, but less than 30%, then 75% of the unvested portion of the
option will be purchased; and
If the Original Stockholders Internal Rate of Return equals or
exceeds 30%, then 100% of the unvested portion of the option will
be purchased.
In the event that, at any time during the term of an option but
following the occurrence of the Initial Public Offering, there shall occur a
Triggering Sale, the portion of such option which remains unvested at the time
of the Triggering Sale shall vest upon the occurrence of the Triggering Sale.
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<PAGE> 10
c) Notwithstanding anything to the contrary contained herein, until
an optionee is notified in writing by the Company that all provisions of the
Stockholders' Agreement dated as of October 30, 1996, among the Company and all
of its stockholders as of such date (the "Stockholders' Agreement") relating to
the purchase and sale of the Company's securities (other than in a public
offering) have terminated, all shares of Common Stock issued upon the exercise
of options granted hereunder shall be subject to the following restrictions and
have the following rights:
(i) If, pursuant to the terms of the Stockholders' Agreement
in connection with an arm's-length sale to an unaffiliated third party pursuant
to a written offer to purchase at least all of the securities of the Company
held by the stockholders party to the Stockholders' Agreement, certain of the
stockholders party to the Stockholders' Agreement (the "Moving Group") have the
right to require the other holders of securities bound by the terms of the
Stockholders' Agreement (the "Selling Stockholders") to sell all of their
equity securities of the Company either to the third party or to the Moving
Stockholders and/or the Company (the "Purchaser") for consideration per share
having at least the same value as the consideration proposed to be paid by the
third party, the Moving Group shall also have the right to require each
optionee to sell, and each optionee shall sell and deliver free and clear of
all liens, claims and encumbrances, all of each optionee's Common Stock in the
same transaction to the Purchaser, provided, however, that such optionee
receives the same terms, including, without limitation, the same consideration
per share of Common Stock, as is received in such transactions by the Selling
Stockholders.
(ii) If, pursuant to the terms of the Stockholders' Agreement
in connection with a proposed sale of more than 25% of the outstanding equity
securities of the Company by certain of the stockholders party to the
Stockholders' Agreement (the "Transferring Stockholders"), such sale by such
Transferring Stockholders cannot be consummated unless (y) prior to such sale
each of the other stockholders party to the Stockholders' Agreement (the "Other
Stockholders") and the Company shall have been given notice of the proposed
transaction, which notice shall specify the number of shares that the
Transferring Stockholders desire to sell, the identity of the prospective
purchaser (the "Buyer"), and the proposed terms thereof and shall also include
a copy of the written offer from the Buyer, and (z) each of the Other
Stockholders shall have been provided a firm irrevocable right, which right
shall be exercisable by written notice (which shall specify the number of
shares (up to the total number of shares held by the Transferring Stockholders)
that the Other Stockholders desire to sell) within 60 days after giving notice
to the Other Stockholders, to sell to the Buyer, at the same time and upon the
same terms and conditions offered to the Transferring Stockholders by the
Buyer, the number of shares of Common Stock of the Other Stockholders (the
"Proportionate Amount") that bears the same ratio to the total number of shares
of Common Stock held by the Other Stockholders as the total number of shares of
Common Stock proposed to be sold by the Transferring Stockholders to the Buyer
bears to the total number of shares of Common Stock held by all of the
Transferring Stockholders, the Company will not register the transfer of
securities from the Transferring
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<PAGE> 11
Stockholders to the Buyer unless the Transferring Stockholders and the Buyer
shall have extended to each optionee the rights described above which are
required to be extended to Other Stockholders in connection with such a sale.
(iii) No Optionee shall transfer any shares of Common Stock
unless such Optionee complies with the provisions below; provided, however,
that following the consummation of an initial public offering of shares of
Common Stock (an "IPO"), each Optionee may sell any of its shares of Common
Stock pursuant to any applicable registration statement or pursuant to Rule 144
under the Securities Act without complying with any of the provisions below.
In the event that an optionee receives and desires to accept an arm's-length
written offer (a "Third Party Offer") from an unaffiliated third party (the
"Offeror") to purchase shares of Common Stock owned by the optionee, the
optionee shall promptly provide written notice thereof to the Company, which
notice shall specify the number of shares of Common Stock that the optionee
desires to sell and the terms of the Third Party Offer and shall also include a
copy of the Third Party Offer. The Company shall have the irrevocable option,
exercisable by written notice to the optionee within 60 days after the receipt
of notice from the optionee (for purposes hereof, the "Option Period"), to
purchase from such optionee all of such shares of Common Stock proposed to be
sold by such optionee at the same price, and on the same terms and conditions,
as contained in the Third Party Offer, or, if the Third Party Offer provides
for non-cash consideration or other terms and conditions not practically
obtainable by the Company, then for cash consideration and upon terms and
conditions no less favorable, in the sole judgment of the Board of Directors,
to the Optionee than those contained in the Third Party Offer. If the Company
shall fail to elect, within the Option Period and pursuant to the terms hereof,
to purchase all of the shares of Common Stock proposed to be transferred by the
optionee, then the optionee shall be free, for a period of 90 days thereafter,
to sell to the Offeror identified in the notice of the Third Party Offer, but
only to that Offeror, and only for consideration and upon terms and conditions
no less favorable to the optionee, in the sole judgment of the Board of
Directors, than those contained in the Third Party Offer, all of the shares of
Common Stock proposed to be transferred; provided that, the Offeror executes an
agreement whereby the Offeror becomes bound by the provisions hereof.
14. Amendments and Termination of the Plan.
The Plan was adopted by the Board of Directors on ________, 1996.
No option may be granted under the Plan after _____________, 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 prior or subsequent
stockholder approval required under applicable law or the Code which would
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<PAGE> 12
(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, or (b) 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.
15. 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.
16. 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.
17. Legends; Payment of Expenses.
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
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<PAGE> 13
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.
18. 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.
19. 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
20) or assume the prior options of such Constituent Corporation.
20. 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.
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.
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<PAGE> 14
21. 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.
22. 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.
23. 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, in person or by proxy, 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 October
30, 1997, the Plan and any options granted hereunder shall terminate.
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<PAGE> 15
EXHIBIT I
VESTING OF OPTIONS AND AUTOMATIC OPTION ADJUSTMENTS
Each option granted under the Plan to optionees to purchase Plan Shares
(as defined below) will vest as follows:
(a) 28% of the shares of Common Stock (rounded up or down to the
nearest whole share of Common Stock) subject to such option will vest on the
second anniversary date of the grant of the option and an additional 28%
(rounded up or down to the nearest whole share of Common Stock) will vest, on
each of the third and fourth anniversary dates of grant.
(b) The remaining 16% of the shares of Common Stock subject to such
option will vest as follows:
(i) 6%, 5% and 5%, respectively, of the shares of Common
Stock (rounded up or down to the nearest whole share of Common Stock) subject to
such option will vest, on each of the first, second and third April 30th to
occur after the second anniversary of the date of grant (each a "Business Plan
Vest Date"), if at least 95% of the Option Target ("Option Target") applicable
to such optionee as set forth in the Company's Management Business Plan attached
hereto shall be achieved for the immediately preceding full fiscal year (each, a
"Target Year") or, with respect to the first Business Plan Vest Date, for the
immediately preceding two full fiscal years on a cumulative basis; or
(ii) In the event that between 75% and 95% of an Option
Target shall be achieved for a Target Year or, with respect to the first
Business Plan Vest Date for the first two Target Years on a cumulative basis,
then (I) with respect to such first two Target Years, for each whole percent
above 75% (and with respect to the last whole percent between 94% and 95%, 94.99
shall be considered a whole percentage point for purposes of this calculation)
of an Option Target that shall be achieved, an additional .3% of the shares of
Common Stock subject to such option shall vest in respect of such Target Years
(rounded up or down to the nearest whole share of Common Stock) and (II) with
respect to each subsequent Target Year, for each whole percent above 75% (and
with respect to the last whole percent between 94% and 95%, 94.99 shall be
considered a whole percentage point for purposes of this calculation) of an
Option Target that shall be achieved, an additional .25% of the shares of Common
Stock subject to such option shall vest in respect of such Target Year (rounded
up or down to the nearest whole share of Common Stock); or
(iii) In the event that 75% or less of an Option Target
shall be achieved for a Target Year or, with respect to the first Business Plan
Vest Date for the first two Target
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<PAGE> 16
Years on a cumulative basis, then no additional shares of Common Stock subject
to such option shall vest in respect of such Target Year or Target Years.
(iv) Notwithstanding clauses (ii) and (iii) above, if the
Option Target for such optionee shall not have been achieved for any Target
Year, but at least 95% of the sum of the Option Targets for (a) the first two
Target Years and the third Target Year, (b) the third Target Year and the
fourth Target Year, or (c) the first two Target Years, the third Target Year
and the fourth Target Year, shall have been achieved as at the end of any such
period, then the shares of Common Stock that would have vested if 100% of the
Option Target had been achieved for each such Target Year in the applicable
period, but did not so vest, shall nevertheless vest on the first Business Plan
Vest Date thereafter. The Option Target for each Target Year following the
date of grant of an option shall be appended to the Contract between the
Company and the optionee.
(v) Any of the shares of Common Stock subject to such option
which shall not have vested pursuant to clauses (i), (ii), (iii) and (iv)
above, shall automatically vest 90 days prior to the end of such option's term.
(c) In the event that the Option Target applicable to an optionee
shall be achieved with respect to any Target Year represented by each of the
first four full fiscal years during an option's term, and exceeded by at least
10% (the number of percentage points of such excess over 10% being referred to
as the "Excess"), then, in addition to the shares of Common Stock that shall
vest in accordance with the preceding clauses above in subparagraph (b), the
optionee shall automatically be granted on the first Business Plan Vest Date
after the applicable Target Year (or with respect to the first two Target
Years, for each of such two Target Years on the first Business Plan Vest Date)
an additional option (the "Additional Option") to purchase shares of Common
Stock (rounded up or down to the nearest whole share of Common Stock) equal to
the product of (i) 5% of the aggregate number of shares of Common Stock
originally subject to stock options granted to such optionee and (ii) a
fraction, the numerator of which is the Excess (rounded up or down to the
nearest one-tenth of a percent) and the denominator of which is 10; provided,
however, that the maximum number of shares of Common Stock subject to the
Additional Options granted with respect to any single Target Year shall not
exceed 5% of the number of shares of Common Stock subject to the original
option granted prior thereto. Additional Options shall be 100% vested upon
their grant. The exercise price of the shares of Common stock under each
Additional Option shall be equal to the fair market value of the Common Stock
on the grant date of the original option.
(d) The term "Plan Shares" shall mean the number of shares of Common
Stock that, after adjustment by the Board of Directors in accordance with
Paragraph 12 of the Plan, would be subject to an option assuming the occurrence
of an Initial Public Offering of the Company in connection with which the
shares of common stock issued and outstanding on the date of adoption of this
Plan would be adjusted such that an aggregate of 30,300,000 shares of
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<PAGE> 17
common stock of the Company would be issued and outstanding immediately prior
to the Initial Public Offering. Accordingly, an option to purchase Plan Shares
shall entitle the optionee to purchase such number of shares of Class B Common
Stock as shall be equal to the number of Plan Shares subject to the option
divided by 30.3 at an exercise price which shall be equal to the exercise price
per Plan Share multiplied by 30.3. To the extent that fewer or greater than
30,300,000 shares of Capital Stock of the Company are issued and outstanding
immediately prior to an Initial Public Offering, or the date on which the
option otherwise first becomes exercisable, as the case may be (in either case,
the "Outstanding Shares"), (i) for purposes of determining the number of shares
of Class B Stock (or, after the occurrence of an Initial Public Offering,
shares of Common Stock) the optionee is entitled to purchase, the number of
Plan Shares with respect to which the optionee holds an option shall be
multiplied by a fraction, the numerator of which is the number of Outstanding
Shares and the denominator of which is 30,300,000, and (ii) for purposes of
determining the exercise price of the option, the exercise price per Plan Share
shall be multiplied by a fraction, the numerator of which is 30,300,000 and the
denominator of which is the number of Outstanding Shares. "Capital Stock"
means the Company's Class A stock, Class B stock, Class C stock, Class D stock
and Class E stock, in each case with a par value of $.01 per share.
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<PAGE> 1
EXHIBIT 10.08
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> 2
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> 3
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> 4
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> 5
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> 6
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> 7
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> 8
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 Bonus Amount
$MMs % Achieved as % of Salary
- ---- ----------- --------------
<S> <C> <C>
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 Bonus Amount
$MMs % Achieved 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>
Example: VP at $100,000 Base Salary
<TABLE>
<S> <C> <C> <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> 9
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 Bonus Amount
$MMs % Achieved as % of Salary
- ---- ----------- --------------
<S> <C> <C>
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 Bonus Amount
$MMs % Achieved 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>
Example: Director at $60,000 Base Salary
<TABLE>
<S> <C> <C> <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> 10
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 Bonus Amount
$MMs % Achieved as % of Salary
- ---- ----------- --------------
<S> <C> <C>
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 Bonus Amount
$MMs % Achieved 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.
Example: Level D Associate at $42,000 Base Salary
<TABLE>
<S> <C> <C> <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> 11
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 Bonus Amount
$MMs % Achieved as % of Salary
- ---- ----------- --------------
<S> <C> <C>
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 Bonus Amount
$MMs % Achieved 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>
Example: Level E Associate at $30,000 Base Salary
<TABLE>
<S> <C> <C> <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> 12
G AND A BONUS LEVEL
DETERMINATION GUIDELINES
<TABLE>
<CAPTION>
LEVEL CLASSIFICATION JEP GUIDELINES
- ----------- -------------------------- ----------------------------------
<S> <C> <C>
D Manager (or 450-799
equivalent JEPs)
- ----------- -------------------------- ----------------------------------
E Supervisor/Individual 295-449
Contributor Specialist
- ----------- -------------------------- ----------------------------------
</TABLE>
<PAGE> 13
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> 14
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
==========================================================================================================================
DIRECTOR 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 90,000 90,000 90,000 90,000
(estimate)
==========================================================================================================================
2,903,675 2,340,940 1,778,205 1,215,470 652,735
========= ========= ========= ========= =========
</TABLE>
<PAGE> 1
EXHIBIT 10.09
AGREEMENT
AGREEMENT dated as of October 30, 1996 (this "Agreement") between
CANTRADE TRUST COMPANY LIMITED, in its capacity as trustee of The Carmel Trust,
a trust governed by the laws of Canada and established under a trust settlement
made August 17, 1977 ("Carmel"), and CSK AUTO, INC., an Arizona corporation
("CSK").
WHEREAS, CSK is a retailer of after-market automotive parts and
accessories and, as part of its expansion strategy, intends to relocate certain
of its existing stores and to open new stores; and
WHEREAS, CSK requires an entity or entities to purchase fee title to the
land required by such expansion strategy, and to finance the construction of
new and/or the renovation of existing stores and other improvements thereon,
and to lease such land and stores to CSK under operating leases; and
WHEREAS, Carmel is willing to cause its indirect subsidiary,
Transatlantic Finance, Ltd ("Transatlantic"), to cause one or more of its
affiliates (each a "Funding Company" and, collectively, the "Funding
Companies") to enter into agreements to invest in the acquisition and lease of
properties to CSK on a revolving basis in an aggregate amount outstanding at
any one time not to exceed $50,000,000 in accordance with the terms and
conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties hereto, CSK and
Carmel hereby agree as follows:
Capitalized terms used and not otherwise defined in this Agreement shall
have their respective meanings as defined in the form of lease agreement
attached hereto and made a part hereof as Exhibit A.
1. Land Purchases. (a) From time to time during the Funding Term
(as hereinafter defined), Carmel upon request by CSK shall cause Transatlantic
to cause a Funding Company to enter into contracts (each a "Contract") to
purchase fee title to parcel(s) of land (each parcel being "Land") for certain
purchase prices (each a "Purchase Price"), subject to the terms and conditions
of this Section 1. Each Contract and Purchase Price shall result from arms-
length negotiations between a Funding Company and the owner of the Land in
question. "Funding Term" means the period commencing on the date of this
Agreement and ending on the date that is the earliest of (i) April 30, 2004;
and, at (ii) the election of a Funding Company or CSK, (A) six (6) months after
the earlier of (1) the first public offering of any class of CSK's equity
securities (an "IPO") and (2) the material beneficial CSK Holdings, Ltd. and
the Purchaser therein (the "Stock Purchase Agreement"), provided that such
modification results in CSK's ability to fund the transactions contemplated by
this Agreement and (B) the date that the Original Investcorp Group (as
hereinafter defined) ceases to hold at least fifty percent (50%) of the shares
of voting stock of CSK Group, Ltd. held by such group on the date hereof; and
(iii) at the election of the Funding Companies, upon (A) the occurrence of any
default, beyond any applicable notice, grace or cure periods, by CSK with
respect to the payment of interest or principal under the Bank Facility,
<PAGE> 2
whether or not waived by the applicable lender, (B) the acceleration of the
Bank Facility, and (C) the occurrence under the Bank Facility of any of the
following events in connection with the curing of any default under such
facility: (x) an increase of the interest rate by one-half of one percent (
1/2%) or more (other than under the terms and provisions of the original Bank
Facility documents) or (y) the shortening of the maturity date by more than one
(1) year; and (iv) at the election of CSK with at least ninety (90) days prior
notice to the Funding Companies, any January 31, commencing on January 31,
1998. "Original Investcorp Group" shall have its meaning as defined in the
Stockholders' Agreement, dated as of October 30, 1996, among Carmel, CSK, CSK
Group, Ltd., CSK Holdings, Ltd. and the other shareholders that are signatories
thereto.
(b) A Funding Company shall be required to purchase a
particular parcel of Land if:
(i) (A) the Purchase Price for such Land and the total
cost of the proposed Project as set forth in the proposed Project Budget is
less than or equal to one hundred twenty percent (120%) of the average cost to
purchase and develop all of the real property that was purchased and fully
developed by CSK under sale-leaseback agreements, this Agreement or otherwise
during the then immediately preceding twelve (12) month period in the
Comparison Zone (as hereinafter defined), (B) the Purchase Price per square
foot for such Land is less than or equal to one hundred twenty percent (120%)
of the average per square foot purchase price previously paid by CSK for
comparable real property during the then immediately preceding twelve (12)
month period in the Comparison Zone, (C) the cost per square foot of the
proposed Project as set forth in the proposed Project Budget is less than or
equal to one hundred twenty percent (120%) of the average cost per square foot
previously paid by CSK for the construction of improvements on real property
owned by CSK during the then immediately preceding twelve (12) month period in
the Comparison Zone, (D) the Purchase Price for such Land is less than or equal
to the value set forth in the Appraisal (as hereinafter defined) of such Land,
and (E) the Purchase Price for such Land and the total cost of the proposed
Project as set forth in the proposed Project Budget is less than or equal to
the value set forth in the As Built Appraisal (as hereinafter defined) of such
Land with the proposed Project completed; "Comparison Zone" means: first, the
greater metropolitan market where such Land is located; second, if CSK has not
acquired any real property in such market, the region (defined as CSK uses such
term in the operation of the company) where such Land is located; and third, if
CSK has not acquired any real property in such region, those greater
metropolitan markets where CSK has acquired real property that have (y) per
square foot market prices for land and (z) per square foot construction costs
for buildings substantially similar to the type, size and quality of the
building contemplated by the proposed Project, that are substantially similar
to those of the greater metropolitan market where such Land is located,
(ii) (A) the square footage of the "footprint" of the
building contemplated by the proposed Project is less than or equal to twelve
thousand (12,000) square feet and greater than or equal to six thousand (6,000)
square feet, and (B) the size of such Land is less than or equal to fifty
thousand (50,000) square feet,
2
<PAGE> 3
(iii) (A) a Funding Company reasonably determines that
such Land is in a geographic location that would be acceptable to an
Institutional Investor (as hereinafter defined), without considering the
climate of the real estate market in general at such time or the geographic
concentration of CSK's then existing stores (by way of example and as a measure
against which to test whether such Land is acceptable, at least eighty percent
(80%) of the sites described on Schedule "A" annexed hereto would be so
acceptable to an Institutional Investor), and (B) such Land is zoned for
multiple uses and the proposed Project can be used for multiple purposes,
(iv) such Land is not subject to landmark, historic or
wetland designations, and is not located in an area identified by the Secretary
of Housing and Urban Development as an area having special flood hazards,
(v) a Funding Company reasonably determines that there
are no unusual or extraordinary circumstances involving or relating to, or
having an impact on, such Land which would make it imprudent to purchase such
Land, including (without limitation) being located near a dump site for
garbage, refuse, Hazardous Substances or other materials, or a nuclear or other
type of power plant,
(vi) (A) the Environmental Report (as hereinafter
defined) with respect to such Land evidences a state of affairs described in
clause (iv) of subsection (c) of this Section 1, and (B) such Land is in
compliance with all applicable Legal Requirements, (C) all licenses and
permits, and approvals of all governmental and quasi-governmental bodies and
agencies with respect to the proposed Project have been procured, and (D) such
Land has, or is zoned to have, at least five (5) parking spaces for every one
thousand (1,000) rentable square feet in the building to be constructed as part
of the Project on such Land,
(vii) (A) such Land is served by electric, gas, sewer,
water and all other utilities required for the use of the Premises (as
hereinafter defined) as contemplated by the respective Lease (as hereinafter
defined), and (B) such Land has direct access to all streets necessary to serve
the Premises for the use contemplated by the respective Lease, such streets
being completed and serviceable and dedicated and accepted by all applicable
governmental and quasi-governmental bodies and agencies,
(viii) (A) such Land does not have, and is not proposed to
have, a building that is "in line" in a shopping center as opposed to being
"out front on a major street," and (B) such Land is not subject to any
reciprocal easement agreements, unless such Land is a separate "pad" in a
shopping center,
(ix) such Land is not subject to any title exceptions
other than: (A) zoning and subdivision laws and regulations that are not
violated by the existing buildings and improvements erected thereon or that
will not be violated by the proposed Project, (B) consents for the erection of
any structures on, under or above the streets on which the Land abut, (C) real
estate taxes that are a lien, but not yet delinquent, (D) any grants prior to
the date of the respective Contract of licenses or easements for public
utilities that do not materially inhibit the proposed use of the Land as
contemplated by this Agreement or the respective Lease, (E) minor
3
<PAGE> 4
and immaterial tax map variations, (F) covenants, restrictions, easements and
reservations of record, if any, provided the same are not violated by the
existing buildings and improvements erected, or that will not be violated by
the proposed Project, on the Land, or their present or anticipated use, and (G)
any state of facts which an up-to-date survey of the Land would show, provided
such state of facts does not render title unmarketable or materially inhibit
the proposed use of the Land as contemplated by this Agreement or the
respective Lease, and
(x) (A) such Land is otherwise in compliance with all
of the terms and provisions of this Section 1, (B) all of the conditions
precedent to closing under the respective Contract have been satisfied, and (C)
all of the terms and conditions under the respective Lease to be satisfied by
the lessee as of the Interim Term Commencement Date thereunder have been
satisfied by CSK.
(c) Each request by CSK for a Funding Company to purchase Land
shall be accompanied by the following documents, each of which shall be, with
respect to such Land in question, up-to-date and otherwise in form, scope and
substance that are reasonably acceptable to a Funding Company, and prepared and
issued by people and/or entities that have been reasonably approved by a
Funding Company, and shall be prepared and issued at CSK's cost and expense:
(i) a title insurance report and commitment issued by a nationally recognized
title insurance company, with all recorded documents referenced therein annexed
thereto, (ii) a survey prepared by a licensed surveyor in accordance with the
then current Minimum Standard Detail Requirements and Classifications for
ALTA/ACSM Land Title Surveys as adopted by American Land Title Association and
American Congress on Surveying & Mapping, or such other standards as are
customary in the market in which the Land is located, provided that such other
standards, in a Funding Company's reasonable opinion, would be acceptable to an
Institutional Investor, (iii) an appraisal (without consideration of the
proposed Lease with respect to such Land, and without consideration for any
leases with respect to the comparable properties used in such appraisal)
prepared by a MAI appraiser (as qualified as set forth herein, an "Appraiser")
who shall have had at least ten (10) years' continuous experience in the
business of appraising commercial real estate in the city or town in which such
Land is located (each an "Appraisal"), which appraisal shall also, using such
standards and parameters set forth in this clause (iii), value such Land with
the proposed Project completed (each an "As Built Appraisal"), (iv) a phase I
environmental report, using a methodology and in scope, and prepared by an
environmental engineering firm, that is all reasonably acceptable to an
Institutional Investor and a Funding Company (each an "Environmental Report"),
showing that no Hazardous Substances are located on or adjacent to such Land in
violation of any Environmental Laws and that such Land conforms to all
applicable Environmental Laws, (v) the proposed Plans and Specifications for
the proposed Project, (vi) the proposed Project Budget, (vii) a demographics
report for the area surrounding such Land prepared by CSK setting forth sales
and other usual projections for the proposed store on such Land (each a
"Demographics Report"), (viii) a Secretary's Certificate of CSK certifying,
among other things, the approval of the Real Estate Committee of the Board of
Directors of CSK regarding CSK's request for a Funding Company to purchase such
Land, to fund the construction of the Project thereon, and to lease the same to
CSK pursuant to the terms and conditions of this Agreement, and (ix) such other
documents as a Funding Company reasonably determines may be requested by an
Institutional Investor.
4
<PAGE> 5
2. Lease; and Funding Company's Construction Funding. At the
closing of each Land purchase, a Funding Company, as landlord, and CSK, as
tenant, will enter into a triple net lease with respect to such Land, and the
buildings and improvements erected or to be erected thereon (such Land and the
buildings and improvements being hereinafter called the "Premises"),
substantially in the form of Exhibit "A" annexed hereto (each a "Lease" and,
collectively, the "Leases"). Among other things, each Lease shall provide for
(a) CSK's obligation, as a Funding Company's agent, to arrange for the
construction of the Project on the Land in question and (b) the Funding
Company's funding of the cost of such Project, which funding shall be subject
to the terms and conditions contained in this Agreement and the respective
Lease.
3. Funding Commitment; and Letter of Credit. Notwithstanding
anything to the contrary in this Agreement, any Lease, any Contract, or any
other document or agreement executed and delivered in connection with any of
the transactions contemplated herein:
(a) the aggregate amount funded, including without limitation
the use of any Backstop Amount, or any portion thereof, by all of the Funding
Companies for (i) all of the Purchase Prices, (ii) the construction of the
Projects on all of the Land purchased by the Funding Companies, (iii) real
estate taxes, assessments, water and sewer charges and all other expenses
arising out of the ownership or operation of each parcel of Land for the
respective periods commencing on the respective Interim Term Commencement Date
through the respective Basic Term Commencement Date (each a "Development
Period") and (iv) interest thereon during and as in effect on the first day of
the respective Development Periods at a rate per annum (the "Rate") equal to
The Chase Manhattan Bank, N.A. prime rate plus two (2%) percent (collectively,
the "Development Costs") shall not at any time exceed an amount equal to: (I)
$50,000,000, minus (II) the sum of (a) the aggregate Development Costs
previously paid under all of the Contracts and advanced under all of the Leases
during the Funding Term, which have not subsequently been repaid to the Funding
Companies in accordance with Section 5 of this Agreement, or replenished by the
Funding Companies' receipt of net proceeds from the sale or factoring of the
stream of rentals under any of the Leases, whether or not a Funding Company
remains the owner of the respective Premises, (b) the aggregate funds expended
by the Funding Companies under the self-help provisions of the Leases in order
to complete the construction of the Projects or otherwise and (c) the aggregate
amount which the Funding Companies deem necessary from time to time to complete
the construction of the Projects under the Leases, including (without
limitation) a reserve for interest (collectively, the "Funding Commitment");
and
(b) there shall be no obligation of any Funding Company to
advance any funds under the Funding Commitment to pay a Purchase Price for a
particular parcel of Land or to fund any costs for the construction of the
Project on such Land or any other Land on which construction of a Project has
not already commenced (i) unless CSK delivers to the Funding Company a schedule
that provides commercially reasonable evidence that the purchase of such Land
and the construction of such Project thereon will be completed on or before the
expiration of the Funding Term, (ii) in the case of a particular Purchase Price
or construction and/or renovation cost advance, if the same would exceed the
total amount of the Funding Commitment, (iii) if there is a default by CSK
under any of the Leases or any of the other Operative Documents, (iv) if there
is an uncured default by CSK under the Bank Facility, or the Series A CSK Notes
or the Series B CSK Notes (each as defined in the Stock Purchase Agreement), or
any high-yield
5
<PAGE> 6
subordinated debt substantially on the terms set forth on Exhibit E of the
Stock Purchase Agreement, whether or not such default is waived by the
applicable lender or holder thereof, and (v) if ten percent (10%) or more of
the Premises then owned by the Funding Companies from time to time, whether the
Projects thereon have been completed, are Non-Conforming Premises (as
hereinafter defined). Notwithstanding anything to the contrary in this
paragraph (b), the Funding Companies will continue to advance funds under the
Funding Commitment in accordance with the terms of this Agreement for the
completion of Projects for which actual construction has already commenced.
"Non-Conforming Premises" means any Premises where the actual costs for the
items set forth in its Project Budget exceeds the Project Budget by ten percent
(10%) or more; and
(c) on or before the first day of each and every month during
the Funding Term, the Funding Companies shall either (i) deliver to CSK a clean
irrevocable standby Letter of Credit (the "Letter of Credit") in an amount
equal to one hundred twenty percent (120%) of (A) the Revised Budgeted
Facilities Outstanding for the month in question, as the same may have been
further adjusted, less (B) the actual amount outstanding under the Funding
Commitment five (5) days prior to such month, or (ii) deposit, and cause to be
maintained, subject to the making of advances under the Funding Commitment
therefrom, the amount equal to clause (A) less clause (B) into a single purpose
account of one of the Funding Companies designated for this purpose; the amount
of any such Letter of Credit or deposit for a particular month being the
"Backstop Amount". The Backstop Amount shall be security for the Funding
Companies obligations to make advances under the Funding Commitment in
accordance with the terms and conditions of this Agreement, and shall be used
to make advances by the Funding Companies under this Agreement.
4. Funding Budget. CSK shall provide to the Funding Companies a
budget (a) on the date of this Agreement with respect to the period commencing
on such date and ending on the last day of its current fiscal year and (b) at
least sixty (60) days prior to the beginning of each fiscal year thereafter
with respect to such fiscal year, in each case indicating a good faith forecast
of the total amount of the Funding Commitment that it anticipates will be
outstanding during the period covered by such budget (each an "Original Annual
Budget"), which Original Annual Budget shall include a month by month breakdown
of such total amount (for each month, the "Original Budgeted Facilities
Outstanding"). At least fifteen (15) days prior to the first day of each and
every month during the Funding Term, CSK shall provide to the Funding Companies
a budget with respect to the immediately succeeding ninety (90) days (each a
"Rolling Quarterly Budget"), in each case adjusting (if necessary) each
Original Budgeted Facilities Outstanding during the period covered by such
Rolling Quarterly Budget; provided that (i) CSK may only adjust the Original
Budgeted Facilities Outstanding for the first and second months of such period,
as the same first appeared in a Rolling Quarterly Budget (each a "Revised
Budgeted Facilities Outstanding"), within a range (the "Range") from such
Revised Budgeted Facilities Outstanding having as its upper limit (i) the lower
of (A) one hundred twenty percent (120%) of such Revised Budgeted Facilities
Outstanding and (B) $4,000,000 in excess of such Revised Budgeted Facilities
Outstanding and having as its lower limit (ii) the higher of (A) eighty percent
(80%) of such Revised Budgeted Facilities Outstanding and (B) $4,000,000 less
than such Revised Budgeted Facilities Outstanding. In addition to such
adjustments under the Quarterly Rolling Budgets, CSK may increase any Original
Budgeted Facilities Outstanding or any Revised Budgeted Facility
6
<PAGE> 7
Outstanding within the Range (I) by up to $2,000,000 by giving a Funding
Company notice at least ten (10) days prior to the beginning of the month in
question and (II) by $2,000,000 or more by giving a Funding Company notice at
least thirty (30) days prior to the beginning of the month in question.
Notwithstanding anything to the contrary in this Section 4, the Original Budget
Facilities Outstanding for a particular month may never be increased to an
amount which is $10,000,000 over the highest Original Budgeted Facilities
Outstanding contained in the Original Annual Budget which includes the
particular month in question. The Funding Companies shall not be required to
fund any amounts in excess of the then unadvanced portion of the final budgeted
amount for the particular month in question. To the extent that CSK, on a
daily basis, calculated at the end of each day, uses less than the final
budgeted amount for a particular month, it shall owe the Funding Companies an
amount (the "Foregone Earnings") equal to the difference between the income
earned during such day by the Funding Companies on such final budgeted amount
not used by CSK and the income which would have been earned during such day had
such funds been invested throughout such day at the Rate. The sum of the
Foregone Earnings (if any) for a particular month shall be due and payable to
the Funding Company within ten (10) days after the close of the month in
question.
5. Exclusive Arrangement; Temporary Investment; and Resale of
Property. CSK hereby agrees to lease, relocate and develop all of its stores
pursuant to the terms and conditions of this Agreement, except (a) during any
period that the Funding Commitment is fully utilized, (b) for those specific
land purchases that a Funding Company rejects or otherwise does not close
pursuant to the terms and conditions of this Agreement and (c) for those stores
for which CSK, as lessee or sublessee, enters into leases or subleases,
respectively, directly with the owner or lessee, respectively, of the land in
question at the time CSK identified the same as a potential store location, or
with a Person under contract or holding an option to purchase the land in
question at such time as CSK identified such potential store location. CSK
acknowledges and agrees that the investments of the Funding Companies in the
Premises hereunder, and all of the related Leases entered into hereunder, are
intended as short term investments only, pending the sale of all of the
Premises (subject to the Leases) by the Funding Companies. The Funding
Companies have the exclusive right to sell each of the Premises for a period
commencing on the respective Interim Term Commencement Date and ending six (6)
months following the respective Basic Term Commencement Date (each an
"Exclusive Period"), such exclusivity with respect to a particular Premises
terminating at the end of the respective Exclusive Period; provided that such
exclusivity shall not be in effect during any period that there is $30,000,000
or more outstanding under the Funding Commitment. CSK agrees to give all leads
with respect to potential purchasers of the Premises during any Exclusive
Period to the Funding Companies and to use its best commercially reasonable
efforts to locate bona fide third party purchasers for each Premises that is
still owned by a Funding Company after the expiration of its Exclusive Period
on terms which are competitive with those available for similar transactions.
For a sale of a particular Premises after the Basic Term Commencement Date, CSK
hereby agrees to make those commercially reasonable changes to the respective
Lease for the respective Premises that may be required by any such third party
purchaser in order to make such Lease a so called "market lease" or as is
necessary to consummate such third party purchases, including, without
limitation, adjustments to Basic Rent and Additional Rent; provided that CSK
shall not be obligated to pay Basic Rent per annum in excess of the product of
(i) Development Costs for the Premises in question, and (ii) six percent
7
<PAGE> 8
(6%) over the thirty (30) year United States Treasury Bill rate in effect on
the Rate Determination Date. The sale price for each sale of a Premises to a
third party purchaser must be for at least an amount that is equal to the
Development Costs for the Premises in question.
6. Fees and Expenses. CSK shall pay to the Funding Companies on
demand all costs, expenses, fees and charges in connection with (a) reviewing,
processing, servicing, documenting and/or closing, as the case may be, each
parcel of Land proposed by CSK for purchase by a Funding Company, (b)
considering, making and/or administering each advance under the Funding
Commitment, (c) reviewing and monitoring, and/or otherwise in connection with,
the construction of each Project, and (d) the sale or transfer of any Premises
pursuant to Section 5 or otherwise, including, without limitation, the
reasonable fees and disbursements of the Funding Companies' attorneys and
construction managers, charges for Appraisals, fees and expenses relating to
examination of title, title insurance premiums, surveys, Environmental Reports
and Demographics Reports, documentary, transfer or other similar taxes and
revenue stamps, and all other costs, expenses, fees and charges which
Institutional Investors typically pass onto their borrowers; provided that CSK
shall not be obligated to pay the fees and disbursements of the Funding
Companies' architects, engineers and appraisers that review or otherwise
examine the Plans and Specifications, Appraisals, reports and other work
product of such professionals hired by CSK and approved by a Funding Company
pursuant to the terms and conditions of this Agreement.
7. Amendment and Modification. This Agreement may not be amended,
modified or changed except in a writing signed by the party against whom such
amendment, modification or the like is sought to be enforced. CSK and Carmel
hereby agree to amend this Agreement to the extent it becomes necessary to
either (a) conform the provisions that describe the mechanics and
administrative procedures of the transactions described herein to the actual
procedures which evolve as the transactions proceed or (b) satisfy the
reasonable requirements of investors which may take a participating interest or
otherwise invest in this transaction so as to conform the terms and conditions
of this Agreement to those generally required by major New York City
institutional lending and/or investment institutions (such as The Chase
Manhattan Bank, N.A.; each being an "Institutional Investor") for similar or
analogous transactions, including without limitation the provisions that
describe the mechanics and administrative procedures of the transactions
described in this Agreement; provided that the amendments contemplated by this
clause (b) shall not result in a material increase in costs or expenses to be
paid by CSK or any increase of CSK's economic obligations under this Agreement.
8. Waiver of Compliance; and Consents. Except as otherwise provided
in this Agreement, any failure of any of the parties to comply with any
obligation, covenant, agreement or condition herein may be waived by the party
entitled to the benefits thereof only by written instrument signed by the party
granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf
of a party, such consent shall be given in writing in a manner consistent with
the requirements for a waiver of compliance as set forth in this Section 8.
9. Access to Premises and Records. At all reasonable times upon the
written request of a Funding Company and subject to confidentiality agreements
reasonably acceptable to CSK,
8
<PAGE> 9
CSK shall permit and shall cooperate in all respects with representatives
designated by a Funding Company, any proposed or actual investor in (whether
direct or indirect), assignee of or participant in this Agreement, and proposed
purchasers of any Premises to (a) have access to each of the Premises and the
books and records of CSK, (b) make copies of, or excerpts from, such books and
records and (c) discuss the accounts, assets, business, operations, properties
(including, without limitation, each of the Premises) or condition, financial
or otherwise, of CSK with their respective officers, directors, employees,
accountants, attorneys and agents so long as such representatives agree to be
bound by the terms and conditions of the respective confidentiality agreements.
Notwithstanding anything to the contrary in this Article 9, proposed purchasers
of less than ten (10) Premises shall only have access under clause (a) to the
specific Premises they propose to purchase, the books and records related to
such Premises and the financial information, reports and statements of CSK that
would be supplied or made available to such a purchaser as a lessor under a
Lease for such Premises in question.
10. Notices. Except as otherwise expressly provided, any notice,
request, demand or other communication permitted or required to be given under
this Agreement shall be in writing, shall be sent by one of the following means
to the addressee at the address designated by notice to the other parties,
effective upon actual receipt, and shall be deemed conclusively to have been
given: (a) on the first business day following the day timely deposited with
Federal Express (or other equivalent national overnight courier) or United
States Express Mail, with the cost of delivery prepaid or for the account of
the sender; (b) on the fifth business day following the day duly sent by
certified or registered United States mail, postage prepaid and return receipt
requested; or (c) when otherwise actually received by the addressee on a
business day (or on the next business day if received after the close of normal
business hours or on any non-business day).
11. Assignment. CSK shall not assign or in any manner transfer this
Agreement, including (without limitation) by operation of law, merger,
consolidation or other corporate action where the Original Investcorp Group
fails to continue to own at least fifty percent (50%) of the shares of voting
stock of CSK Group, Ltd. owned by such group on the date of this Agreement. It
shall be deemed an assignment or transfer of this Agreement if at any time the
Original Investcorp Group ceases to own fifty percent (50%) of the shares of
voting stock of CSK Group, Ltd. owned by such group on the date of this
Agreement. Carmel may transfer or assign up to $25,000,000 of its Funding
Commitment obligations under this Agreement or any interest therein, and, in
the case of any such assignment or transfer, Carmel shall only be released from
the portion of such obligations which is equal to the product of (a) the net
worth of the assignee or transferee, determined in accordance with GAAP, and
(b) twelve and one-half percent (12 1/2%); provided that such assignee or
transferee has total assets equal to or greater than eighty (80) times the
amount of the obligations proposed to be released. Each such release shall be
automatic and without the need for any action or consent by any party hereto.
If pursuant to the terms and conditions of this Agreement Carmel is released
from any of its obligations hereunder, CSK shall, after a written request by
Carmel, execute and deliver to Carmel a release from such obligations in form
and substance reasonably acceptable to Carmel. Furthermore, Carmel may assign,
transfer or sell participations up to an additional $15,000,000 of its Funding
Commitment obligations under this Agreement. Each assignee and transferee
shall have the right to further transfer or assign its interest. In no event
shall Carmel be released from liability hereunder with respect to such
$15,000,000. CSK agrees not to assert against any of such transferees,
assignees or participants
9
<PAGE> 10
any defense, claim, counterclaim or set-off that CSK may have against Carmel,
whether arising under this Agreement or otherwise; however, CSK may pursue any
of the same against Carmel. This Agreement shall be binding upon and inure to
the benefit of CSK and Carmel and their respective permitted successors and
assigns. Successors of Carmel shall include, without limitation, any person
acquiring, directly or indirectly, all or substantially all of the assets of
Carmel, whether by merger, consolidation, purchase, lease or otherwise, and
such successor shall thereafter be deemed "Carmel" for the purposes hereof.
12. Governing Law; and Service of Process. This Agreement shall be
governed by the laws of the State of New York applicable to agreements made and
to be performed entirely in New York, without regard to principles of conflicts
of law or choice of law. Carmel and CSK each irrevocably consents to the
jurisdiction and venue of any state or federal court situated in the City of
New York, waives any objection or defense to any such jurisdiction or venue as
an inconvenient forum, and consents to the service of any and all process in
any action or proceeding arising out of or relating to this Agreement by the
mailing of copies of such process to the other party at its address designated
by such party in accordance with Section 10.
13. Entire Agreement; and Counterparts. This Agreement embodies the
entire agreement and understanding of the parties hereto with respect to the
subject hereof. There are no restrictions, promises, representations,
warranties, covenants or undertakings other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such transactions. This
Agreement may have been executed in two or more counterpart copies of the
entire document or of signature pages to the document, each of which may be
executed by one or more of the parties hereto or thereto, but all of which,
when taken together, shall constitute a single agreement binding upon all of
the parties hereto or thereto, as applicable.
14. Section Headings. The descriptive headings herein are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
CANTRADE TRUST COMPANY LIMITED,
IN ITS CAPACITY AS TRUSTEE OF THE CARMEL TRUST
By: /s/ ROBERT SMITH
------------------------------------------
Robert Smith
10
<PAGE> 11
CSK AUTO, INC.
By: /s/ JAMES G. BAZLEN
------------------------------------------
Name: James Bazlen
Title: President
11
<PAGE> 1
EXHIBIT 10.10
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> 2
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
-2-
<PAGE> 3
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> 4
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> 5
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> 6
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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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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(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.
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<PAGE> 9
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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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> 11
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> 12
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> 13
execute and deliver to Landlord a letter in the form attached hereto
and made a part hereof as EXHIBIT E , acknowledging the Date
ofOccupancy 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> 14
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> 15
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> 16
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> 17
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> 18
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> 19
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
-19-
<PAGE> 20
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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<PAGE> 21
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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<PAGE> 22
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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<PAGE> 23
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> 24
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> 1
EXHIBIT 10.11
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 1st 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> 2
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> 3
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> 4
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> 5
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> 6
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> 7
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> 8
"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> 9
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> 10
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> 1
EXHIBIT 10.12
AMENDMENT TO LEASES
This Amendment to Leases is made as of this 30th day of October, 1996
by and between Missouri Falls Associates Limited Partnership, as landlord (the
"Landlord"), and Northern Automotive Corporation, as tenant (the "Tenant").
RECITALS
A. Landlord and Tenant are party to that certain amended and
restated lease dated May __, 1989, as amended by that certain First Amendment
to Amended and Restated Lease dated November 22, 1991 (the "Original Lease")
and that certain lease dated December 10, 1992 between FSL Administrative
Services, as predecessor tenant, and Spectrum Properties Incorporated, as
predecessor landlord (the "Additional Lease," and together with the Original
Lease, the "Leases").
B. Landlord and Tenant desire to amend the terms of the Leases.
Now therefore, in consideration of the premises set forth above and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
1. Capitalized Terms. Capitalized terms used herein and not
otherwise defined shall have the meanings set forth for such terms in the
Leases.
2. Term.
(a) The Lease Term described in the Original Lease is modified to
provide that such Lease Term shall expire on October 31, 2006. Section 18 of
the First Amendment to the Original Lease and Section 40 of the Original Lease
are hereby deleted and of no further force of effect.
(b) The Term described in the Additional Lease is hereby modified to
provide that the Termination Date is October 31, 2006.
3. Rent.
(a) From August 1, 1998 through and including October 31, 2001, Base
Rent per square foot shall be payable at the rate set forth in Section 5 of the
First Amendment to the Original Lease and effective on July 31, 1998.
(b) From April 1, 1998 through and including October 31, 2001, Base
Rent per square foot for the Leased Premises under the Additional Lease shall
be the rent per square foot for Improved Space at the rate set forth in Section
5 of the First Amendment to the Original Lease and effective on July 31, 1998.
<PAGE> 2
(c) From November 1, 2001 through the end of the lease term, as
extended hereby, Base Rent per square foot for the Improved Space (as defined
in the Original Lease) and the Leased Premises (as defined in the Additional
Lease) shall be adjusted to an amount equal to the applicable base rent for
such space in effect on October 31, 2001 multiplied by the lesser of (i) 115%,
and (ii) the Cumulative CPI Factor for the period from November 1, 1996 through
October 31, 2001. There shall be no decrease in the base rent as a result of
the adjustment contemplated by this Section 3(c).
As used herein "Cumulative CPI Factor" shall mean a fraction, the
numerator of which is the Current Number and the denominator of which is the
Base Number. As used in this definition, the following capitalized terms shall
mean: "Base Number" shall mean The Consumer Price Index for All Urban
Consumers, United States City Average, All Items (1982- 84=100), issued by the
Bureau of Labor Statistics of the United States Department of Labor
(hereinafter called the "Index") for the month immediately prior to the period
in question; and "Current Number" shall mean the latest Index published for the
last month of the period in question by the Bureau of Labor Statistics or other
governmental agency then publishing the Index (or if the Index is no longer
published, the index of consumer prices reasonably deemed by Lessor to be
comparable to the Index), after making such adjustments as may be prescribed by
the agency publishing the same or as otherwise so deemed to be required to
compensate for changes subsequent to January 1, 1984 in the base, items
included or method of compilation thereof.
4. Parking. Tenant's parking rights under the Leases shall
remain as set forth in such Leases, subject to the reasonable movement (but not
diminution in number) of spaces by Landlord.
5. Conformity. From and after April 1, 1998, the terms and
conditions of the Additional Lease shall be modified to conform to the terms of
the Original Lease.
6. Confirmation. Other than as modified hereby, the terms and
conditions of the Leases are hereby ratified and confirmed.
In witness whereof, the undersigned have hereunto set their hands this
30th day of October, 1996.
LANDLORD
Missouri Falls Associates Limited Partnership
By: Missouri Falls Holdings, Inc.,
general partner
By: /s/ James Lieb
---------------------------------------
Name: James Lieb
Title: Executive Vice President
2
<PAGE> 3
TENANT
Northern Automotive Corporation
By: /s/ James G. Bazlen
---------------------------------------
Name: James G. Bazlen
Title: President
3
<PAGE> 1
EXHIBIT 10.13
FINANCING ADVISORY AGREEMENT
This Agreement is made effective as of the 30th day of October, 1996, by
and between Investcorp International, Inc., a Delaware corporation ("III") and
CSK Auto, Inc., a Delaware corporation ("CSK Auto").
WHEREAS, pursuant to an Stock Purchase Agreement dated as of September
29, 1996, as amended, by and between the parties listed on the attached
schedule 1 (the "Purchasers") and the Carmel Trust, the Purchasers shall
purchase fifty-one percent of the outstanding stock of CSK Group, Ltd., the
parent of CSK Auto;
WHEREAS, CSK Auto intends to arrange borrowing facilities with one or
more financial institutions unaffiliated with III in the aggregate amount of
approximately $315 million (the "Financing");
WHEREAS, III and its officers, employees, agents and affiliates are
experienced in the field of obtaining debt financing and are willing to act as
a financial advisor to CSK Auto; and
WHEREAS, CSK Auto is desirous to avail itself of the assistance and
expertise of III in arranging the Financing;
NOW, THEREFORE, the parties do hereby agree as follows:
1. Services of III. III shall assist CSK Auto in arranging the
Financing. In connection therewith, III may, solely in its discretion and on
behalf of CSK Auto:
(a) seek out financial institutions that may provide the
Financing;
(b) enter into negotiations with banks and other financial
institutions regarding the terms and conditions upon which the Financing
is to be provided;
(c) advise, conduct and participate in the negotiation and
drafting of any agreements, contracts, or other documents relating to
the placement of the Financing; and
(d) take all such other actions as it may deem necessary to
arrange for the Financing.
<PAGE> 2
2. Fees. In consideration of the services contemplated by Section 1
hereof, CSK Auto shall pay to III a fee in the amount of $3,150,000.00 (1
percent of the Financing), payable on the closing of the Purchase.
3. Reimbursement. CSK Auto shall pay directly any commitment fees,
arrangement fees, or other actual out-of-pocket expenses incurred in connection
with the performance of III's services under this Agreement, including, but not
limited to, fees and disbursements of III's legal counsel.
4. Cooperation and Information. CSK Auto shall cooperate with III
in the performance of its obligations hereunder and shall furnish III with such
information as III may request (all such information so furnished hereinafter
referred to as the "Information"). CSK Auto recognizes and confirms that III:
(a) will use and rely primarily on the Information and on
information available from generally recognized public sources in
performing the services contemplated by this Agreement without having
independently verified the same;
(b) does not assume responsibility for the accuracy or
completeness of the Information; and
(c) will not make an appraisal of any of the assets of CSK Auto
or of CSK Group, Ltd.
All information so furnished to III will be kept confidential by III, except
such information as is in the public domain or as CSK Auto agrees may be
disclosed or as III is required by law to disclose; provided, however, that III
may provide such Information as it deems necessary or appropriate to financial
institutions in connection with obtaining, negotiating or arranging the
Financing in accordance with the terms of this Agreement.
5. Termination. Subject to the provisions of Paragraph 6 hereof,
which shall survive any termination of this Agreement, this Agreement shall
terminate if the Purchase is not consummated on or before January 31, 1997,
unless extended by the parties' mutual consent.
6. Indemnification. CSK Auto shall:
(a) indemnify III and hold it harmless against any losses,
claims, damages or liabilities to which III may become subject
2
<PAGE> 3
arising in any manner out of or in connection with the rendering of
services by III hereunder, unless it is finally judicially determined
that such losses, claims, damages or liabilities arose primarily out of
the gross negligence or bad faith of III; and
(b) reimburse III immediately for any legal or other expenses
reasonably incurred by it in connection with investigating, preparing to
defend or defending any lawsuits or other proceedings arising in any
manner out of or in connection with the rendering of services by III
hereunder; provided, however, that in the event a final judicial
determination is made to the effect specified in subparagraph 6(a)
above, III will remit to CSK Auto any amounts reimbursed under this
subparagraph 6(b). CSK Auto agrees that (i) the indemnification and
reimbursement commitments set forth in this paragraph shall apply
whether or not III is a formal party to any such lawsuits, claims or
other proceedings, (ii) III is entitled to retain separate counsel of
its choice at the expense of CSK Auto in connection with any of the
matters to which such commitments relate, and (iii) such commitments
shall extend upon the terms set forth in this paragraph to any
controlling person, director, officer, employee or agent of III;
provided, however, that to the extent that III retains separate counsel
in connection with any matters set forth in this subparagraph 6(b), such
counsel shall coordinate its efforts with counsel to CSK Auto.
7. Amendments. No amendment or waiver of any provision of this
Agreement, or consent to any departure by either party from any such provision,
shall be effective unless the same shall be in writing and signed by the
parties to this Agreement and then such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
8. Notices. All notices hereunder shall, in the absence of
receipted hand delivery, be deemed duly given when mailed, if the same shall be
sent by registered or certified mail, return receipt requested, and the mailing
date shall be deemed the date from which all time periods pertaining to a date
of notice shall run. Notices shall be addressed to the parties at the
following addresses:
3
<PAGE> 4
If to III, to:
Investcorp International, Inc.
280 Park Avenue
37th Floor
New York, New York 10017
Attention: Jon P. Hedley
with a copy to:
Gibson, Dunn & Crutcher LLP
1050 Connecticut Avenue, NW
Washington, D.C. 20036
Attention: Peter L. Baumbusch, Esq.
If to CSK Auto, to:
CSK Auto, Inc.
645 East Missouri Avenue
Phoenix, Arizona 85012
Attention: President
with a copy to:
Gibson, Dunn & Crutcher LLP
200 Park Avenue, 47th Floor
New York, New York 10166
Attention: Charles K. Marquis, Esq.
9. Entire Agreement. This Agreement shall constitute the entire
Agreement between the parties with respect to the subject matter hereof, and
shall supersede all previous oral and written (and all contemporaneous oral)
negotiations, commitments, agreements and understandings relating thereto.
10. Applicable Law. This Agreement shall be construed and enforced
in accordance with the laws of the State of New York and shall inure to the
benefit of, and be binding upon, III and CSK Auto and their respective
successors and assigns.
[This space intentionally left blank]
4
<PAGE> 5
IN WITNESS WHEREOF, each of the parties has caused this Financing
Advisory Agreement to be executed and delivered by its duly authorized officer
or agent as set forth below.
INVESTCORP INTERNATIONAL, INC.
By: /s/ Savio W. Tung
-----------------------------
Name:
Title:
CSK AUTO, INC.
By: /s/ James Bazlen
-----------------------------
Name: James Bazlen
Title: President
5
<PAGE> 1
EXHIBIT 10.14
CSK AUTO, INC.
645 East Missouri Avenue
Phoenix, Arizona 85012
October 30, 1996
Investcorp International, Inc.
280 Park Avenue, 37th Floor
New York, New York 10017
Dear Sirs:
This will confirm the understanding and agreement (the "Agreement")
between Investcorp International, Inc. ("III") and CSK Auto, Inc. ("CSK Auto").
l. CSK Auto hereby engages III to render financial advisory services
concerning the acquisition of fifty-one percent of the stock
(the "Stock") of CSK Group, Ltd., the parent of CSK Auto, by the
parties listed on the attached schedule 1 (the "Purchasers").
2. III hereby accepts the engagement and, in that connection, agrees
to:
(a) conduct such financial review of CSK Group, Ltd. and its
business and operations as III shall deem appropriate and
feasible, which review shall be limited to an analysis of
(i) publicly available information with respect to CSK
Group, Ltd. and (ii) such other information as shall be
supplied to III by CSK Group, Ltd.;
(b) assist in negotiations and related acquisition strategy;
and
(c) advise with respect to executive compensation matters
regarding the executives of CSK Group, Ltd.
3. For purposes of this Agreement, "acquisition" shall mean any
transaction or series or combination of transactions, other than
in the ordinary course of trade or business, whereby, directly or
indirectly, control of or a material interest in CSK Group. Ltd.
or any of its businesses or assets is transferred to CSK Auto for
consideration, including, without limitation, a sale or exchange
of capital stock or assets, a lease of assets with or without a
purchase option, a merger or consolidation, a tender or exchange
offer, a leveraged buy-out, the formation of a joint venture or
partnership, or any similar transaction.
4. The term of III's engagement hereunder shall extend from the date
hereof through the later of June 25, 1997 or the closing of the
acquisition of the Stock. Subject to
<PAGE> 2
the provisions of paragraphs 5 through 10 hereof, which shall
survive any termination of this Agreement (including by operation
of the preceding sentence), CSK Auto may terminate III's
engagement hereunder at any time by giving III at least 10 days
prior written notice.
5. If an acquisition (as defined in paragraph 3 above) of CSK Group,
Ltd. occurs during the term of III's engagement hereunder, or at
any time during a period of 12 months following the effective
date of termination of III's engagement hereunder, regardless of
whether or not III rendered advice concerning the acquisition,
then CSK Auto shall pay the sum of $1.275 million to III at the
closing of the acquisition (which amount is equal to .6 percent
of the approximately $205 million total transaction amount).
6. CSK Auto shall reimburse III for its reasonable out-of-pocket
expenses incurred during the period of its engagement hereunder
with respect to the services to be rendered by it. Out-of-pocket
expenses shall include, but not be limited to, professional fees
and disbursements incurred by III.
7. CSK Auto shall:
(a) indemnify III and hold it harmless against any losses,
claims, damages or liabilities to which III may become
subject arising in any manner out of or in connection with
the rendering of services by III hereunder, unless it is
finally judicially determined that such losses, claims,
damages or liabilities arose primarily out of the gross
negligence or bad faith of III; and
(b) reimburse III immediately for any legal or other expenses
reasonably incurred by it in connection with
investigating, preparing to defend or defending any
lawsuits or other proceedings arising in any manner out of
or in connection with the rendering of services by III
hereunder; provided, however, that in the event a final
judicial determination is made to the effect specified in
subparagraph 7(a) above, III will remit to CSK Auto any
amounts reimbursed under this subparagraph 7(b). CSK Auto
agrees that (i) the indemnification and reimbursement
commitments set forth in this paragraph shall apply
whether or not III is a formal party to any such lawsuits,
claims or other proceedings, and (ii) III is entitled to
retain separate counsel of its choice in connection with
any of the matters to which such commitments relate, and
(iii) such commitments shall extend upon the terms set
forth in this paragraph to any controlling person,
director, officer, employee or agent of III; provided,
however, that to the extent that III retains separate
counsel in connection with any matter set forth in this
subparagraph 7(b), such counsel shall coordinate its
efforts with counsel to CSK Auto.
8. Except as contemplated by the terms hereof or as required by
applicable law, III shall keep confidential all material non-
public information provided to it by CSK
2
<PAGE> 3
Auto and shall not disclose such information to any third party,
other than such of its employees and advisors as III determines
to have a need to know.
9. Except as required (i) by applicable law or (ii) under the terms
of any agreement relating to the acquisition, any advice to be
provided by III under this Agreement shall not be disclosed
publicly or made available to third parties without the prior
approval of III, which approval shall not be unreasonably
withheld or delayed.
10. Subject to the terms of the Shareholders' Agreement among CSK
Auto and the purchasers named therein, to be entered into on the
date hereof, CSK Auto agrees that III has the right to place
advertisements in financial and other newspapers and journals at
its own expense describing its services to CSK Auto hereunder,
provided that III will submit a copy of any such advertisement to
CSK Auto for its approval, which approval shall not be
unreasonably withheld or delayed.
11. CSK Auto and III acknowledge and agree that there are no brokers,
representatives or other persons which have an interest in
compensation due to III from any transaction contemplated herein.
12. No amendment or waiver of any provision of this Agreement, or
consent to any departure by either party from any such provision,
shall in any event be effective unless the same shall be in
writing and signed by the parties to this Agreement and then such
amendment, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
13. Any and all notices hereunder shall, in the absence of receipted
hand delivery, be deemed duly given when mailed, if the same
shall be sent by registered or certified mail, return receipt
requested, and the mailing date shall be deemed the date from
which all time periods pertaining to a date of notice shall run.
Notices shall be addressed to the parties at the following
addresses:
If to III, to:
Investcorp International, Inc.
280 Park Avenue
37th Floor
New York, New York 10017
Attention: Christopher J. O'Brien
with a copy to:
Gibson, Dunn & Crutcher
1050 Connecticut Avenue, N.W.
Suite 900
Washington, D.C. 20036
Attention: Peter L. Baumbusch, Esq.
3
<PAGE> 4
If to CSK Auto, to:
CSK Auto, Inc..
645 East Missouri Avenue
Phoenix, Arizona 85012
Attn: President
with a copy to:
Gibson, Dunn & Crutcher LLP
200 Park Avenue, 47th Floor
New York, New York 10166
Attn: Charles K. Marquis, Esq.
14. This letter agreement may be signed in one or more counterparts,
each of which shall constitute an original and which together
shall constitute one and the same agreement.
15. This letter agreement shall constitute the entire agreement
between the parties with respect to the subject matter hereof and
shall supersede all previous oral and written (and all
contemporaneous oral) negotiations, commitments, agreements and
understandings relating thereto.
16. This Agreement shall be construed and enforced in accordance with
the laws of New York and shall inure to the benefit of, and be
binding upon, III and CSK Auto, and their respective successors
and assigns.
17. The waiver by any party of any breach of this Agreement shall not
operate or be construed to be a waiver of any subsequent breach.
4
<PAGE> 5
If the foregoing correctly sets forth the Agreement between III and CSK
Auto, please so indicate in the space provided for that purpose below,
whereupon this letter shall constitute a binding agreement as of the date first
above written.
CSK AUTO, INC.
By: /s/ James G. Bazlen
---------------------------
Name: James Bazlen
Title: President
AGREED:
INVESTCORP INTERNATIONAL, INC.
By: /s/ Savio W. Tung
---------------------------
Name
Title:
5
<PAGE> 1
EXHIBIT 10.15
[INVIFIN S.A. LETTERHEAD]
October 30, 1996
Northern Automotive Corporation
c/o Gibson, Dunn & Crutcher
200 Park Avenue
New York, New York 10166
Re: Stand-By Commitment to Loan up to $105
Million of Senior Debt
Gentlemen:
The following outlines our mutual understanding and agreement in
connection with the above-referenced commitment.
1. Stand-By Commitment. Invifin S.A. ("Invifin") understands
that, in connection with the redemption of certain of the shares of CSK Group,
Ltd. ("Parent"), the parent corporation of Northern Automotive Corporation (the
"Company"), and the refinancing of certain indebtedness of the Company, all in
connection with the sale of shares of Parent by certain shareholders of Parent
to certain Purchasers pursuant to a Stock Purchase Agreement dated as of
September 29, 1996, a copy of which is attached hereto as Exhibit A, the
Company desires to obtain new senior credit facilities. Invifin hereby commits
to provide up to $105 million principal amount of senior debt (the "Senior
Debt") for use in effecting the refinancing and related transaction pursuant to
the Stock Purchase Agreement in the event that the Company is unable to arrange
such financing from other sources. Invifin's obligations hereunder are subject
to the terms and conditions set forth in this letter, including the
consummation of the transactions (the "Transactions") contemplated by the Stock
Purchase Agreement substantially on the terms set forth in such Agreement, with
such changes as to which Invifin shall consent, which consent shall not be
unreasonably withheld, and the failure of the Company to arrange alternative
sources for the Senior Debt.
2. Terms of Senior Debt. The Senior Debt will (i) be provided on
the closing date of the Transactions (the "Closing Date"), (ii) be evidenced by
one or more notes which will be purchased pursuant to the terms of a Note
Purchaser Agreement, (iii) bear interest and have a final maturity on terms to
be negotiated. The terms of the Senior Debt will be set forth in a loan
agreement, a promissory note and related documents, which shall contain such
other terms and conditions as are reasonably satisfactory to Invifin after
consultation with you.
3. Commissions and Expenses. The Company shall pay a fee of
$1,575,000 in consideration of Invifin's standby commitment to provide up to
$105 million of additional Senior Debt. Such fee is payable on the closing
date of the Transactions. The Company shall or shall cause its successor to
reimburse Invifin for its out-of-pocket expenses, including counsel fees,
incurred in connection with the making of this commitment, and, if funded, its
funding of the Senior Debt.
<PAGE> 2
4. Due Authorization. The Company represents that it is
authorized to execute this letter agreement.
5. Termination. The obligations of Invifin under this letter
shall terminate on the earlier to occur of the termination of the Stock
Purchase Agreement or January 31, 1997, provided that Invifin may earlier
terminate its obligations hereunder by notice to the Company (a) if any
condition to the closing of, or any provision in, the Stock Purchase Agreement
has been waived or the Stock Purchase Agreement has been amended in any case
without Invifin's consent, which consent shall not be unreasonably withheld; or
(b) if trading in securities generally on the New York Stock Exchange or the
American Stock Exchange or the over-the-counter market shall have been
suspended or minimum prices shall have been established on either of such
exchanges or such market by the Securities and Exchange Commission or by such
exchange or a general banking moratorium shall have been declared by federal or
state authorities. Upon termination of this letter agreement pursuant to this
paragraph or upon any termination by the Company, the Company will remain
obligated under paragraph 4 hereof with respect to the payment of Invifin's
expenses.
6. Counterparts. This letter agreement may be signed in
counterparts, each of which shall constitute an original and which together
shall constitute one and the same agreement.
Please indicate your acceptance of the foregoing by signing and
returning the enclosed copy of this letter agreement. We look forward to
working with you on this matter.
Very truly yours,
Invifin S.A.
By: /s/ J.R. Bartolini
-------------------------------
Name: J.R. Bartolini
Title: Director
Accepted and Agreed:
Northern Automotive Corporation
By: /s/ James Bazlen
---------------------------
Name: James Bazlen
Title: President
<PAGE> 1
EXHIBIT 10.16
AGREEMENT FOR MANAGEMENT ADVISORY,
STRATEGIC PLANNING AND
CONSULTING SERVICES
THIS AGREEMENT is made effective as of the 30th day of October, 1996
(the "Effective Date"), by and between Investcorp International, Inc., a
Delaware corporation ("III"), and CSK Auto, Inc., a Delaware corporation ("CSK
Auto").
WHEREAS, III, by and through its officers, employees, agents and
affiliates has developed in connection with the conduct of its business and
affairs various areas of expertise in the fields of management, finance,
marketing, and strategic planning; and
WHEREAS, CSK Auto desires to avail itself of the expertise of III in
those areas hereinabove enumerated and in which III is acknowledged to have
expertise, for a period of five (5) years from the effective date hereof, said
5-year period being referred to as the "Term";
NOW, THEREFORE, the parties do hereby agree as follows:
1. Appointment. CSK Auto hereby appoints III to render management
advisory, strategic planning and consulting services to CSK Auto on an
exclusive basis during the Term as herein contemplated.
2. III. During the Term, III shall render to CSK Auto, by and through
such of its officers, employees, agents and affiliates as III, in its sole
discretion, shall designate from time to time, management advisory, strategic
planning and consulting services. Said services shall consist of advice
concerning management, finance, marketing, strategic planning, and such other
services as shall be requested from time to time by the Board of Directors of
CSK Auto. CSK Auto acknowledges and agrees that the services to be provided by
III hereunder do not encompass services that would be required in connection
with an acquisition, restructuring or initial public offering by CSK Auto, or a
private sale of the stock or assets of CSK Auto. Should CSK Auto desire to
engage III to provide financial advisory services in connection with any such
type of transaction, such engagement shall be subject to the negotiation of
mutually acceptable fee arrangements for such additional services, albeit the
indemnification obligations of CSK Auto as set forth in paragraph 7 of this
<PAGE> 2
Agreement shall apply to any such additional services performed by III.
3. Fees. In consideration of III's performance of the above-described
services, CSK Auto shall pay to III, in cash, consulting services fees at the
rate of $1,000,000 per year for the duration of the Term (collectively, the
"Fee"). It is recognized that the services provided under this Agreement will
not be evenly distributed over time and that a significant portion of such
services will be performed early in the period of time covered by this
Agreement. It is also recognized that, subject to the terms of this Agreement,
CSK Auto is committed to pay the full amount payable hereunder, and the Fee,
once paid, is non-refundable. The full amount of the Fee for the entire Term
shall be paid on its Effective Date.
4. Reimbursements. Within 15 calendar days of delivery of III's
invoice, CSK Auto shall reimburse III for its actual out-of-pocket expenses
incurred in connection with the performance of services pursuant to this
Agreement.
5. Default. In the event that CSK Auto fails to pay any part of the
Fee as set forth in Paragraph 3 above when and as due, and CSK Auto does not
cure such failure prior to the 10th day of the month in which such payment is
due, then CSK Auto shall be in default under this Agreement and III shall be
entitled to receive payment in full of the unpaid portion of the Fee upon
making written demand upon CSK Auto for such payment. Upon delivery of such
written demand, III shall be excused from rendering any further services
pursuant to this Agreement. The aforesaid right and privilege of III to
withhold services is intended to be in addition to any and all other remedies
available because of CSK Auto's default, including III's right to payment of
all fees set forth herein. Further, in the event of a default by CSK Auto, CSK
Auto agrees to reimburse III for any and all costs and expenses incurred by
III, including, without limitation, reasonable counsel fees and expenses, in
connection with such default and any litigation or other proceedings instituted
for the collection of payments due hereunder.
6. Permissible Activities. Nothing herein shall in any way preclude
III from engaging in any business activities or from performing services for
its own account or for the account of others.
7. Indemnification. CSK Auto shall indemnify and hold harmless III and
its directors, officers, employees, agents and controlling persons (each being
an "Indemnified Party") from and against any and all losses, claims, damages
and liabilities, joint or several, to which such Indemnified
2
<PAGE> 3
Party may become subject under any applicable federal or state law, or
otherwise, relating to or arising out of the management, strategic planning and
consulting services contemplated by, this Agreement. CSK Auto shall reimburse
any Indemnified Party for all costs and expenses (including reasonable counsel
fees and expenses) incurred in connection with the investigation of,
preparation for or defense of any pending or threatened claim or any action or
proceeding arising therefrom, whether or not such Indemnified Party is a party.
CSK Auto shall not be liable under the foregoing indemnification provision to
the extent that any loss, claim, damage, liability or expense is found in a
final judgment by a court of competent jurisdiction to have resulted primarily
from the bad faith or gross negligence of III.
8. Amendments. No amendment or waiver of any provision of this
Agreement, or consent to any departure by either party from any such provision,
shall in any event be effective unless the same shall be in writing and signed
by the parties to this Agreement and then such amendment, waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
9. Notices. Any and all notices hereunder shall, in the absence of
receipted hand delivery, be deemed duly given when mailed, if the same shall be
sent by registered or certified mail, return receipt requested, and the mailing
date shall be deemed the date from which all time periods pertaining to a date
of notice shall run. Notices shall be addressed to the parties at the
following addresses:
If to III, to:
Investcorp International, Inc.
280 Park Avenue
37th Floor
New York, New York 10017
Attention: Jon P. Hedley
with a copy to:
Gibson, Dunn & Crutcher
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
Attention: Peter L. Baumbusch, Esq.
If to CSK Auto, to:
CSK Auto, Inc.
645 East Missouri
Phoenix, Arizona 85012
3
<PAGE> 4
10. Entire Agreement. This Agreement shall constitute the entire
agreement between the parties with respect to the subject matter hereof, and
shall supersede all previous oral and written (and all contemporaneous oral)
negotiations, commitments, agreements and understandings relating hereto.
11. Assignment. This Agreement shall be assignable by either party
hereto provided that the non-assigning party consents in writing to such
assignment.
12. Applicable Law. This Agreement shall be construed and enforced in
accordance with the laws of Delaware and shall inure to the benefit of, and be
binding upon, III and CSK Auto and their respective successors and assigns.
13. No Continuing Waiver. The waiver by any party of any breach of
this Agreement shall not operate or be construed to be a waiver of any
subsequent breach.
IN WITNESS WHEREOF, each of the parties has caused this Agreement for
Management Advisory, Strategic Planning and
4
<PAGE> 5
Consulting Services to be executed and delivered by its duly authorized officer
or agent as set forth below.
INVESTCORP INTERNATIONAL, INC.
By: /s/ Christopher J. Stadler
-------------------------------
Name:
Title:
CSK AUTO, INC.
By: /s/ James Bazlen
----------------------------------
Name: James Bazlen
Title: President
5
<PAGE> 1
EXHIBIT 11.01
CSK AUTO, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1)
------------------------------------------------------------------------- -----------------------
FORTY-THREE
FORTY-THREE FISCAL YR WEEKS
FISCAL YEAR ENDED WEEKS ENDED ENDED ENDED
--------------------------------------------------- ------------------- --------- -----------
FEB. 2 JAN. 31 JAN. 30 JUN. 29 JAN. 28 NOV. 26 NOV. 24 JAN. 28 NOV. 24
1992 1993 1994 1995 1996 1995 1996 1996 1996
-------- ------- -------- -------- -------- -------- -------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income
taxes..................... $(57,683) $ 612 $ (1,181) $ 8,834 $(14,541) $(10,672) $(20,932) $(30,765) $ (1,605)
-------- ------- -------- -------- -------- -------- -------- -------- --------
Fixed charges
Interest expense.......... 22,004 12,362 11,731 10,343 14,379 11,762 13,154 29,603 25,072
Interest portion of
rentals................. 14,527 14,399 14,530 15,381 18,329 14,461 16,496 18,329 16,496
-------- ------- -------- -------- -------- -------- -------- -------- --------
Total fixed
charges........... 36,531 26,761 26,261 25,724 32,708 26,223 29,650 47,932 41,568
-------- ------- -------- -------- -------- -------- -------- -------- --------
Earnings before income taxes
and fixed charges......... $(21,152) $27,373 $ 25,080 $ 34,558 $ 18,167 $ 15,551 $ 8,718 $ 17,167 $ 39,963
======== ======= ======== ======== ======== ======== ======== ======== ========
Ratio of earnings to fixed
charges(2)................ -- 1.02 -- 1.34 -- -- -- -- --
======== ======= ======== ======== ======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Adjusted to reflect the impact of the Acquisition and Financings
(2) The ratio of earnings to fixed charges for the fiscal years 1992, 1994, and
1996, for the forty-three week periods ended November 26, 1995 and November
26, 1996, and the pro forma ratio of earnings to fixed charges for the
fiscal year 1996 and the forty-three week period ended November 24, 1996
have not been computed since earnings were not sufficient to cover fixed
charges. The coverage deficiencies were $57,683, $1,181, $14,541, $10,672,
$20,932, $30,765 and $1,605, respectively.
<PAGE> 1
EXHIBIT 16.01
February 27, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
RE: CSK AUTO, INC.
We have read the disclosures relating to the change in accountants
described in the Company's Form S-4 dated February 28, 1997 and are in agreement
with the statements contained on page 95 therein.
Yours very truly,
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Phoenix, Arizona
<PAGE> 1
EXHIBIT 21.01
SUBSIDIARIES OF CSK AUTO, INC.
JURISDICTION OF
NAME INCORPORATION DOING BUSINESS AS
---- --------------- -----------------
1. Kragen Auto Supply Co. California Kragen Auto Parts
2. Schuck's Distribution Co. Washington Schuck's Auto Supply
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of CSK Auto, Inc. of our report dated May 21,
1996 relating to the financial statements of CSK Auto, Inc., which appear 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 21(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."
/s/ PRICE WATERHOUSE LLP
- ------------------------------------------------------
PRICE WATERHOUSE LLP
Phoenix, Arizona
February 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENT OF OPERATIONS OF CONSOLIDATED BALANCE SHEET NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS AND VALUATION AND QUALIFYING ACCOUNTS FOR FISCAL YEAR ENDED
JANUARY 28, 1996.
</LEGEND>
<CIK> 0001017450
<NAME> CSK AUTO, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-28-1996
<PERIOD-START> JAN-30-1995
<PERIOD-END> JAN-28-1996
<CASH> 3,205
<SECURITIES> 0
<RECEIVABLES> 27,401
<ALLOWANCES> 1,953
<INVENTORY> 248,964
<CURRENT-ASSETS> 284,802
<PP&E> 143,903
<DEPRECIATION> 63,885
<TOTAL-ASSETS> 391,319
<CURRENT-LIABILITIES> 203,754
<BONDS> 0
0
0
<COMMON> 20
<OTHER-SE> 59,977
<TOTAL-LIABILITY-AND-EQUITY> 391,319
<SALES> 718,352
<TOTAL-REVENUES> 718,352
<CGS> 284,697
<TOTAL-COSTS> 718,514
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,681
<INTEREST-EXPENSE> 14,379
<INCOME-PRETAX> (14,541)
<INCOME-TAX> (5,447)
<INCOME-CONTINUING> (9,094)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,094)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
