<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 2, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 333-22511
CSK AUTO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
ARIZONA 86-0221312
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
645 E. MISSOURI AVE. SUITE 400, PHOENIX,
ARIZONA 85012
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(602) 265-9200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
N/A
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
As of December 3, 1997, CSK Auto, Inc. had 50,000 shares of redeemable
preferred stock and 2,000 shares of common stock outstanding.
================================================================================
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CSK AUTO, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOVEMBER 2, FEBRUARY 2,
1997 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents............................................ $ 6,316 $ 5,223
Receivables, net of allowances of $2,668 and $1,768, respectively.... 35,647 28,511
Inventories.......................................................... 304,807 268,214
Assets held for sale................................................. 4,145 5,971
Prepaid expenses and other assets.................................... 12,519 10,139
-------- --------
Total current assets....................................... 363,434 318,058
-------- --------
Property and equipment, net.......................................... 77,303 71,363
Leasehold interests, net............................................. 11,542 12,683
Deferred income taxes................................................ 13,773 18,089
Other assets, net.................................................... 18,177 19,350
-------- --------
Total assets............................................... $ 484,229 $ 439,543
======== ========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Accounts payable..................................................... $ 115,262 $ 120,998
Outstanding checks................................................... 11,488 7,004
Accrued payroll and related expenses................................. 18,156 15,851
Accrued expenses and other current liabilities....................... 51,120 44,444
Current maturities of amounts due under credit agreement............. 1,000 1,000
Current maturities of capital lease obligations...................... 8,003 7,007
Due to affiliates.................................................... 1,000 --
Deferred income taxes................................................ 597 597
-------- --------
Total current liabilities.................................. 206,626 196,901
-------- --------
Amount due under credit agreement.................................... 172,500 137,000
Obligations under capital leases..................................... 12,541 15,673
Obligations under senior notes....................................... 125,000 125,000
Due to affiliates.................................................... -- 1,000
Other................................................................ 15,960 20,675
-------- --------
Total non-current liabilities.............................. 326,001 299,348
-------- --------
Commitments and contingencies
Stockholder's 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, 12% cumulative dividend.......................... 1 1
Common stock, $.01 par value, 20,000 shares authorized, 2,000 shares
issued and outstanding............................................. 1 1
Additional paid-in capital........................................... 1,501 1,501
Stockholder receivable............................................... -- (5,966)
Accumulated deficit.................................................. (49,901) (52,243)
-------- --------
Total stockholder's deficit................................ (48,398) (56,706)
-------- --------
Total liabilities and stockholder's deficit................ $ 484,229 $ 439,543
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE> 3
CSK AUTO, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
------------------------------------- -------------------------------------
NOVEMBER 2, 1997 OCTOBER 27, 1996 NOVEMBER 2, 1997 OCTOBER 27, 1996
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net Sales..................... $216,908 $202,335 $636,465 $592,415
Costs and expenses:
Cost of sales............... 116,671 117,562 358,917 349,666
Operating and
administrative........... 83,129 76,347 241,324 221,251
-------- -------- -------- --------
Operating profit.............. 17,108 8,426 36,224 21,498
Interest expense.............. 8,478 3,802 25,026 10,917
-------- -------- -------- --------
Income before income taxes.... 8,630 4,624 11,198 10,581
Income tax expense............ 3,329 1,803 4,317 4,148
-------- -------- -------- --------
Net income.................... $ 5,301 $ 2,821 $ 6,881 $ 6,433
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 4
CSK AUTO, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
THIRTY-NINE WEEKS ENDED NOVEMBER 2, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
REDEEMABLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------- --------------- PAID-IN ACCUMULATED STOCKHOLDER TOTAL EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE (DEFICIT)
------ ------ ------ ------ ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at February 2, 1997.... 50,000 $ 1 2,000 $ 1 $1,501 $ (52,243) $(5,966) $(56,706)
Net Income................... 6,881 6,881
Dividends -- Preferred
Stock..................... (4,539) (4,539)
Recovery of Stockholder
receivable................ 5,966 5,966
------ ----- ----- ----- ------ -------- ------- --------
Balance at November 2, 1997.... 50,000 $ 1 2,000 $ 1 $1,501 $ (49,901) $ -- $(48,398)
====== ===== ===== ===== ====== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 5
CSK AUTO, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
-------------------------------------
NOVEMBER 2, 1997 OCTOBER 27, 1996
---------------- ----------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income.................................................. $ 6,881 $ 6,433
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization of property and
equipment.............................................. 13,235 12,936
Amortization of leasehold interests...................... 938 1,364
Amortization of deferred financing costs................. 1,377 866
Amortization of other deferred charges................... 693 171
Deferred income taxes.................................... 4,316 3,437
Change in operating assets and liabilities:
Accounts receivable.................................... (7,136) (611)
Inventories............................................ (36,593) (11,080)
Prepaid expenses and other current assets.............. (2,380) 356
Accounts payable....................................... (5,736) (12,873)
Outstanding checks..................................... 4,484 (288)
Accrued payroll, accrued expenses and other current
liabilities......................................... 8,001 6,906
Due to affiliate....................................... -- 9,776
Other.................................................. (4,219) (1,538)
-------- --------
Net cash provided by (used in) operating activities......... (16,139) 15,855
-------- --------
Cash flows used in investing activities:
Capital expenditures........................................ (12,468) (3,426)
Expenditures for assets held for sale....................... (9,160) (22,828)
Proceeds from sale of property and equipment and assets held
for sale................................................. 7,384 20,871
Other investing activities.................................. (53) (14)
-------- --------
Net cash used in investing activities....................... (14,297) (5,397)
-------- --------
Cash flows provided by (used in) financing activities:
Proceeds provided from debt................................. 56,500 658,156
Payments of debt............................................ (21,000) (661,901)
Payment of dividends on preferred stock..................... (3,033) --
Payments on capital lease obligations....................... (5,484) (4,296)
Recovery of Stockholder Receivable.......................... 5,966 --
Other....................................................... (1,420) (1,269)
-------- --------
Net cash provided by (used in) financing activities......... 31,529 (9,310)
-------- --------
Net increase in cash and cash equivalents..................... 1,093 1,148
Cash and cash equivalents, beginning of period................ 5,223 4,364
-------- --------
Cash and cash equivalents, end of period...................... $ 6,316 $ 5,512
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE> 6
CSK AUTO, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THIRTY-NINE WEEKS ENDED NOVEMBER 2, 1997
CSK Auto, Inc., formerly known as Northern Automotive Corporation, (the
"Company"), is a specialty retailer of automotive aftermarket parts and
accessories. At November 2, 1997, the Company operated 606 stores in 12 Western
states. The Company operates as a fully integrated chain under three tradenames.
Checker Auto Parts operates in the Southwest and Rocky Mountain states; Schuck's
Auto Supply operates in the Pacific Northwest; and Kragen Auto Parts operates
primarily in California. The Company is a wholly-owned subsidiary of CSK Group,
Ltd. ("Holdings").
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements included herein
were prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"), but do not include all
information and footnotes required by generally accepted accounting principles.
In the opinion of management, the condensed consolidated financial statements
reflect all adjustments, which are of a normal recurring nature, necessary for a
fair presentation of the Company's financial position and the results of its
operations. The accompanying condensed consolidated financial statements should
be read in conjunction with the financial statements and related notes thereto
for the fiscal year ended February 2, 1997, as included in the Company's
Registration Statement on Form S-4 that became effective May 13, 1997.
2. INVENTORIES
Inventories are valued at the lower of cost or market, cost being
determined utilizing the last-in, first-out (LIFO) method. An actual valuation
of inventory under the LIFO method can only be calculated at the end of a fiscal
year based upon the inventory levels and costs at that time. Accordingly,
interim LIFO calculations reflected herein are based upon management's estimates
of year-end inventory levels and costs. The replacement cost of inventories
approximated $259.9 million and $225.6 million at November 2, 1997 and February
2, 1997, respectively.
3. REGISTRATION AND EXCHANGE OF SENIOR SUBORDINATED NOTES
On October 30, 1996, the Company issued $125.0 million of 11% Senior
Subordinated Notes (the "Old Notes"). The Old Notes were sold in a transaction
that was not registered under the Securities Act of 1933, as amended (the "Act")
in reliance upon an exemption under the Act.
Pursuant to a Registration Rights Agreement entered into by the Company,
the Company's subsidiaries and the initial purchasers of the Old Notes, the
Company was required to offer to exchange all outstanding 11% Senior
Subordinated Notes, due November 1, 2006 for 11% Series A Senior Subordinated
Notes, due November 1, 2006 (the "Notes") in a transaction registered under the
Act. The Company's registration statement was filed with the SEC on February
28,1997 and was declared effective on May 13, 1997. The declaration of
effectiveness commenced an Exchange Period for the tender of the Old Notes for
Notes. The Exchange Period expired June 16, 1997 with all Old Notes having been
tendered. The terms of the Notes are substantially identical in all material
respects to the terms of the Old Notes, except that the Notes are more readily
transferable as a result of the registration of their issuance under the Act.
The Notes are guaranteed fully and unconditionally by the Company's
wholly-owned subsidiaries, Kragen Auto Supply Co. ("Kragen") and Schuck's
Distribution Co. ("Schuck's" and together with Kragen, the "Guarantors"). The
Company has no direct or indirect subsidiaries other than the Guarantors. The
Company has not presented separate financial statements or other disclosures
concerning the Guarantors because management has determined that these items are
not material to investors and that the guarantees do not enhance the likelihood
that the interest on or principal of the Notes will be paid. The Guarantors
represent an immaterial portion of the Company's assets, liabilities and results
of operations. Kragen is a name-holding corporation without any other assets and
with no liabilities or operations. At November 2, 1997, the assets and
6
<PAGE> 7
CSK AUTO, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
liabilities of Schuck's, whose only operations consist of leasing a warehouse
and employing fewer than ten people, constituted less than 0.2% and 0.01% of the
Company's assets and liabilities, respectively. Schuck's operating expenses for
the thirty-nine weeks ended November 2, 1997 were $0.7 million, consisting
primarily of rent, salary, maintenance and employee benefits. The Company's
consolidated operating expenses were $600.2 million for the same period.
4. EARNINGS PER SHARE
Comparative earnings per share have not been presented because the
information is not considered to be meaningful.
5. ACQUISITION
On October 6, 1997, the Company executed an agreement (the "Purchase
Agreement") that provides for the acquisition of a newly formed subsidiary of
the Trak Auto Corporation ("Trak"). Upon its formation, this new subsidiary will
have no liabilities and will own no assets other than the store leases, fixtures
and equipment and merchandise inventories of 83 specific store sites formerly
owned and operated by Trak. The new subsidiary will also own the merchandise
inventory of the Ontario, California distribution center operated by Trak but no
other assets or liabilities of the distribution center, other than the
inventories, will be acquired.
The Purchase Agreement calls for: a purchase price of $38.0 million,
subject to certain adjustments; a closing date for the consummation of the
transaction of December 8, 1997; and for the negotiation and execution of an
Operating Services Agreement between the Company and Trak for the provision of
certain transitional services to be performed by Trak while the stores are
integrated into the Company's systems. The acquisition is to be financed through
a combination of the issuance of equity and the incurrence of additional debt.
The existing stockholders of Holdings will provide $20.0 million of equity
financing to be split ratably among them. In addition, on November 17, 1997, the
Company entered into a Commitment Letter with The Chase Manhattan Bank, as
Administrative Agent for its $200.0 million Credit Facility to amend and restate
the Credit Facility so as to provide for a $300.0 million Credit Facility,
subject to the limitations on the incurrence of indebtedness under the Indenture
for the 11% Series A Senior Subordinated Notes. The Amendment and Restatement is
expected to provide for: i) a 50 basis point reduction in the interest rate for
Term Loan borrowings and a 25 basis point reduction in the interest rate for
Revolving Loan borrowings under the Credit Facility; ii) the elimination of the
borrowing base restriction; iii) a $50.0 million "basket" of funds that can be
used for future acquisitions; iv) $50.0 million of revolving borrowings that may
be used by the Company to finance store purchase and development activities and
v) various other changes to terms and conditions under which the funds may be
borrowed. The maturity dates for the Term Loans and Revolving Loans have not
changed under the Amendment and Restatement. The Amendment and Restatement is
scheduled for completion on or before December 8, 1997; however, no assurances
can be given, at this point, that the Amendment and Restatement will be
completed nor that the associated acquisition of the Trak stores will be
consummated.
6. LEASE FACILITY
On November 18, 1997, the Company reached an agreement, in principle, with
an unrelated third party for the establishment of a leasing facility that will
provide for acquisition and development of approximately 100 to 125 new stores
over the period of February 1, 1998 through May 31, 1999. The facility calls for
up to $125.0 million of funding to be provided for acquisition and development
costs. The term of the leases for stores acquired or developed under this new
lease facility will run for a base period of approximately 18 years and 4 months
with a single 10 year renewal option available. Base rents will be determined on
the basis of the total development price of the site multiplied by the sum of
the 10 year U.S. Treasury Note rate plus the spread. The spread varies, at the
option of the Company, from 3.00% to 3.50%, in 25 basis point increments.
7
<PAGE> 8
CSK AUTO, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The base rent is subject to periodic resets, generally on the basis of increases
in the Consumer Price Index, with varying caps on the reset depending upon the
spread chosen by the Company.
7. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income", and
No. 131, "Disclosures about Segments of an Enterprise and Related Information".
The Company will adopt each of these standards in fiscal 1998. As these
statements only require additional disclosures in the Company's financial
statements, their adoption will not affect the Company's financial position or
the results of its operations.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company's business is seasonal in nature, with the highest sales
occurring in the summer months of June through August. The Company's business is
also affected by weather conditions because unusually severe weather tends to
reduce sales as elective maintenance is postponed during such periods. However,
extremely hot or cold weather can enhance sales by causing parts to fail and
demand for seasonal products to increase.
RESULTS OF OPERATIONS
The following table expresses the statements of operations as a percentage
of sales for the periods shown:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
--------------------------- ---------------------------
NOVEMBER 2, OCTOBER 27, NOVEMBER 2, OCTOBER 27,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................ 100.0% 100.0% 100.0% 100.0%
Cost of sales........................ 53.8% 58.1% 56.4% 59.0%
----- ----- ----- -----
Gross profit............... 46.2% 41.9% 43.6% 41.0%
Operating and administrative......... 38.3% 37.7% 37.9% 37.3%
----- ----- ----- -----
Operating profit..................... 7.9% 4.2% 5.7% 3.7%
Interest expense..................... 3.9% 1.9% 3.9% 1.9%
----- ----- ----- -----
Income before income taxes........... 4.0% 2.3% 1.8% 1.8%
Income tax expense................... 1.5% 0.9% 0.7% 0.7%
----- ----- ----- -----
Net income........................... 2.5% 1.4% 1.1% 1.1%
===== ===== ===== =====
</TABLE>
Thirteen Weeks Ended November 2, 1997 Compared to Thirteen Weeks Ended October
27, 1996
Net sales for the thirteen weeks ended November 2, 1997 (the "third quarter
of fiscal 1997") increased $14.6 million or 7.2% over net sales for the thirteen
week period ended October 27, 1996. The net sales increase was the result of an
increase in comparable store sales of 4.0%, or $7.8 million, and an increase in
net sales from new stores of $6.8 million. Sales to commercial customers
increased 31.6% to $30.0 million for the thirteen weeks ended November 2, 1997
from $22.8 million for the comparable period of fiscal 1996. During the third
quarter of fiscal 1997, the Company opened 16 new stores, relocated 12 stores to
larger facilities and closed one store in addition to those closed due to
relocations. As of November 2, 1997, the Company had 606 stores in operation.
Gross profit for the third quarter of fiscal 1997 was $100.2 million, or
46.2% of net sales, compared to $84.8 million, or 41.9% of net sales for the
comparable period of fiscal 1996. The increase in gross profit percentage
resulted from the Company's ability to obtain generally better pricing and more
favorable terms from its vendors as a result of the Company's improving
operating results and financial condition. In addition, the Company has realized
an increase in sales of automotive hard parts which produce a higher gross
profit percentage than other product categories. Gross profit percentage was
also favorably affected by efficiencies produced by the Company's warehousing
and distribution systems. Warehouse and distribution costs decreased as a
percent of net sales to 3.3% for the third quarter of fiscal 1997, compared to
3.5% of net sales for the comparable period of fiscal 1996.
Operating and administrative expenses increased by $6.8 million to $83.1
million, or 38.3% of net sales for the third quarter of fiscal 1997 from $76.3
million, or 37.7% of net sales, for the comparable period of fiscal 1996. The
increase in expense is primarily the result of the incremental operating costs
of new stores that are in the early stages of maturation.
9
<PAGE> 10
Operating profit increased to $17.1 million, or 7.9% of net sales, for the
third quarter of fiscal 1997 compared to $8.4 million, or 4.2% of net sales, for
the comparable period of fiscal 1996, due to the factors cited above.
Interest expense for the third quarter of fiscal 1997 totaled $8.5 million
compared to $3.8 million for third quarter of fiscal 1996. The increase in
expense is the result of the issuance on October 30, 1996 of $125.0 million of
Senior Subordinated Notes and increased borrowings under the Company's expanded
bank credit facilities.
As a result of the above factors, net income increased to $5.3 million for
the third quarter of fiscal 1997, compared to $2.8 million for the third quarter
of fiscal 1996.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
increased by $9.3 million to $22.5 million in the third quarter of fiscal 1997,
compared to $13.2 million for third quarter of fiscal 1996. EBITDA is used by
the Company for the purpose of analyzing operating performance, leverage and
liquidity. Additionally, the Company's $200.0 million Credit Facility contains
various financial covenants that are based upon EBITDA as it is defined in the
Credit Facility. EBITDA is not a measure of financial performance under
generally accepted accounting principles and should not be considered as an
alternative to net income as a measure of the Company's operating performance.
Thirty-nine Weeks Ended November 2, 1997 Compared to Thirty-nine Weeks Ended
October 27, 1996
Net sales for the thirty-nine weeks ended November 2, 1997 increased $44.0
million, or 7.4% over net sales for the comparable period of fiscal 1996.
Comparable store sales increased $26.5 million, or 4.6% and new stores
contributed $17.5 million to the increase in net sales for the thirty-nine weeks
ended November 2, 1997 over the comparable period of fiscal 1996. Sales to
commercial customers increased 32.6% to $87.7 million for the thirty-nine weeks
ended November 2, 1997 from $66.2 million for the comparable period of fiscal
1996. During the thirty-nine weeks ended November 2, 1997, the Company opened 35
new stores, relocated 28 stores to larger facilities, sold 4 stores and closed 5
stores in addition to those closed due to relocations. At November 2, 1997, the
Company had 606 stores in operation.
Gross profit for the thirty-nine weeks ended November 2, 1997 was $277.5
million, or 43.6% of net sales, compared to $242.8 million or 41.0% of net sales
for the comparable period of fiscal 1996. The increase in gross profit
percentage resulted from the Company's ability to obtain generally better
pricing and more favorable terms from its vendors as a result of the Company's
improving operating results and financial condition. In addition, the Company
has realized an increase in sales of automotive hard parts which produce a
higher gross profit percentage than other product categories. Gross profit
percentage was also favorably affected by efficiencies produced by the Company's
warehousing and distribution systems. Warehouse and distribution costs decreased
as a percent of net sales to 3.4% for the thirty-nine weeks ended November 2,
1997 compared to 3.7% of net sales for the comparable period of fiscal 1996.
Operating and administrative expenses increased by $20.1 million to $241.3
million, or 37.9% of net sales for the thirty-nine weeks ended November 2, 1997
from $221.2 million, or 37.3% of net sales for the comparable period of fiscal
1996. The increase in expense is primarily the result of the incremental
operating costs of new stores that are in the early stages of maturation.
Operating profit increased to $36.2 million or 5.7% of net sales for the
third quarter of fiscal 1997 compared to $21.5 million or 3.7% of net sales for
the comparable period of fiscal 1996, due to the factors cited above.
Interest expense for the thirty-nine weeks ended November 2, 1997 totaled
$25.0 million compared to $10.9 million for the thirty-nine weeks ended October
27, 1996. The increase in expense is the result of the issuance on October 30,
1996 of $125.0 million of Senior Subordinated Notes and increased borrowings
under the Company's expanded bank credit facilities.
As a result of the above factors, net income increased to $6.9 million for
the thirty-nine weeks ended November 2, 1997 compared to $6.4 million for the
comparable period of fiscal 1996.
10
<PAGE> 11
EBITDA increased by $15.7 million to $51.7 million for the thirty-nine
weeks ended November 2, 1997 compared to $36.0 million for comparable period of
fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs have been for the funding of working
capital requirements (primarily inventory) and store fixtures and leasehold
improvements associated with its store expansion and relocation program, the
expansion of its sales to commercial customers and the increase in the number of
hard parts SKU's in its stores. Historically, the Company has financed its
growth and infrastructure requirements through internally generated funds, funds
borrowed under its various credit agreements, funds obtained from an affiliate
of a shareholder of Holdings through sales-leaseback and other transactions, and
lease arrangements with third parties.
The Company believes that it has sufficient liquidity to fund its debt
service obligations and to continue to implement its growth strategy. In
addition to its operating cash flow and borrowing capacity under the $200.0
million Credit Facility, the Company has had access to a $50.0 million
off-balance sheet revolving lease facility that was provided by an affiliate of
a shareholder of Holdings to support its store expansion and relocation program.
Pursuant to the terms of the agreement for the $50.0 million revolving lease
facility, on October 30, 1997, the Company notified the provider of the facility
of the Company's intent to terminate its participation in the facility effective
January 31, 1998.
On November 18, 1997, the Company reached an agreement, in principle, with
an unrelated third party for the establishment of a leasing facility that will
provide for acquisition and development of approximately 100 to 125 new stores
over the period of February 1, 1998 through May 31, 1999. The facility calls for
up to $125 million of funding to be provided for acquisition and development
costs. The term of the leases for stores acquired or developed under this new
lease facility will run for a base period of approximately 18 years and 4 months
with a single 10 year renewal option available. Base rents will be determined on
the basis of the total development price of the site multiplied by the sum of
the 10 year U.S. Treasury Note rate plus the spread. The spread varies, at the
option of the Company, from 3.00% to 3.50%, in 25 basis point increments. The
base rent is subject to periodic resets, generally on the basis of increases in
the Consumer Price Index, with varying caps on the reset depending upon the
spread chosen by the Company.
For the thirty-nine week period ended November 2, 1997, net cash used in
operating activities was $16.1 million compared to $15.9 million of cash
provided by operating activities. The largest component of the change in cash
flow from operating activities relates to inventories, where $36.6 million of
cash was used in operating activities during fiscal 1997 while $11.1 million was
used for such purposes in fiscal 1996. Inventories are increasing to support
newly added stores and an expanded offering of hard parts SKU's. Net cash used
in investing activities totaled $14.3 million in the thirty-nine weeks ended
November 2, 1997 compared to $5.4 million in the comparable period of fiscal
1996. The increase in cash used in investing activities was the result of
generally larger disbursements for capital expenditures. Net cash provided by
financing activities totaled $31.5 million in the thirty-nine weeks ended
November 2, 1997 compared to net cash used in financing activities of $9.3
million in the comparable period of fiscal 1996. In the 1997 period, net cash
provided by financing activities consisted of $56.5 million of revolving credit
facility borrowings, payments of debt of $21.0 million, $3.0 million of dividend
payments on the Company's preferred stock, $5.5 million of payments on capital
lease obligations, receipt of $6.0 million of stockholder receivables and
payment of $1.4 million for other financing activities. In the 1996 period,
payments of debt and capital lease obligations exceeded borrowings by $8.0
million and payment of $1.3 million for other financing activities were
incurred.
On October 6, 1997, the Company executed an agreement (the "Purchase
Agreement") that provides for the acquisition of a newly formed subsidiary of
the Trak Auto Corporation ("Trak"). Upon its formation, this new subsidiary will
have no liabilities and will own no assets other than the store leases, fixtures
and equipment and merchandise inventories of 83 specific store sites formerly
owned and operated by Trak. The new subsidiary will also own the merchandise
inventory of the Ontario, California distribution center operated by Trak but no
other assets or liabilities of the distribution center, other than the
inventories, will be acquired.
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<PAGE> 12
The Purchase Agreement calls for: a purchase price of $38.0 million,
subject to certain adjustments; a closing date for the consummation of the
transaction of December 8, 1997; and for the negotiation and execution of an
Operating Services Agreement between the Company and Trak for the provision of
certain transitional services to be performed by Trak while the stores are
integrated into the Company's systems. The acquisition is to be financed through
a combination of the issuance of equity and the incurrence of additional debt.
The existing stockholders of Holdings will provide $20.0 million of equity
financing to be split ratably among them. In addition, on November 17, 1997, the
Company entered into a Commitment Letter with The Chase Manhattan Bank, as
Administrative Agent for its $200.0 million Credit Facility to amend and restate
the Credit Facility so as to provide for a $300.0 million Credit Facility,
subject to the limitations on the incurrence of indebtedness under the Indenture
for the 11% Series A Senior Subordinated Notes. The Amendment and Restatement is
expected to provide for: i) a 50 basis point reduction in the interest rate for
Term Loan borrowings and a 25 basis point reduction in the interest rate for
Revolving Loan borrowings under the Credit Facility; ii) the elimination of the
borrowing base restriction; iii) a $50.0 million "basket" of funds that can be
used for future acquisitions; iv) $50.0 million of revolving borrowings that may
be used by the Company to finance store purchase and development activities and
v) various other changes to terms and conditions under which the funds may be
borrowed. The maturity dates for the Term Loans and Revolving Loans have not
changed under the Amendment and Restatement. The Amendment and Restatement is
scheduled for completion on or before December 8, 1997; however, no assurances
can be given, at this point, that the Amendment and Restatement will be
completed nor that the associated acquisition of the Trak stores will be
consummated.
FORWARD-LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis contains certain
forward-looking statements about the future performance of the Company that are
based on management's assumptions and beliefs in light of the information
currently available. These forward-looking statements are subject to
uncertainties and other factors that could cause actual results to differ
materially from those statements. Factors that may cause differences are
identified in the Company's May 1997 Form S-4 Registration Statement filed by
the Company under the Securities Act (No. 333-22511), and are incorporated
herein by reference.
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<PAGE> 13
PART II
OTHER INFORMATION
<TABLE>
<S> <C> <C>
ITEM 1. LEGAL PROCEEDINGS.......................................................... None
ITEM 2. CHANGES IN SECURITIES...................................................... None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES............................................ None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................ None
ITEM 5. OTHER INFORMATION.......................................................... None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.01* Amended and Restated Articles of Incorporation of the Company
3.02* Amended and Restated By-laws of the Company
10.01 Purchase Agreement among CSK Auto, Inc. and Trak Auto Corporation, Trak
Corporation D/B/A Trak Auto Corporation I and Super Trak Corporation,
dated October 6, 1997
11.01 Statement of Computation of Ratio of Earnings to Fixed Charges
27.01 Financial Data Schedule
(b) Reports on Form 8-K: None
</TABLE>
- ---------------
* Incorporated herein by reference to the Company's registration statement on
Form S-4 (File No. 333-22511)
13
<PAGE> 14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CSK Auto, Inc.
By: /s/ JAMES G. BAZLEN
------------------------------------
James G. Bazlen
President and Chief Financial
Officer
DATED: December 3, 1997
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<PAGE> 1
EXHIBIT 10.01
EXECUTION COPY
PURCHASE AGREEMENT
AMONG
CSK AUTO, INC.
AND
TRAK AUTO CORPORATION,
TRAK CORPORATION D/B/A TRAK AUTO CORPORATION I
AND
SUPER TRAK CORPORATION
OCTOBER 6, 1997
<PAGE> 2
EXECUTION COPY
PURCHASE AGREEMENT
This Purchase Agreement (this "Agreement") is made and entered into as of
October 6, 1997 among CSK Auto, Inc., an Arizona corporation ("Buyer"), Trak
Auto Corporation, a Delaware corporation ("Trak"), Trak Corporation D/B/A Trak
Auto Corporation I, a Delaware corporation and a wholly-owned subsidiary of Trak
("Trak Co"), and Super Trak Corporation, a Delaware corporation and a
wholly-owned subsidiary of Trak ("Super Trak" and collectively with Trak Co,
"Seller").
RECITALS
WHEREAS, prior to the Closing (as defined below) Seller will form, and own
all of the membership interests (the "Interests") of, Newco L.L.C., a California
limited liability company (the "Company");
WHEREAS, Seller operates retail discount auto parts stores under the Trak
Auto, Super Trak and Super Trak Warehouse names;
WHEREAS, Seller currently operates the 80 Trak Auto, Super Trak and Super
Trak Warehouse stores in the Los Angeles metropolitan area that are identified
on Schedule A hereto (the "LA Stores");
WHEREAS, Seller also currently operates 12 other retail discount auto
parts stores in the Los Angeles metropolitan area that are identified on
Schedule B hereto, the leases for which will expire, without right to renew,
within 8 months hereof (the "Non-Renewal Stores");
WHEREAS, prior to the Closing, Seller shall transfer to the Company
certain assets relating to the business conducted at the LA Stores and the
Non-Renewal Stores (the "Business") consisting primarily of "Inventory",
"Leases" and "Fixtures" as such terms are defined herein;
WHEREAS, Seller desires to assign to Buyer, and Buyer desires to acquire
and assume from Seller, the Interests; and
WHEREAS, it is expressly understood that, except as expressly herein
provided to the contrary, neither the Company nor Buyer shall assume or
otherwise be liable with respect to Excluded Liabilities (as defined below);
AGREEMENT
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements, and upon the terms and subject to the
conditions, hereinafter set forth, the parties hereby agree as follows:
<PAGE> 3
ARTICLE I
TERMS OF PURCHASE AND SALE
1.01. ASSIGNMENT AND ACQUISITION OF THE INTERESTS.
At the Closing, upon the terms and subject to the conditions set forth
herein, Seller shall assign to Buyer, and Buyer shall acquire and assume from
Seller, all of the Interests.
1.02. THE CLOSING.
(a) The closing of the transactions contemplated hereby (the
"Closing") shall take place at the offices of Gibson, Dunn & Crutcher LLP, 333
South Grand Avenue, Los Angeles, California, commencing at 10:00 a.m. local
time, on December 8, 1997, or at such other time and/or place, as the parties
may mutually agree (the "Closing Date").
(b) On the business day immediately preceding the Closing Date, the
parties shall conduct a pre-closing at the offices of Gibson, Dunn & Crutcher
LLP, commencing at 10:00 a.m., at which each party shall present for review by
the other party copies, in execution form, of all documents required to be
delivered by such party at the Closing.
(c) At the Closing, upon the terms and subject to the conditions set
forth herein, Seller shall deliver or cause to be delivered to Buyer:
(i) certificates representing the Interests, duly endorsed in
blank for transfer or accompanied by duly executed stock powers assigning
the Interests in blank;
(ii) resignations of the managers of the Company;
(iii) originally executed versions of the Leases if possessed by
Seller, and true and complete copies of the other Leases, and originally
executed versions of all documents relating to the contribution of the
Assets (as defined below) to the Company; and
(iv) such other documents and instruments as Buyer or its counsel
deems reasonably necessary or desirable to effectuate the transactions
contemplated by this Agreement.
(d) At the Closing, upon the terms and subject to the conditions of
this Agreement, Buyer shall deliver to Seller:
(i) the Closing Payment (as defined in Section 1.03); and
(ii) such other documents and instruments as Seller or its
counsel deem reasonably necessary or desirable to effectuate the
transactions contemplated hereby.
1.03. PURCHASE PRICE AND PAYMENT.
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<PAGE> 4
(a) The aggregate purchase price to be paid by Buyer to Seller for
the Interests shall be equal to Thirty-Eight Million Dollars ($38,000,000),
subject to reduction (but not increase) as provided below (the "Purchase
Price"). Buyer shall pay $34,200,000 (or such lesser amount as may be determined
pursuant to the Estimated Inventory Statement (as defined below)) to Seller on
the Closing Date (the "Closing Payment") by wire transfer of immediately
available funds to an account or accounts of Seller at a bank or banks specified
by Seller no later than three business days prior to the Closing Date. Upon
determination of the Purchase Price as hereinafter provided, Buyer shall pay to
Seller, or Seller shall pay to Buyer, as the case may be, the amount owing (the
"Final Payment").
(b) Not more than three weeks prior to the Closing, Seller shall be
responsible for the conduct of a physical inventory count of each LA Store,
which physical inventory count shall be conducted by Inventory Auditors (the
"Inventory Consultant"), provided that the Inventory Consultant will be able to
provide sufficient personnel to conduct the physical inventory counts in the
specified time frame. The fees and disbursements of the Inventory Consultant
shall be paid 50% by Seller and 50% by Buyer. Buyer shall be entitled to have
loss prevention and inventory management personnel monitor each of the LA Stores
for purposes of loss-prevention and inventory management between the times that
the physical inventory count is conducted at such store and the Closing. Upon
completion of the physical inventory count of all of the LA Stores, and
immediately prior to the Closing, the Seller shall conduct a physical inventory
count of the Distribution Center. Representatives of both Seller and Buyer shall
be entitled to monitor the physical inventory count at the LA Stores and the
Distribution Center, and each shall confirm by signature their respective
concurrence with such physical inventory counts. On the day immediately
preceding the Closing Date, Seller shall deliver to Buyer a detailed estimated
statement of the physical count of the Inventory as of the close of business on
the Saturday preceding the Closing Date, based upon the physical inventory count
of the LA Stores conducted by the Inventory Consultant, as adjusted in
accordance with the terms set forth in Schedule C, and upon the physical
inventory count of the Distribution Center conducted by Seller (the "Estimated
Inventory Statement"). The Estimated Inventory Statement shall also set forth
the estimated Inventory Value (as defined in Schedule D) and the estimated
Purchase Price determined pursuant to Schedule D. If the estimated Purchase
Price is less than $38,000,000, then the Closing Payment shall equal 90% of the
estimated Purchase Price rather than $34,200,000.
(c) Within fifteen (15) days of the Closing, Seller shall finalize
its determination of the Inventory in the LA Stores and the Distribution Center
as of the close of business on the Saturday preceding the Closing Date based on
the physical inventory counts conducted pursuant to paragraph (b) above, and
shall deliver to Buyer a detailed statement of such Inventory (the "Final
Inventory Statement"). The Final Inventory Statement shall also set forth the
Inventory Value, and the Purchase Price and the resulting Final Payment amount
determined pursuant to Schedule D. The Purchase Price determined based on the
Inventory Value shall be binding upon each of Buyer and Seller for all purposes,
and Seller shall pay to Buyer or Buyer shall pay to Seller, the Final Payment in
immediately available funds within fifteen (15) days after the delivery of such
Final Inventory Statement, unless, within such fifteen-day period, Buyer gives
written notice of disagreement specifying in reasonable detail the nature
3
<PAGE> 5
and extent of such disagreement, at which time Buyer shall pay to Seller the
portion (if any) of the remaining Purchase Price that is not in dispute. If
Buyer and Seller are unable to resolve any such disagreement within thirty (30)
days after Buyer gives Seller notice thereof, the disagreement shall be referred
for final determination to KPMG Peat Marwick or, if such firm declines to act,
to any other accounting firm of national reputation as may be reasonably
acceptable to Buyer and Seller. Buyer and Seller may submit to such accounting
firm any facts which they deem relevant to the determination, and the
determination of such accounting firm shall be conclusive, non-appealable and
binding upon Buyer and Seller for all purposes. Such accounting firm shall
resolve any disputes in an informal proceeding with rules to be established by
such firm. Buyer and Seller agree that judgment may be entered upon the
determination of such accounting firm in any court having jurisdiction over the
party against which such determination is to be enforced. Seller and Buyer shall
each pay the fees and disbursements of their respective internal and independent
accountants, counsel and other personnel incurred in the initial preparation,
review and final determination of the Purchase Price. The fees and disbursements
of the accounting firm to which any disagreement is referred to shall be borne
50% by Seller and 50% by Buyer.
1.04. CERTAIN DEFINED TERMS. The following terms shall have the following
meanings:
(a) "Assets" means the Inventory, Leases, Fixtures and any other
rights and assets to be owned by the Company as of the Closing;
(b) "Distribution Center" means Seller's distribution center located
in Ontario, California;
(c) "Fixtures" means all furniture, trade fixtures and equipment
located in the LA Stores and the Non-Renewal Stores as of the date hereof (or in
the case of store No. 154, "Fixtures" heretofore delivered to the Distribution
Center), together with any additional furniture, trade fixtures and equipment
installed in the LA Stores prior to the Closing;
(d) "Inventory" means all inventory that is present in the LA Stores
or in the Distribution Center as of the Closing;
(e) "Leases" means the agreements under which the LA Stores are used
by Seller in the Business together with all related rights of Seller, including
any deposits and rights in any improvements; and
(f) "Regional Office" means Seller's regional office located in
Ontario, California.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TRAK AND SELLER
Trak and Seller hereby represent and warrant to Buyer as follows:
4
<PAGE> 6
2.01. ORGANIZATION. Upon its formation, the Company will be a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of California and will have all requisite power and
authority to own its properties and carry on its activities as will be conducted
prior to Closing.
2.02. POWER AND AUTHORITY; EFFECT OF AGREEMENT. Each of Trak and Seller
have, and the Company will have, all requisite power and authority to execute,
deliver and perform this Agreement and all other agreements, certificates,
instruments and other documents to be executed and delivered by it in connection
herewith (collectively, the "Ancillary Documents"), as the case may be, and to
consummate the transactions contemplated hereby and thereby. This Agreement has
been duly and validly executed and delivered by each of Trak and Seller and
constitutes the valid and binding obligation of Trak and Seller, and each such
Ancillary Document, upon execution and delivery by Trak, Seller or the Company,
will constitute the valid and binding obligation of Trak, Seller or the Company,
as the case may be, in each case enforceable against Trak, Seller or the
Company, as the case may be, in accordance with its terms, except to the extent
that such enforceability (i) may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors' rights
generally and (ii) is subject to general principles of equity. The execution,
delivery and performance by Trak and Seller of this Agreement, the execution,
delivery and performance by Trak, Seller or the Company of such Ancillary
Documents to which it is a party, and the consummation by each of Trak, Seller
and the Company of the transactions contemplated hereby and thereby will not,
with or without the giving of notice or the lapse of time, or both, (A) subject
to compliance with the applicable requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), violate or
conflict with any provision of law, rule or regulation to which Trak, Seller or
the Company is subject or by which any of the property of Trak, Seller or the
Company is bound, (B) violate or conflict with any order, judgment or decree
applicable to Seller or the Company, or (C) violate or conflict with any
provision of the organizational documents of Trak, Seller or the Company.
2.03. CONSENTS. No consent, approval or authorization of, or exemption by,
or filing with, any governmental department, bureau or agency or other public
board or authority is required in connection with the execution, delivery and
performance by Trak, Seller or the Company of this Agreement or the Ancillary
Agreements, or the taking of any other action contemplated hereby and thereby,
excluding, however, compliance with the HSR Act and consents, approvals,
authorizations, exemptions and filings, if any, that Buyer is required to obtain
or make.
2.04. CAPITALIZATION. Upon the formation of the Company, one hundred
percent of the membership interests of the Company will be owned of record and
beneficially by Seller; all of the Interests will have been duly authorized and
will be validly issued, fully paid and non-assessable; and there will be
outstanding no securities convertible into, exchangeable for, or carrying the
right to acquire, membership interests or other equity interests in the Company,
or subscriptions, warrants, options, rights, calls, agreements, demands or other
arrangements or commitments of any character obligating the Company to issue or
dispose of
5
<PAGE> 7
any of its membership interests or other equity interests or any ownership
interest therein or otherwise relating to the membership interests of the
Company.
2.05. TITLE TO INTERESTS. The assignment of the Interests by Seller and
the acquisition and assumption of the Interests by Buyer pursuant to this
Agreement will vest in Buyer legal and valid title to such Interests, free and
clear of any and all liens, security interests, pledges, mortgages, charges,
limitation, claims, restrictions, rights of first refusal, rights of first
offer, rights of first negotiation or other encumbrances of any kind or nature
whatsoever (collectively, "Encumbrances"), other than Encumbrances (if any)
created by Buyer.
2.06. ASSETS AND LIABILITIES OF THE COMPANY.
(a) On the date hereof, the Company has no assets or liabilities of
any nature, has no employees, and has not conducted any business.
(b) Immediately prior to and as of the Closing, the Company shall
(i) have good and valid title to the Assets, free and clear of any and all
Encumbrances, except (A) liens for Taxes not yet due or being contested in good
faith by appropriate proceedings, and (B) such Encumbrances relating to the
Leases of the LA Stores as (x) are set forth in the Leases themselves, (y)
consist of deeds of trust or other Encumbrances on the fee interests or, where
applicable, master leasehold interests from which the Leases were derived, or
(z) are not substantial in amount, character or extent and do not detract from
the value, or interfere with the use, of the LA Stores in any material respect
("Permitted Encumbrances"); (ii) have no assets other than the Assets; (iii)
have no liabilities or obligations of any nature (absolute, accrued, contingent
or otherwise), whether due or to become due (including, without limitation, any
liability for taxes and interest, penalties or other charges payable with
respect to any such liability or obligation), whether or not required to be
reflected or reserved against on a balance sheet prepared in accordance with
GAAP, other than the obligations under the Leases; (iv) have no employees; and
(v) conduct no business other than the Business.
2.07. LEASEHOLD INTERESTS. Seller has previously delivered to Buyer a
true, correct and complete copy of each of the Leases, as amended to date. Each
of the Leases is in full force and effect. With respect to each of the Leases,
there exists no default by Seller or, to the knowledge of Seller, by any lessor
or third party thereunder, that has affected or could reasonably be expected to
materially affect the rights and privileges thereunder of Seller or upon
assignment to it, the Company. No party to any Lease has given Seller written
or, to the knowledge of Seller, oral notice of or made any claim with respect to
any breach or default with respect to any such Lease, except such as have been
cured or waived. Seller has not entered into any sublease, license or other
agreement granting to any person or entity any right to the use, occupancy or
enjoyment of, or the right to purchase, any LA Store or any portion thereof. To
the knowledge of Seller, the current use and operation of the LA Stores is in
material compliance with all applicable laws (including, without limitation,
laws relating to zoning and land use and to the protection of human health and
the environment) and public and private covenants and restrictions, and Seller
has not received any notice of material non-compliance with any applicable laws,
nor, to the knowledge of Seller, is there any valid basis for such a notice. All
6
<PAGE> 8
material certificates of occupancy, permits and licenses of all governmental
authorities having jurisdiction over the LA Stores required to have been issued
to enable the LA Stores to be lawfully occupied and used for all of the purposes
for which the LA Stores are currently occupied and used have been lawfully
issued and are in full force and effect. To the knowledge of Seller, there
exists no restrictive covenant, ordinance or land use restriction that could
reasonably be expected to materially detract from the use or value of the LA
Stores and the Leases. Seller has not received any written notification of any
pending, threatened or contemplated condemnation proceeding affecting the LA
Stores or any portion thereof. For the purposes of this Agreement, "the
knowledge of Seller" shall refer to actual knowledge of any of the individuals
listed in Schedule 2.07.
2.08. INVENTORY. Except for Non-Salable Inventory (as defined in Schedule
D), all Inventory which is reflected on the inventory statement related to the
Business prepared by Seller as of August 2, 1997 and attached hereto as part of
Schedule 2.08 (the "August Inventory Statement") consisted of, and all Inventory
which will be reflected on the Final Inventory Statement will consist of, items
of a quantity and quality normally salable in the ordinary course of operation
of the Business. The value at which the Inventory is reflected on the August
Inventory Statement was determined in accordance with GAAP in a manner
consistent with previous years. All current orders for Inventory were made in
the ordinary course of business and represent quantities typically ordered for
sale by the Business in the ordinary course. As of the date hereof and as of the
Closing Date, all of the Inventory will be owned by Seller and the Company,
respectively, and none of such Inventory is or will be held on consignment.
2.09. FINANCIAL INFORMATION. Schedule 2.09 sets forth the sales and profit
contributions for the LA Stores as a group for the fiscal periods set forth
therein, as well as the fixed asset accounts of the LA Stores as a group and the
Non-Renewal Stores as a group as of the end of said fiscal periods. The
financial information set forth on Schedule 2.09 is accurate in all material
respects.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
3.01. ORGANIZATION. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the state of Arizona, and has
all requisite corporate power and authority to execute, deliver and perform this
Agreement and to consummate the transactions contemplated hereby, and is duly
qualified to transact business as a foreign corporation and is in good standing
in the State of California.
3.02. CORPORATE POWER AND AUTHORITY; EFFECT OF AGREEMENT. The execution,
delivery and performance by Buyer of this Agreement and all other agreements,
certificates, instruments and other documents to be executed and delivered by it
in connection herewith (the "Buyer Ancillary Documents") and the consummation by
Buyer of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of
7
<PAGE> 9
Buyer. This Agreement has been duly and validly executed and delivered by Buyer
and constitutes a valid and binding obligation of Buyer, and the Buyer Ancillary
Documents, upon execution and delivery by Buyer, will constitute valid and
binding obligations of Buyer, in each case enforceable against Buyer in
accordance with its terms, except to the extent that such enforceability (i) may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to creditors' rights generally and (ii) is subject to
general principles of equity. The execution, delivery and performance by Buyer
of this Agreement and the Buyer Ancillary Documents and the consummation by
Buyer of the transactions contemplated hereby and thereby will not, with or
without the giving of notice or the lapse of time, or both, (A) subject to
compliance with the HSR Act, violate or conflict with any provision of law, rule
or regulation to which Buyer is subject, (B) violate or conflict with any order,
judgment or decree applicable to Buyer or (C) violate or conflict with any
provision of the Certificate of Incorporation or the Bylaws of Buyer.
3.03. CONSENTS. No consent, approval or authorization of, or exemption by,
or filing with, any governmental department, bureau or agency or other public
board or authority is required in connection with the execution, delivery and
performance by Buyer of this Agreement or the Buyer Ancillary Agreements, or the
taking of any other action contemplated hereby or thereby, excluding, however,
compliance with the HSR Act and consents, approvals, authorizations, exemptions
and filings, if any, that Seller or the Company is required to obtain or make.
3.04. STATUS OF BUYER. Buyer is an "accredited investor" as defined in Rule
501(a) promulgated under the Securities Act of 1933, as amended, and is
acquiring and assuming the Interests for investment, and not with a view to a
distribution in violation of the Securities Act of 1933, as amended.
ARTICLE IV
COVENANTS OF TRAK AND SELLER
4.01. COOPERATION BY TRAK, SELLER AND THE COMPANY. From the date hereof
until the Closing, Trak and Seller will, and will cause the Company to, use all
reasonable efforts, and cooperate with Buyer, to secure all necessary consents,
approvals, authorizations, exemptions and waivers from third parties as shall be
required in order to effectuate the transactions contemplated hereby, and will
otherwise use all reasonable efforts to cause the consummation of such
transactions in accordance with the terms and conditions hereof.
4.02. CONDUCT OF BUSINESS. Except with the prior written consent of Buyer,
from the date hereof through the Closing, Trak and Seller will, and, to the
extent applicable, will cause the Company to: (a) operate the Business only in
the ordinary course consistent with past practice, including the maintenance of
an inventory mix consistent with past practice, provided that nothing herein
shall preclude Seller from closing the Non-Renewal Stores; (b) use all
reasonable efforts to preserve intact the Business and the Assets (other than
the sale of Inventory in the normal course), including the continued purchase of
advertising relating to the Business in
8
<PAGE> 10
the ordinary course consistent with past practice; (c) use all reasonable
efforts to preserve relationships with lessors, suppliers, customers, licensors
and licensees and others having business dealings with the Business or the
Company; (d) not terminate, amend or alter in any way any of the Leases; and (e)
notify Buyer in writing at least 10 days prior to the expiration thereof of any
option, renewal or other right under any of the Leases as to which the right to
exercise will expire prior to or within 10 days following the Closing Date, and
exercise (or decline to exercise) such right as directed by Buyer.
4.03. ACCESS. From the date hereof and prior to the Closing, Trak, Seller
and the Company shall (a) provide Buyer and its representatives with such
information as Buyer or its representatives may from time to time reasonably
request with respect to the Assets, the Business and the Company and the
transactions contemplated by this Agreement, (b) provide Buyer and its
representatives reasonable access during regular business hours and upon
reasonable notice to the properties, books and records of Seller and the Company
as Buyer or its representatives may from time to time reasonably request, (c)
cooperate in providing access to all information necessary or advisable in order
to permit Buyer and its representatives to examine the pre-Closing physical
count of the Inventory, and (d) permit Buyer and its representatives to discuss
the Business with Trak and Seller's officers, employees and suppliers; provided,
however, that Buyer will hold in confidence all documents and information so
furnished in accordance with the confidentiality agreement between Buyer and
Trak dated March 25, 1997 (the "Confidentiality Agreement").
4.04. TRANSFER OF INVENTORY AND LEASES AND CERTAIN RELATED ASSETS TO
COMPANY. Prior to the Closing, Trak and Seller shall contribute and transfer to
the Company, free and clear of any Encumbrances, all: (a) of the Inventory,
Leases and Fixtures; (b) licenses, permits, franchises and other authorizations
relating to the foregoing which can be transferred to the Company; and (c)
employee records (subject to compliance with privacy laws), Lease files,
customer records and summary historical store and Distribution Center financial
records to the extent relating to the Business. Prior to the Closing, Trak and
Seller shall deliver to the Distribution Center and shall appropriately
segregate all of the Fixtures in the aggregate from the Non-Renewal Stores.
4.05. FURTHER ASSURANCES. At any time or from time to time after the
Closing, Seller shall, at the request of Buyer or Buyer's counsel, execute and
deliver any further instruments or documents and take all such further action as
Buyer or Buyer's counsel may reasonably request in order to evidence or
otherwise facilitate the consummation of the transactions contemplated hereby.
4.06. TERMINATION AND SOLICITATION OF EMPLOYEES. Seller agrees that it
will terminate, effective the Closing Date, all of its employees who work at the
LA Stores or the Regional Office (but excluding employees at the Distribution
Center) and will pay all amounts due such employees as a result of such
termination. Seller agrees that, commencing upon the execution of this
Agreement, Buyer may solicit such employees of the Business with respect to
possible employment by Buyer or the Company after the Closing, and in connection
therewith
9
<PAGE> 11
that Buyer may interview each such employee and conduct related drug tests. It
is understood, however, that Buyer is not obligated to offer employment to any
employee of Seller.
4.07. COVENANT NOT TO COMPETE. Each of Trak and Seller agree that for a
period of three (3) years following the Closing it will not directly or
indirectly engage in the sale of automobile parts through retail or commercial
outlets located in southern California, except that, for so long as Seller
maintains the Distribution Center, Seller may utilize the Distribution Center to
store and ship automobile parts to outlets located outside of southern
California.
ARTICLE V
COVENANTS OF BUYER
5.01. COOPERATION BY BUYER. From the date hereof until the Closing, Buyer
shall use all reasonable efforts, and will cooperate with Seller and the
Company, to secure all necessary consents, approvals, authorizations, exemptions
and waivers from third parties as shall be required in order to effectuate the
transactions contemplated hereby, and shall otherwise use all reasonable efforts
to cause the consummation of such transactions in accordance with the terms and
conditions hereof. Buyer specifically agrees that it will take such actions as
may be necessary to obtain the requisite approval under the HSR Act.
5.02. FURTHER ASSURANCES. At any time or from time to time after the
Closing, Buyer shall, at the request of Seller or Seller's counsel, execute and
deliver any further instruments or documents and take all such further action as
Seller or Seller's counsel may reasonably request in order to evidence or
otherwise facilitate the consummation of the transactions contemplated hereby.
5.03. BUYER EMPLOYEES. Buyer agrees that each employee of Seller
who is terminated by Seller pursuant to Section 4.06 and is hired by Buyer or
the Company on the Closing Date will:
(i) be credited for benefit program purposes with the same
number of years of service as such employee had with Seller as of the
Closing Date; and
(ii) be provided the health care benefits, without regard to any
applicable waiting period, then currently available to similarly situated
employees of Buyer.
Buyer also agrees that it shall indemnify Seller with respect to any losses
Seller may incur attributable to a post-Closing termination by Buyer of any such
employee of Seller so hired by Buyer or the Company on or after the Closing
Date.
5.04. PERFORMANCE UNDER LEASES. Subject to Section 6.03 hereof, the
accuracy (to the extent relevant in a given case) of Section 2.07 hereof, and
the terms and conditions of the Leases, Buyer agrees that after the Closing Date
it will, or will cause the Company to, honor the terms of the Leases in effect
on such date.
10
<PAGE> 12
ARTICLE VI
ADDITIONAL COVENANTS
6.01. TRANSITION ARRANGEMENTS. Seller and Buyer agree as follows with
respect to certain post-Closing transition arrangements:
(a) Seller shall maintain the Regional Office premises for ninety
(90) days following the Closing (or such shorter period as Buyer may specify
upon ten (10) days prior notice to Seller) and Buyer and the Company shall be
entitled to use said premises at no additional cost to Buyer, other than any
increase in the operating costs of the Regional Office occasioned by Buyer's
use, which shall be paid by Buyer.
(b) The Company and Buyer shall have the right to operate the LA
Stores under the "TRAK," "SUPER TRAK" and "SUPER TRAK WAREHOUSE" names and to
use such logos, business forms and stationery in connection therewith for 90
days following the Closing at no additional cost to Buyer, provided that Buyer
agrees to indemnify Seller for any loss, damage or expense incurred by Seller
attributable to such post-Closing use by Buyer or the Company.
(c) The Company and Buyer shall have the right to display and sell
from the LA Stores all "TRAK" private label products that are part of the
inventory acquired hereunder until the supply of such products is exhausted.
(d) Buyer and Seller shall implement an employee incentive program,
the principal elements of which are set forth on Schedule 6.01(d), and shall
share the cost thereof as provided in Schedule 6.01(d).
(e) As soon as practical after the date hereof, Seller and Buyer
shall enter into an operating agreement relating to the Distribution Center (the
"Operating Agreement") which will reflect the following basic understandings:
(i) the term of the Operating Agreement shall be for the
period of 135 days following the Closing Date, subject to the right of
Buyer to terminate the Operating Agreement upon not less than ten (10)
days prior notice to Seller;
(ii) the purpose of the Operating Agreement is to enable Buyer
to implement the continuous operation of the LA Stores from the Closing
until Buyer is able to receive and ship products from its own distribution
facilities, it being understood that Seller shall exercise reasonable
efforts to operate the Distribution Center in accordance with
substantially the same standards, systems and procedures as it has
heretofore operated the Distribution Center in connection with the
Business, it being understood, however, that Seller shall not be required
to hire new employees for the Distribution Center;
11
<PAGE> 13
(iii) during the period of the Operating Agreement, Buyer will
be responsible for placing purchase orders for inventory and paying for
such inventory, and Seller will be responsible for quantity integrity;
(iv) during the period of the Operating Agreement, Buyer shall
be required to have certain of its personnel present at the Distribution
Center at Buyer's expense;
(v) Buyer will pay for all normal operating costs (including
depreciation) incurred by Seller for providing services to Buyer pursuant
to the Operating Agreement, except that such costs shall not include (w)
severance, accrued vacation (other than vacation accrued during the period
of the Operating Agreement) or other costs associated with the voluntary
or involuntary termination of Seller's employees at the Distribution
Center, whether any such termination occurs before, during or after the
term of the Operating Agreement, (x) rent, taxes, insurance required under
the lease of the Distribution Center, common area charges and other real
estate occupancy costs, (y) payments under equipment leases that would be
incurred by Seller even if Buyer were not utilizing the Distribution
Center pursuant to the Operating Agreement, and (z) costs (or portions of
costs) relating to any activities conducted at the Distribution Center
that are not related to the receipt, storage and delivery of inventory for
the LA Stores;
(vi) during the period of the Operating Agreement, Trak and
Seller shall provide or make available to Buyer at no additional cost
Trak's and Seller's financial and management information systems and
similar services and support to enable the continuous operation of the
business through the termination of the Operating Agreement; and
(vii) Buyer shall indemnify Seller for any liability incurred
by Seller as a result of Buyer's use of the Distribution Center pursuant
to the Operating Agreement.
6.02. PRORATION. As soon as practicable after the Closing, the parties
shall pro-rate all property taxes and other amounts prepaid or accrued as of the
Closing under the Leases, and Buyer shall pay to Seller, or Seller shall pay to
Buyer, the net amount owing.
6.03. EXCLUDED LIABILITIES. For the avoidance of doubt (and anything
herein to the contrary notwithstanding), it is understood and agreed that Seller
shall retain and/or assume all liability and responsibility for (and shall
indemnify Buyer and the Company with respect to) any and all liabilities or
obligations of Seller, the Company or the Business which arise out of or relate
to the Leases, the Business or the Assets and which have accrued or are in
existence (i.e., all events or circumstances giving rise to the liability or
obligation have occurred, regardless of whether a claim or liability has been
asserted with respect thereto) at any time prior to the Closing ("Excluded
Liabilities"), including, without limiting the generality of the foregoing, (a)
claims for personal injury or damages based on allegedly defective products
including, without limitation, claims based on negligence, breach of implied or
express warranty, strict liability, defective product or product in an
unreasonably dangerous condition, failure to warn or inadequate warning (except
that Buyer agrees that it shall assume responsibility for all ordinary
12
<PAGE> 14
course defective product returns relating to products sold from the LA Stores
prior to the Closing); (b) taxes; (c) accounts payable; (d) any liabilities
relating to the Non-Renewal Stores; (e) any liabilities relating to unpaid
benefits, salary or other claims or obligations arising prior to the Closing
with respect to any employees of Seller; and (f) any severance, accrued vacation
and other payments due to employees who leave or are terminated by Seller
pursuant to Section 4.06 or otherwise prior to, on or after the Closing Date.
6.04. CONFIDENTIALITY. Prior to and for a period of five (5) years
following the Closing, Trak and Seller shall keep confidential and not disclose
(other than to its attorneys, accountants and advisers) or use (except in
connection with preparing tax returns, conducting proceedings relating to taxes
and, prior to the Closing Date, as required in the conduct of the Business in
the ordinary course and consistent with past practice) any non-public
information relating to the Business or the Company, whether or not obtained
pursuant to or in connection with the transactions contemplated by this
Agreement. This Section 6.04 shall not be violated by disclosure pursuant to
court order or as otherwise required by law or in any other proceeding, on
condition that notice of the requirement for such disclosure is given to Buyer
prior to making any disclosure. Each of Trak and Seller shall cause its
respective representatives, employees, attorneys, accountants and advisers to
whom information is disclosed pursuant to this Section 6.04 to comply with the
provisions of this Section.
6.05. NON-RENEWAL STORES. Seller agrees that Buyer may engage in
discussions with the lessors of the Non-Renewal Stores numbered 188 and 572
pertaining to the possible extension or renewal of the existing leases thereof.
Upon written notice from Buyer to Seller delivered at any time prior to the
close of business on Friday, October 10, 1997, Buyer may designate one or both
of these two Non-Renewal Stores to be an "LA Store" hereunder, and in such event
the Non-Renewal Store(s) so designated shall be deemed LA Store(s) hereunder.
6.06 NEW STORES. Seller shall provide Buyer all relevant information as to
leases which have been entered into prior to the date hereof and which relate to
stores not yet opened in the Los Angeles Metropolitan Area (the "New Leases")
(it being understood that Seller shall not enter into any such leases after the
date hereof). Buyer shall have the right, by written notice to Seller delivered
at any time before the Closing Date, to cause Seller to assign to the Company
any or all such New Leases at no additional cost to Buyer, except that Buyer
shall be responsible for the performance of said leases subsequent to the
Closing as provided in Section 5.04. Seller agrees with respect to any such
store under development that such store will be developed in accordance with a
format, and with decor, provided by Buyer and that Seller shall not install
fixtures or inventory in such store prior to the Closing.
6.07 PURCHASE OF INVENTORY; ASSIGNMENT AND ASSUMPTION OF CERTAIN
AGREEMENTS. Seller agrees that it shall continue to purchase Inventory for the
LA Stores in the ordinary course of business, of such type and in sufficient
quantity that there will be adequate Inventory available in the LA Stores (and
in the Distribution Center for delivery to the LA Stores) through the Closing
Date, and Buyer will be responsible for issuing purchase orders for Inventory to
be delivered to the Distribution Center after the Closing Date. Seller shall be
responsible for the cancellation or termination of any purchase orders for
inventory placed by it
13
<PAGE> 15
which is not delivered prior to the Closing. Seller shall cooperate with Buyer
and its representatives in identifying third-party service and maintenance
agreements applicable to some or all of the LA Stores and, if so requested by
Buyer, will use its best efforts to assign such agreements to the Company, in
which event the Company shall assume the obligations thereunder.
6.08 CHANGE IN FORM OF THE COMPANY. If requested by Buyer not later than
20 days prior to the Closing, the "Company" shall be formed as a corporation
under California law (rather than a limited liability company), the voting stock
of which shall be owned 79% by Seller and 21% by Buyer and this Agreement shall
be deemed amended as appropriate to reflect such change in form, it being
understood that if the transaction were not to close, the corporation would be
dissolved. If Buyer does not request a change in the form of the Company, Buyer
shall indemnify Seller for any liability incurred by Seller under
anti-assignment or similar provisions of the Leases attributable to the Company
being a limited liability company as opposed to a corporation. If Buyer does
request a change in the form of the Company, and if either Buyer or Seller so
elects, the Company shall be owned 100% by Seller (rather than 79%-21% as
referred to above), in which event Seller shall (i) indemnify the Company and
Buyer against any tax liability of the Trak consolidated group, and (ii) make a
Section 338(h)(10) election with respect to the sale of the Company to Buyer.
ARTICLE VII
CONDITIONS TO CLOSING
7.01. CONDITIONS TO BUYER'S OBLIGATIONS. The obligation of Buyer to
acquire and assume the Interests shall be subject to the satisfaction (or
waiver) on or prior to the Closing Date of all of the following conditions:
(a) Representations, Warranties and Covenants of Seller. Each of
Trak and Seller shall have complied in all material respects with each of its
agreements and covenants contained herein to be performed on or prior to the
Closing Date, and all the representations and warranties of Trak and Seller
contained herein shall be true in all material respects on and as of the Closing
Date with the same effect as though made on and as of the Closing Date;
provided, however, that with respect to representations and warranties contained
in Section 2.07, such representations and warranties shall also be true in all
material respects as if made by the Company on and as of the Closing Date with
the same effect as though made on and as of the Closing Date. Buyer shall have
received a certificate of each of Trak and Seller, dated the Closing Date,
certifying as to the fulfillment of the conditions set forth in this Section
7.01(a).
(b) No Order. No order of any court or administrative agency shall
be in effect that temporarily, provisionally or permanently prohibits Buyer from
consummating the transactions contemplated hereby, or that provides for an award
of damages against Buyer in connection therewith, and no claim, action, suit or
other proceeding shall be pending which presents a substantial risk that such an
order will become effective.
14
<PAGE> 16
(c) HSR Act. Approval of the acquisition and assumption of the
Interests by Buyer shall have been obtained under the HSR Act or the applicable
waiting period shall have terminated.
7.02. CONDITIONS TO SELLER'S OBLIGATIONS. The obligation of Seller to
assign the Interests shall be subject to the satisfaction (or waiver) on or
prior to the Closing Date of all of the following conditions:
(a) Representations, Warranties and Covenants of Buyer. Buyer shall
have complied in all material respects with each of its agreements and covenants
contained herein to be performed on or prior to the Closing Date, and all of the
representations and warranties of Buyer contained herein shall be true in all
material respects on and as of the Closing Date with the same effect as though
made on and as of the Closing Date. Seller shall have received a certificate of
Buyer, dated the Closing Date, certifying as to the fulfillment of the
conditions set forth in this Section 7.02(a).
(b) No Order. No order of any court or administrative agency shall
be in effect that temporarily, provisionally or permanently prohibits Seller
from consummating the transaction contemplated hereby, or that provides for an
award of damages against Seller in connection therewith, and no claim, action,
suit or other proceeding shall be pending which presents a substantial risk that
such an order will become effective.
(c) HSR Act. The condition set forth in Section 7.01(c) shall have
been satisfied.
ARTICLE VIII
TERMINATION PRIOR TO CLOSING
8.01. TERMINATION. This Agreement may be terminated at any time prior to
the Closing:
(a) by the mutual written consent of Buyer and Seller; or
(b) by either Seller or Buyer by written notice, without liability
to the terminating party on account of such termination (provided the
terminating party is not otherwise in default or in breach of this Agreement),
if the Closing shall not have occurred on or before January 31, 1998; or
(c) by either Seller or Buyer by written notice, without liability
to the terminating party on account of such termination (provided the
terminating party is not otherwise in default or in breach of this Agreement),
if there shall have been a material breach by the other party of any of its
representations, warranties, covenants or agreements contained herein, which
breach is not cured within five (5) days after receipt of notice thereof.
15
<PAGE> 17
8.02. EFFECT ON OBLIGATIONS. Termination of this Agreement pursuant to
this Article VIII shall terminate all obligations of the parties hereunder,
except for their obligations under Sections 9.06 and 9.11 and the
Confidentiality Agreement; provided, however, that termination pursuant to
clause (b) or (c) of Section 8.01 shall not relieve a defaulting or breaching
party from any liability to the other party hereto.
ARTICLE XI
MISCELLANEOUS
9.01. REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION. The representations
and warranties of the parties shall terminate upon the first anniversary of the
Closing, except to the extent that written notice has been given by the party
seeking indemnification to the party from whom indemnification is sought prior
to the expiration of such one-year period specifying with reasonable
particularity the incorrect representation or warranty giving rise to such claim
for indemnification. Each party shall indemnify the other party for all
liability, damage and expense (including reasonable attorneys' fees) incurred as
a result of the breach or inaccuracy of the representations and warranties of
such first party or the failure of such first party to perform any of its
covenants herein. However, with respect to liability, damage or expense
attributable to the breach or inaccuracy of representations and warranties,
neither party shall have liability for the first $150,000 of such liability,
damage and expense, and in computing such liability, damage and expense, such
amounts shall be computed net of any related recoveries by the indemnitee under
insurance policies or other related payments received from third parties and net
of any tax benefits actually received by the indemnitee taking into account the
income tax treatment of the receipt of indemnification. The parties agree that
no party has made any representation or warranty in connection with the
transactions contemplated hereby except for those representations and warranties
set forth herein or in any of the Ancillary Agreements or Buyer Ancillary
Agreements.
9.02. ENTIRE AGREEMENT. Except for the Confidentiality Agreement and the
Ancillary Documents, this Agreement (including the Schedules hereto) constitutes
the sole and entire understanding of the parties with respect to the subject
matter hereof and supersedes all prior oral or written agreements and all
contemporaneous oral agreements between the parties with respect to the subject
matter hereof.
9.03. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by any
party hereto without the prior written consent of the other parties hereto;
provided, however, that Buyer may assign this Agreement to any direct or
indirect wholly-owned subsidiary; provided, however, that any such assignment
shall not relieve Buyer of its obligations hereunder. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the
respective successors, and permitted assigns of the parties hereto.
9.04. HEADINGS. The headings of the articles, sections and paragraphs of
this Agreement are inserted for convenience of reference only and shall not be
deemed to constitute part of this Agreement or to affect the construction
hereof.
16
<PAGE> 18
9.05. MODIFICATION AND WAIVER. No amendment, modification, alteration or
supplement of the terms or provisions of this Agreement shall be binding unless
the same shall be in writing and duly executed by the parties hereto, except
that any of the terms or provisions of this Agreement may be waived in writing
at any time by the party that is entitled to the benefits of such waived terms
or provisions. No waiver of any of the provisions of this Agreement shall be
deemed to or shall constitute a waiver of any other provision hereof (whether or
not similar). No delay on the part of any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof.
9.06. EXPENSES. Except as otherwise provided herein, Buyer shall pay all
costs and expenses incurred by or on behalf of Buyer, and Seller shall pay all
costs and expenses incurred by or on behalf of Trak, Seller or the Company, in
connection with the negotiation of this Agreement and the performance of the
transactions contemplated hereby, including, without limiting the generality of
the foregoing, fees and expenses of its and their financial consultants,
accountants and legal counsel.
9.07. NOTICES. Any notice, request, instruction or other document to be
given hereunder by any party hereto to any other party shall be in writing and
shall be given (and will be deemed to have been duly given upon receipt) by
delivery in person, by electronic facsimile transmission, cable, telegram, telex
or other standard forms of written telecommunications, by overnight courier or
by registered or certified mail, postage prepaid,
if to Trak, Seller or the Company, to:
Trak Auto Corporation
3300 75th Avenue
Landover, Maryland 20785
ATTN: Elliot Arditti
Telephone No.: (301) 226-1530
Telecopier No.: (301) 773-2707
in each case, with a copy to:
Munger, Tolles & Olson LLP
355 South Grand Avenue, Ste. 3500
Los Angeles, CA 90071
ATTN: Robert B. Knauss
Telephone No.: (213) 683-9137
Telecopier No.: (213) 687-3702
17
<PAGE> 19
if to Buyer, to:
CSK Auto, Inc.
645 E. Missouri Avenue
Phoenix, Arizona 85012
ATTN: President
Telephone No.: (602) 265-9200
Telecopier No.: (602) 234-1713
with a copy to:
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166-0193
ATTN: Charles K. Marquis
Telephone No.: (212) 351-4000
Telecopier No.: (212) 351-4035
or at such other address for a party as shall be specified by like notice.
9.08. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of California applicable to agreements
made and to be performed wholly within such jurisdiction.
9.09. PUBLIC ANNOUNCEMENTS. Prior to the Closing, neither Seller nor Buyer
shall make any public statements, including, without limitation, any press
releases, with respect to this Agreement and the transactions contemplated
hereby without the prior written consent of the other party hereto (which
consent shall not be unreasonably withheld) except as may be required by law. If
a public statement is required to be made by law, the parties shall consult with
each other in advance as to the contents and timing thereof; provided, however,
that a press release or other public announcement, statement or comment made
without such joint approval shall not be in violation of this Section if it is
made in order to comply with applicable securities laws or stock exchange
policies and, in the reasonable judgment of the party making such release or
announcement, based upon advice of independent counsel, prior review and joint
approval, despite the making of reasonable efforts to obtain the same, would
prevent dissemination of such release or announcement in a timely enough fashion
to comply with such laws or policies; provided, however, that in all instances
prompt notice from one party to the other shall be given with respect to any
such release, announcement, statement or comment.
9.10. THIRD PARTY BENEFICIARIES. Nothing herein expressed or implied is
intended to or shall be construed to confer upon or give any person or entity,
other than the parties hereto, and their respective successors and permitted
assigns, any rights or remedies under or by reason of this Agreement.
9.11. JURISDICTION. Any action or proceeding arising out of or relating to
this Agreement may be brought in any state or federal court sitting in the
County of Los Angeles,
18
<PAGE> 20
State of California, and each of the parties hereto irrevocably submits to the
jurisdiction of any such court in any such action or proceeding. Each of the
parties hereto irrevocably waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought.
9.12. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall together constitute one and the same instrument.
9.13. PARTIES. References to the "parties" hereto shall mean
Trak and Seller, on the one hand, and Buyer, on the other hand.
19
<PAGE> 21
IN WITNESS WHEREOF, each of the parties hereto has executed this Purchase
Agreement as of the date first above written.
CSK AUTO, INC.
By: /s/ James Bazlen
---------------------------------------
TRAK AUTO CORPORATION
By: /s/ R. Keith Green
---------------------------------------
TRAK CORPORATION D/B/A/ TRAK AUTO
CORPORATION I
By: /s/ R. Keith Green
---------------------------------------
SUPER TRAK CORPORATION
By: /s/ R. Keith Green
---------------------------------------
20
<PAGE> 1
EXHIBIT 11.01
CSK AUTO, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------------------
NOVEMBER 2, 1997 OCTOBER 27, 1996
------------------------------------
<S> <C> <C>
Income (loss) before income taxes $ 5,301 $ 2,821
Fixed charges
Interest expense 8,478 3,802
Interest portion of rentals 4,903 4,347
------- -------
Total fixed charges 13,381 8,149
------- -------
Earnings before income taxes and fixed charges $18,682 $10,970
Ratio of earnings to fixed charges 1.40 1.35
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS, CONDENSED CONSOLIDATED BALANCE SHEET AND
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRTY-NINE WEEKS
ENDED NOVEMBER 2, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-01-1998
<PERIOD-START> FEB-03-1997
<PERIOD-END> NOV-02-1997
<CASH> 6,316
<SECURITIES> 0
<RECEIVABLES> 38,315
<ALLOWANCES> 2,668
<INVENTORY> 304,807
<CURRENT-ASSETS> 363,434
<PP&E> 160,067
<DEPRECIATION> (82,764)
<TOTAL-ASSETS> 484,229
<CURRENT-LIABILITIES> 206,626
<BONDS> 0
0
1
<COMMON> 1
<OTHER-SE> (48,400)
<TOTAL-LIABILITY-AND-EQUITY> 484,229
<SALES> 636,465
<TOTAL-REVENUES> 636,465
<CGS> 358,917
<TOTAL-COSTS> 600,241
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,026
<INCOME-PRETAX> 11,198
<INCOME-TAX> 4,317
<INCOME-CONTINUING> 6,881
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,881
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
