<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 5, 1996
REGISTRATION NO. 333-14217
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CORE-MARK INTERNATIONAL, INC.
(Exact name of registrant as specified in the charter)
<TABLE>
<S> <C> <C>
DELAWARE 5194 91-1295550
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification No.)
incorporation or organization
</TABLE>
------------------------
395 OYSTER POINT BOULEVARD, SUITE 415
SOUTH SAN FRANCISCO, CALIFORNIA 94080
(415) 589-9445
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
LEO F. KORMAN
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
CORE-MARK INTERNATIONAL, INC.
395 OYSTER POINT BOULEVARD, SUITE 415
SOUTH SAN FRANCISCO, CALIFORNIA 94080
(415) 589-9445
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
WITH A COPY TO:
MITCHELL S. FISHMAN, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CORE-MARK INTERNATIONAL, INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM IN FORM S-4 LOCATION IN PROSPECTUS
----------------------------------------------------- -----------------------------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and
Outside Front Cover of Prospectus.................. Forepart of the Registration Statement; Outside Front
Cover page of the Prospectus
2. Inside Front and Outside Back Cover
pages of Prospectus................................ Inside Front Cover page of Prospectus; Outside Back
Cover page of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information...................... Summary; Risk Factors; Selected Historical and Pro
Forma Consolidated Financial and Other Data
4. Terms of the Transaction............................. The Exchange Offer; Description of the New Notes;
Certain United States Tax Considerations; Plan of
Distribution
5. Pro Forma Financial Information...................... Selected Historical and Pro Forma Consolidated
Financial and Other Data
6. Material Contacts with the Company
Being Acquired..................................... Not Applicable
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters.......................... Not Applicable
8. Interests of Named Experts and Counsel............... Not Applicable
9. Disclosure of Commission Position on
Indemnification For Securities Liabilities......... Not Applicable
INFORMATION ABOUT THE REGISTRANT:
10. Information With Respect to S-3 Registrants.......... Not Applicable
11. Incorporation of Certain Information by Reference.... Not Applicable
12. Information With Respect to S-2 or S-3 Registrants... Not Applicable
13. Incorporation of Certain Information by Reference.... Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM IN FORM S-4 LOCATION IN PROSPECTUS
----------------------------------------------------- -----------------------------------------------------
14. Information With Respect to Registrants
Other Than S-3 or S-2 Registrants.................. Summary; Summary Consolidated Financial and Other
Data; Risk Factors; Capitalization; Selected
Historical and Pro Forma Consolidated Financial and
Other Data; Management's Discussion and Analysis of
Results of Operations and Financial Condition;
Business; Management; Ownership of Voting
Securities; Recapitalization and Related
Transactions; Consolidated Financial Statements.
<S> <C> <C>
INFORMATION ABOUT THE COMPANY BEING ACQUIRED:
15. Information With Respect to S-3 Companies............ Not Applicable
16. Information With Respect to S-2 or S-3 Companies..... Not Applicable
17. Information With Respect to Companies
Other Than S-2 or S-3 Companies.................... Not Applicable
VOTING AND MANAGEMENT INFORMATION:
18. Information if Proxies, Consents or
Authorizations Are to be Selected.................. Not Applicable
19. Information if Proxies, Consents or
Authorizations Are Note to be Solicited
or in an Exchange Offer............................ Management; Ownership of Voting Securities
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION DATED DECEMBER 5, 1996
PRELIMINARY PROSPECTUS
CORE-MARK INTERNATIONAL, INC.
[LOGO]
OFFER TO EXCHANGE ITS 11 3/8% SENIOR SUBORDINATED NOTES DUE 2003
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR ANY
AND ALL OF ITS OUTSTANDING 11 3/8% SENIOR SUBORDINATED NOTES DUE 2003.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON , 1996, UNLESS EXTENDED.
Core-Mark International, Inc., a Delaware corporation (the "Company") hereby
offers to exchange up to $75,000,000 aggregate principal amount of its 11 3/8%
Senior Subordinated Notes due 2003 (the "New Notes") for a like principal amount
of its 11 3/8% Senior Subordinated Notes due 2003 outstanding on the date hereof
(the "Existing Notes" and, together with the New Notes, the "Notes") upon the
terms and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"). The terms of the New Notes are identical in all material respects to
those of the Existing Notes, except for certain transfer restrictions and
registration rights relating to the Existing Notes. The New Notes will be issued
pursuant to, and entitled to the benefits of, the indenture, dated as of
September 27, 1996 (the "Indenture"), between the Company and Bankers Trust
Company, as trustee, governing the Existing Notes. The Existing Notes and New
Notes outstanding under the Indenture at any time are referred to collectively
as the "Notes."
The New Notes will be unsecured, will be subordinated to all existing and future
Senior Indebtedness (as defined) of the Company and will be effectively
subordinated to all obligations of the subsidiaries of the Company. The New
Notes will rank PARI PASSU with all future Senior Subordinated Indebtedness (as
defined) of the Company and will rank senior to all other subordinated
indebtedness of the Company. The Company does not have outstanding, and does not
have any firm arrangements to issue, any significant indebtedness that will be
subordinated to the Notes and does not have any Senior Subordinated Indebtedness
outstanding other than the Existing Notes.
The Indenture permits the Company to incur additional indebtedness, including up
to $175.0 million of Senior Indebtedness under the Senior Credit Facility (as
defined), subject to certain limitations. See "Description of New Notes." As of
September 30, 1996, the aggregate amount of the Company's outstanding Senior
Indebtedness was $88.3 million (exclusive of unused commitments), the
liabilities of the Company's subsidiaries were approximately $9.0 million and
the Company had no Senior Subordinated Indebtedness outstanding other than the
Existing Notes. See "Description of New Notes--Ranking."
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Exchange and Registration Rights
Agreement dated September 27, 1996 (the "Registration Rights Agreement") between
the Company and Chase Securities Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation, as the initial purchasers (the "Initial Purchasers") of
the Existing Notes, with respect to the initial sale of the Existing Notes.
The Company will not receive any proceeds from the Exchange Offer. The Company
will pay all the expenses incident to the Exchange Offer. Tenders of Existing
Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date (as defined) for the Exchange Offer. The Company expressly
reserves the right to terminate or amend the Exchange Offer and not to accept
for exchange any Existing Notes not theretofore accepted for exchange upon the
occurrence of any of the events specified under "The Exchange Offer--Conditions
to the Exchange Offer." If any such termination or amendment occurs, the Company
will notify the Exchange Agent and will either issue a press release or give
oral or written notice to the holders of the Existing Notes as promptly as
practicable. The Exchange Offer will expire at 5:00 P.M., New York City time, on
January , 1996, unless the Company, in its sole discretion, has extended the
period of time for which the Exchange Offer is open, provided, however, that the
Exchange Offer will not be extended beyond April , 1997. In the event the
Company terminates the Exchange Offer and does not accept for exchange any
Existing Notes with respect to the Exchange Offer, the Company will promptly
return such Existing Notes to the holders thereof. See "The Exchange Offer."
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivery of a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act of 1933, as amended (the "Securities Act"). This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Existing Notes
where such Existing Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. Each of the Company and
the Note Guarantors has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
Prior to the Exchange Offer, there has been no public market for the Existing
Notes. The Company currently does not intend to list the New Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system and no active public market for the New Notes is currently
anticipated. There can be no assurance that an active public market for the New
Notes will develop.
The Exchange Offer is not conditioned upon any minimum principal amount of
Existing Notes being tendered for exchange pursuant to the exchange Offer.
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS THAT
HOLDERS OF EXISTING NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1996.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE NEW NOTES OR EXISTING NOTES BY ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH
AN OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE
EXCHANGE PROPOSED TO BE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS.
AVAILABLE INFORMATION
The Company filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement") under the Securities Act with respect to the New Notes being offered
hereby. This Prospectus, which forms a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement. For
further information with respect to the Company and the New Notes, reference is
made to the Registration Statement. Statements contained in this Prospectus as
to the contents of any contract or other document are not necessarily complete,
and, where such contract or other document is an exhibit to the Registration
Statement, each such statement is qualified in all respects by the provisions in
such exhibit, to which reference is hereby made. Copies of the Registration
Statement may be examined without charge at the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and the
Commission's Regional Offices located at Seven World Trade Center, 13th Floor,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of all or any portion of the Registration
Statement can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of certain fees
prescribed by the Commission. The Commission maintains a World Wide Web site
(http://www.sec.gov) that contains such material regarding issuers that file
electronically with the Commission. The Registration Statement has been so
filed.
The Company is not currently subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Upon
completion of the Exchange Offer, the Company will be subject to the
informational requirements of the Exchange Act, and, in accordance therewith,
will file periodic reports and other information with the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of any material so filed can
be obtained from the Public Reference Section of the Commission at the address
set forth above, upon payment of certain fees prescribed by the Commission.
Pursuant to the Indenture, the Company has agreed to provide the Trustee and
holders and prospective holders of the Notes with annual, quarterly and other
reports at the times and containing in all material respects the information
specified in Sections 13 and 15(d) of the Exchange Act and to file such reports
with the Commission.
3
<PAGE>
SUMMARY
THE FOLLOWING IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND SHOULD BE
READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION, CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. UNLESS THE
CONTEXT INDICATES OTHERWISE, THE TERMS THE "COMPANY" OR "CORE-MARK" MEAN,
COLLECTIVELY, CORE-MARK INTERNATIONAL, INC. AND ITS SUBSIDIARIES.
THE COMPANY
The Company, with annual net sales of over $2.0 billion, is one of the two
largest broad-line, full-service wholesale distributors of packaged consumer
products to the convenience retail industry in North America. The Company's
principal customers include traditional and petroleum convenience stores,
grocery stores, drug stores, mass merchandisers and liquor stores. The Company
offers its customers a wide variety of products--approximately 33,500
SKUs--including cigarettes, candy, snacks, fast food, groceries, health and
beauty care products and other general merchandise.
The Company's 19 distribution facilities employ state-of-the-art equipment
and systems to efficiently serve over 29,000 customer locations throughout the
western regions of the United States and Canada. Over the past five years, the
Company has invested approximately 50% of its capital expenditures to introduce
advanced distribution technology into its warehouse and delivery functions. The
Company's sophisticated management information system ("MIS") utilizes
proprietary software to integrate order entry, warehouse operations, routing,
delivery and accounting. In addition, this advanced MIS allows for the
electronic exchange of information with suppliers and customers, improving
inventory management and operating efficiency. The Company believes that,
principally as a result of its size and its state-of-the-art equipment and MIS
capability, it is one of the lowest cost wholesale distributors focused on the
convenience retail industry ("Wholesale Distributors").
Wholesale Distributors provide valuable services to both manufacturers of
consumer products and convenience retailers. Manufacturers benefit from
Wholesale Distributors' broad retail coverage, inventory management and
efficient processing of small orders. Wholesale Distributors provide convenience
retailers access to a broad product line, the ability to place small quantity
orders, inventory management and access to trade credit. In addition, large
full-service Wholesale Distributors such as the Company offer retailers the
ability to participate in manufacturer-sponsored marketing programs,
merchandising and category management services and systems focused on minimizing
customers' investment in inventory. Total sales for United States Wholesale
Distributors have grown at a compound annual rate of 4.4% over the past five
years from approximately $59 billion in 1991 to approximately $70 billion in
1995, according to U.S. DISTRIBUTION JOURNAL, an industry publication.
Management believes that this growth reflects: (i) continued strong revenue
growth in the convenience store channel; (ii) a shift in cigarette purchases
from carton outlets (principally grocery stores) to pack outlets (such as
convenience retailers); (iii) an increase in the variety of products sold by
convenience stores; and (iv) an expansion of the industry's retail customer base
to encompass distribution to channels beyond convenience stores.
The Wholesale Distribution industry is highly fragmented and has
historically consisted of a large number of small, privately owned businesses
and a small number of large, full-service Wholesale Distributors serving
multiple geographic regions. Relative to smaller competitors, large distributors
such as the Company benefit from several competitive advantages, including
purchasing power, the ability to service chain accounts, economies of scale in
sales and operations, the ability to spread fixed corporate costs over a larger
revenue base and the resources to invest in MIS and other productivity enhancing
technology. These factors have led to a consolidation of the Wholesale
Distribution industry as companies either exit the industry or are acquired by
large distributors seeking to further leverage their existing operations. Based
on industry reports and management estimates, the Company believes the number of
Wholesale Distributors in the United States has declined from more than 1,500 in
1985 to fewer than 1,000 in 1995. According to U.S. DISTRIBUTION JOURNAL, only
ten of these distributors had revenues in excess of $400 million in 1995.
Management believes the Company will have significant opportunities to
participate in the ongoing consolidation of the industry.
4
<PAGE>
In 1995, revenues from cigarette sales accounted for approximately 71% of
the Company's total revenues and approximately 40% of the Company's gross
profits. Accordingly, any event which adversely affects the consumption of
cigarettes in the Company's market area generally or through the convenience
retail channel specifically could have a material adverse effect on the
Company's results of operations. From 1991 through 1995 the Company's cigarette
volume has increased at a compounded annual growth rate of 4.9%, driven in part
by a shift in cigarette volume to the convenience store channel and growth in
the number of customers serviced by Core-Mark. However, recent regulatory
developments affecting the tobacco industry are intended to reduce cigarette
consumption, which could negatively impact the Company's cigarette sales.
BUSINESS STRATEGY
The current senior management joined Core-Mark beginning in late 1990 and
successfully initiated several measures to increase sales of core operations and
enhance productivity and profitability. These measures included: (i) disposing
of non-core operations; (ii) increasing the customer base; (iii) decentralizing
certain operational responsibilities; (iv) strengthening financial controls; (v)
improving operating systems and processes; and (vi) reconfiguring and upgrading
facilities. Largely as a result of these initiatives, the Company's net sales
and EBITDAL (EBITDA before LIFO provision) increased at compound annual growth
rates of 5% and 10%, respectively, from 1991 to 1995. During this same period,
the Company also reduced its average monthly working capital (excluding cash and
debt) from 5.7% of net sales to 3.0% of net sales. During the period 1991
through 1996, the Company reduced its debt significantly, from $149.5 million at
December 31, 1991 to $101.6 million at December 31, 1995. However, in connection
with the Recapitalization and the Offering (each defined and discussed below),
the Company incurred significant additional debt. As of September 30, 1996, the
Company's total outstanding indebtedness was approximately $163.3 million, and
the Company had a total common stockholders' deficit of $8.1 million.
The Company's business strategy is to further increase net sales and improve
operating margins. To achieve these goals, the Company intends to: (i) increase
sales to existing customers, particularly of higher gross margin, non-cigarette
products; (ii) add new customer locations in existing markets, particularly
along existing routes; (iii) continue to implement distribution productivity
enhancement programs; and (iv) make selective acquisitions.
INCREASE SALES TO EXISTING CUSTOMERS. Because the Company generally carries
many products that its typical retail store customer purchases from other
suppliers, a primary element of its growth strategy is to increase sales to
existing customers. The Company's typical customer purchases its products from
the Company, from manufacturers who distribute directly to retailers and from a
variety of smaller local distributors or jobbers. The Company is particularly
focused on replacing local distributors and jobbers in order to increase sales
of food, health and beauty care products and general merchandise products, all
of which carry higher gross margins than cigarettes. As part of this effort, the
Company provides compensation incentives to its sales force and a number of
value-added services and marketing programs to its customers. These programs
include: (i) Convenience 2000-Registered Trademark- (which offers enhanced
purchasing power and promotions to small, independent convenience stores); (ii)
Smart Sets (which helps ensure that retailers display the right product in the
right place); (iii) Profit Builder and Promo Power (regular Company publications
which describe new products and manufacturer promotions); and (iv) the recently
initiated Tully's To Go-TM- program (which offers retailers high margin fast
food products without the franchise fees or ongoing royalty fees of typical
franchises).
ADD NEW CUSTOMER LOCATIONS IN EXISTING MARKETS. The Company is also seeking
to leverage its existing distribution network by securing additional customers
on existing routes. With 262 salespersons and 293 route drivers currently
serving approximately 29,000 customer locations in 18 states and five Canadian
provinces, the Company believes it has many opportunities to add additional
customers at low marginal distribution costs. The Company is also beginning to
focus on a number of new trade channels, including hotel gift shops, military
bases, correctional facilities, college bookstores, movie theaters and video
rental stores. In addition, some large retail chains such as Long's and Safeway
are
5
<PAGE>
beginning to outsource the distribution of certain products that the Company can
supply. The Company believes that there is significant opportunity to increase
net sales and profitability by adding new customers and maximizing economies of
scale.
PRODUCTIVITY ENHANCEMENT PROGRAMS. During the past five years, the Company
has devoted approximately 50% of its capital expenditures, or approximately
$12.0 million, to a variety of productivity enhancement programs. The Company
believes these programs were major contributors to a 2.7% per year reduction
between 1991 and 1995 in distribution operating expenses per "cube" (or cubic
foot of product, a common unit of measurement in Wholesale Distribution),
despite annual increases in wages. These productivity enhancement programs
include: (i) BOSS, a batch order selection system that increases the efficiency
and reduces the cost of full-case order fulfillment; (ii) Pick-to-Light, a
paperless picking system that reduces the travel time for the selection of
less-than-full-case order fulfillment; (iii) Radio Frequency, a hand-held
wireless computer technology that eliminates paperwork and updates inventory
receiving and stocking requirements on a real-time basis; (iv) Checker
Automation, an on-line order verification system that has significantly reduced
labor costs by automating inspection of order accuracy; and (v) fleet management
tools such as Roadshow, a software program that optimizes the routing of
customer deliveries. The Company intends to continue to pursue cost reductions
by completing the roll-out of these and other programs.
SELECTIVE ACQUISITIONS. The Wholesale Distribution industry is highly
fragmented and comprised mainly of a large number of small, privately held
businesses. Management believes that the consolidation that has taken place over
the past five years will continue and that numerous attractive acquisition
opportunities will arise. Given the current utilization rates of the Company's
existing warehouse and distribution facilities as well as the quality of the
Company's in-house MIS capability, management believes that a significant amount
of incremental revenues can be integrated into the Company's operations without
significant additions to fixed costs. The Company's management team has
completed two acquisitions since April 1995, representing net sales of
approximately $55 million for the nine months ended September 30, 1996.
The Company is incorporated in Delaware. Its principal executive offices are
located at 395 Oyster Point Boulevard, Suite 415, South San Francisco, CA 94080
and its telephone number is (415) 589-9445.
TRANSACTIONS RELATED TO THE OFFERING
Prior to August 7, 1996, the Company was owned by six members of senior
management ("Senior Management") and by three financial institutions (the
"Institutional Shareholders"), including The Chase Manhattan Bank ("Chase
Bank"), an affiliate of Chase Securities Inc. On August 7, 1996, the Company
completed a recapitalization (the "Recapitalization") pursuant to which:
1. Jupiter Partners L.P. ("Jupiter") purchased for $41.3 million in cash
newly issued common stock of the Company which, following the Recapitalization,
represents 75% of the Company's outstanding common stock.
2. Jupiter purchased from the Company for $18.8 million a subordinated note
due 2004 (the "Jupiter Note").
3. The Company redeemed all of the common stock held by the Institutional
Shareholders and a portion of the common stock held by Senior Management for
$135.0 million in cash and $6.3 million initial value of subordinated notes due
2004 (the "Management Notes" and, together with the Jupiter Note, the "Old
Subordinated Notes," none of which were issued to the Institutional Shareholders
and all of which were fully repaid from the net proceeds of the issuance and
sale of the Existing Notes on September 27, 1996 (the "Offering")). Of such cash
amount, $10.0 million was placed in escrow as a reserve in respect of
representations and warranties in connection with the sale of stock to Jupiter.
As a result of the Recapitalization, Senior Management owns common stock
representing in the aggregate 25% of the outstanding common stock. Such stock
would have a value of $13.8 million if valued at the price per share paid by
Jupiter for its common stock.
6
<PAGE>
In connection with the Recapitalization, the Company entered into a credit
facility (the "Senior Credit Facility") with a group of banks led by Chase Bank,
which provides for aggregate borrowings of up to $210.0 million, consisting of:
(i) a $35.0 million term loan (the "Term Loan"), which was repaid from the net
proceeds of the Offering, and (ii) a revolving credit facility (the "Revolving
Credit Facility"), under which borrowings in the amount of up to $175.0 million
are available, subject to compliance with a borrowing base, for working capital
and general corporate purposes. Simultaneously with the closing of the stock
purchase and the redemptions, the Company borrowed $135.0 million under the
Senior Credit Facility.
The following table sets forth a summary of the sources and uses of funds
associated with the Recapitalization on August 7, 1996. The parties to the
Recapitalization considered the aggregate value of the common stock of the
Company immediately preceding the Recapitalization to be $155.0 million. In the
Recapitalization, Senior Management retained Company common stock representing
approximately 8.9% of the total outstanding equity interests prior to the
Recapitalization (and representing 25% of the common stock outstanding following
the Recapitalization) valued, as described above, at $13.8 million. Therefore,
the table below includes such retained common stock at such value as both a
source and a use.
SOURCES OF FUNDS
<TABLE>
<CAPTION>
AMOUNT
-----------
(DOLLARS IN
MILLIONS)
<S> <C>
Term Loan........................................................ $ 35.0
Revolving Credit Facility (1).................................... 99.8
Old Subordinated Notes (2)....................................... 25.0
Sale and Retention of Common Stock (3)........................... 55.0
-----------
Total........................................................ $ 214.8
-----------
-----------
</TABLE>
USES OF FUNDS
<TABLE>
<S> <C>
Repurchase and Retention of Common Stock (4)..................... $ 155.0
Repayment of Existing Debt....................................... 52.2
Transaction Fees and Expenses.................................... 7.6
-----------
Total........................................................ $ 214.8
-----------
-----------
</TABLE>
- ------------------------
(1) Borrowings of up to $175.0 million under the Revolving Credit Facility will
be available, subject to a borrowing base, for working capital and general
corporate purposes, including up to $40.0 million for letters of credit. See
"Description of Senior Credit Facility."
(2) Interest on the Old Subordinated Notes accreted at the rate of 6.73% per
annum.
(3) Represents the sale of the common stock of the Company to Jupiter for $41.3
million (representing 75% of the outstanding common stock) plus the common
stock of the Company retained by Senior Management valued at $13.8 million
(representing the remaining 25% of the outstanding common stock).
(4) Includes the repurchase of common stock by the Company for $141.3 million
(which includes the Management Notes and the $10 million placed into escrow)
and the retention of common stock by Senior Management valued at $13.8
million.
The net proceeds of the Offering, after deducting estimated expenses
incurred in connection with such sale, were approximately $71.8 million. Such
net proceeds were used to repay the indebtedness under the Term Loan ($35.0
million principal amount plus accrued interest thereon), which was incurred in
connection with the Recapitalization, and the Old Subordinated Notes ($25.0
million initial value plus accreted interest thereon), which were issued in
connection with the Recapitalization. The balance of the net proceeds
(approximately $12.3 million) was used to reduce outstanding balances under the
Revolving Credit Facility.
7
<PAGE>
OWNERSHIP
Upon completion of the Recapitalization, Jupiter and Senior Management owned
75% and 25%, respectively, of the common stock of the Company. Jupiter is a
private investment firm organized to invest in management buyouts, industry
consolidations and late stage venture capital opportunities. Since the firm's
inception in 1994, Jupiter has completed six transactions representing a
combined investment exceeding $280.0 million. The six members of Senior
Management collectively have approximately 155 years of experience in the
distribution industry, including experience in acquiring and integrating
companies in the distribution industry. See "Management."
THE EXCHANGE OFFER
<TABLE>
<S> <C>
Securities Offered........... Up to $75,000,000 aggregate principal amount of 11 3/8%
Senior Subordinated Notes due September 15, 2003 (the "New
Notes"). The terms of the New Notes and those of the
Existing Notes are identical in all material respects,
except for certain transfer restrictions relating to the
Existing Notes.
The Exchange Offer........... The New Notes are being offered in exchange for a like
principal amount of Existing Notes. Existing Notes may be
exchanged only in integral multiples of $1,000. The issuance
of the New Notes is intended to satisfy obligations of the
Company contained in the Registration Rights Agreement.
Expiration Date; Withdrawal The Exchange Offer will expire at 5:00 p.m., New York City
of Tender................... time, on , 1997, or such later date and time to
which it is extended by the Company, PROVIDED, HOWEVER, that
the Exchange Offer will not be extended beyond April ,
1997. The tender of Existing Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to the Expiration
Date. Any Existing Notes not accepted for exchange for any
reason will be returned without expense to the tendering
holder thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
Conditions to the Exchange The Exchange Offer is subject to certain customary
Offer....................... conditions, which may be waived by the Company. The Company
currently expects that each of the conditions will be
satisfied and that no waivers will be necessary. See "The
Exchange Offer--Conditions to the Exchange Offer."
Procedures for Tendering Each holder of Existing Notes wishing to accept the Exchange
Existing Notes.............. Offer must complete, sign and date a Letter of Transmittal,
or a facsimile thereof, in accordance with the instructions
contained herein and therein, and mail or otherwise deliver
such Letter of Transmittal, or such facsimile, together with
such Existing Notes and any other required documentation, to
the Exchange Agent (as defined) at the address set forth
herein. See "The Exchange Offer--Procedures for Tendering
Existing Notes."
Use of Proceeds.............. There will be no proceeds to the Company from the exchange
of Notes pursuant to the Exchange Offer.
Exchange Agent............... Bankers Trust Company is serving as the Exchange Agent in
connection with the Exchange Offer.
</TABLE>
8
<PAGE>
CONSEQUENCES OF EXCHANGING EXISTING NOTES
PURSUANT TO THE EXCHANGE OFFER
Based on certain no action letters issued by the staff of the Commission to
third parties in unrelated transactions, the Company believes that New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any holder who is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act or (ii) any broker-dealer that purchases Notes from the Company to resell
pursuant to Rule 144A under the Securities Act ("Rule 144A") or any other
available exemption) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of the holder's business and such holders have
no arrangement or understanding with any person to participate in a distribution
of such New Notes and are not participating in, and do not intend to participate
in, the distribution of such New Notes. By tendering, each holder will represent
to the Company in the Letter of Transmittal that, among other things, the New
Notes acquired pursuant to the Exchange Offer are being acquired in the ordinary
course of business of the person receiving such New Notes, whether or not such
person is the holder, that neither the holder nor any such other person has an
arrangement or understanding with any person to participate in the distribution
of such New Notes, that neither the holder nor any such other person is
participating in or intends to participate in the distribution of such New Notes
and that neither the holder nor any such other person is an "affiliate," as
defined under Rule 405 of the Securities Act, of the Company. Each broker-dealer
that receives New Notes for its own account in exchange for Existing Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution." In addition, to comply with the
securities laws of certain jurisdictions, if applicable, the New Notes may not
be offered or sold unless they have been registered or qualified for sale in
such jurisdiction or an exemption from registration or qualification is
available and complied with. The Company has agreed, pursuant to the
Registration Rights Agreement and subject to certain specified limitations
therein, to register or qualify the New Notes for offer or sale under the
securities or blue sky laws of such jurisdictions as any holder of the Notes
reasonably requests in writing. If a holder of Existing Notes does not exchange
such Existing Notes for New Notes pursuant to the Exchange Offer, such Existing
Notes will continue to be subject to the restrictions on transfer contained in
the legend thereon. In general, the Existing Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. See "The Exchange Offer--Consequences of Failure to
Exchange; Resales of New Notes."
The Existing Notes are currently eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") market.
Following commencement of the Exchange Offer but prior to its consummation, the
Existing Notes may continue the be traded in the PORTAL market. Following
consummation of the Exchange Offer, the New Notes will not be eligible for
PORTAL trading.
THE NEW NOTES
<TABLE>
<S> <C>
Issuer....................... Core-Mark International, Inc.
Securities Offered........... $75,000,000 principal amount of 11 3/8% Senior Subordinated
Notes due 2003.
Maturity..................... September 15, 2003.
Interest Payment Dates....... March 15 and September 15 of each year, commencing on March
15, 1997.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Optional Redemption.......... Except as described below, the Company may not redeem the
New Notes prior to September 15, 2000. On or after such
date, the Company may redeem the New Notes, in whole or in
part, at the redemption prices set forth herein, together
with accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time on or prior to
September 15, 1999, the Company may, subject to certain
requirements, redeem up to 30% of the original aggregate
principal amount of the New Notes with the net cash proceeds
of one or more Public Equity Offerings (as defined) by the
Company following which there is a Public Market (as
defined) at a redemption price equal to 111.375% of the
principal amount to be redeemed, together with accrued and
unpaid interest, if any, provided that at least 70% of the
original aggregate principal amount of the New Notes remain
outstanding immediately after each such redemption. See
"Description of the New Notes--Optional Redemption."
Change of Control............ Upon the occurrence of a Change of Control (as defined) (i)
the Company will have the option at any time prior to
September 15, 2000 to redeem the New Notes, in whole or in
part, at a redemption price equal to 100% of the principal
amount thereof plus the Applicable Premium (as defined),
together with accrued and unpaid interest, if any, to the
date of redemption and (ii) if the Company does not redeem
the New Notes, or if such Change of Control occurs after
September 15, 2000, each holder will have the right to
require the Company to make an offer to repurchase the New
Notes at a price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest, if any,
to the date of repurchase. However, the Senior Credit
Facility prohibits the purchase of the Notes by the Company
in the event of a Change of Control, unless and until such
time as the indebtedness under the Senior Credit Facility is
repaid in full. The Senior Credit Facility also provides
that the indebtedness thereunder becomes due in the event of
a "Change of Control" as defined therein. In the event of a
Change of Control, there can be no assurance that the
Company would have sufficient assets to satisfy all of its
obligations under the Senior Credit Facility and the Notes.
See "Description of the New Notes--Change of Control."
Ranking...................... The New Notes will be unsecured, will be subordinated to all
existing and future Senior Indebtedness (as defined) of the
Company and, except as set forth below, will be effectively
subordinated to all obligations of the subsidiaries of the
Company. The New Notes will rank PARI PASSU with any future
Senior Subordinated Indebtedness (as defined) of the Company
and will rank senior to all other subordinated indebtedness
of the Company. The Company does not have outstanding, and
does not have any firm arrangements to issue, any
significant indebtedness that will be subordinated to the
Notes and does not have any Senior Subordinated Indebtedness
outstanding other than the Notes. As of September 30, 1996,
the aggregate amount of the Company's outstanding Senior
Indebtedness was $88.3 million (exclusive of unused
commitments), the liabilities of the Company's subsidiaries
were approximately $9.0 million and the Company had no
Senior Subordinated Indebtedness outstanding
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
other than the New Notes. The Company has agreed, subject to
certain exceptions, not to transfer assets to any subsidiary
unless it causes such subsidiary to guarantee the New Notes.
Except in such event, the New Notes will be effectively
subordinated to the claims of creditors, including trade
creditors and preferred shareholders (if any), of the
Company's existing subsidiaries and any subsidiary formed by
the Company in the future. See "Description of the New
Notes--Ranking."
Restrictive Covenants........ The Indenture limits (i) the incurrence of additional
indebtedness by the Company, (ii) the payment of dividends
on, and redemption of, capital stock of the Company and the
redemption of certain subordinated obligations of the
Company, (iii) investments, (iv) sales of assets and
subsidiary stock, (v) transactions with affiliates, (vi) the
creation of liens, (vii) the lines of business in which the
Company may operate and (viii) consolidations, mergers and
transfers of all or substantially all of the Company's
assets. The Indenture also prohibits certain restrictions on
distributions from subsidiaries. However, all of these
limitations and prohibitions are subject to a number of
important qualifications and exceptions. See "Description of
the New Notes--Certain Covenants."
Absence of a Public Market
for the New Notes.......... The New Notes are new securities and there is currently no
established market for the New Notes. Accordingly, there can
be no assurance as to the development or liquidity of any
market for the New Notes. The Company does not intend to
apply for listing on a securities exchange of the New Notes.
Certain United States Tax
Considerations............. Although the matter is not free from doubt, exchange
pursuant to the Exchange Offer should not be treated as an
"exchange" or otherwise as a taxable event for federal
income tax purposes. See "Certain United States Tax
Considerations."
</TABLE>
RISK FACTORS
Holders of Existing Notes and prospective purchasers of New Notes should
carefully consider all of the information set forth in this Prospectus and, in
particular, should evaluate the specific factors set forth under "Risk Factors"
in connection with the Exchange Offer.
11
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following table presents summary historical and pro forma consolidated
financial and other data for the Company. These were derived from the more
detailed information and financial statements appearing elsewhere in this
Prospectus and should be read in conjunction therewith and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
pro forma financial data assume that the Recapitalization and the Offering
occurred on January 1, 1995 for income statement data for the year ended
December 31, 1995 and on January 1, 1996 for income statement data for the nine
months ended September 30, 1996. The pro forma financial data do not purport to
represent what the Company's results of operations actually would have been if
the Recapitalization and the Offering in fact had occurred at the beginning of
the periods indicated or purport to project the Company's results of operations
for any future period.
<TABLE>
<CAPTION>
UNAUDITED
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------- ----------------------
1991(1) 1992 1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT EXPENSE PER CUBE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales(a)........... $1,688,611 $1,784,852 $1,868,932 $1,855,356 $2,047,187 $1,528,710 $1,637,266
Gross profit(b)........ 114,190 125,559 163,950 135,357 145,583 108,611 118,320
Operating income(b).... 3,136 10,316 46,539 19,277 20,338 16,028 20,918
Interest expense,
net(c)............... 10,358 5,983 4,887 5,773 6,987 5,408 5,665
Net income (loss)(b)... (8,202) 3,633 38,684 9,088 6,723 5,418 6,221
OTHER DATA:
EBITDAL(d)............. $ 20,203 $ 21,848 $ 29,309 $ 24,271 $ 29,696 $ 22,578 $ 27,223
Cash provided by (used
in):
Operating
activities(e)...... (1,910) 12,425 21,176 54,708 12,529 34,223 43,668
Investing
activities......... 44,069 (5,241) (6,806) (5,974) (16,896) (14,375) (4,047)
Financing
activities(e)...... (41,177) (2,229) (11,406) (43,586) 11,397 (21,531) (47,908)
Depreciation and
amortization(f)...... 6,840 5,805 5,737 5,541 5,943 4,704 4,945
Capital expenditures... 2,470 4,295 5,501 5,376 7,286 4,763 3,983
Number of employees.... 1,817 1,800 1,885 1,906 2,012 2,068 2,179
Cubes of product
distributed(000s)(g)... 15,500 16,161 17,867 19,359 20,550 15,664 17,655
Cubes per employee..... 8,531 8,978 9,479 10,157 10,214 7,574 8,102
Distribution operating
expenses(h).......... $ 45,577 $ 46,930 $ 50,541 $ 51,874 $ 54,061 $ 40,223 $ 43,734
Distribution operating
expenses per cube.... $ 2.94 $ 2.90 $ 2.83 $ 2.68 $ 2.63 $ 2.57 $ 2.48
PRO FORMA DATA
(UNAUDITED):
EBITDAL................ $ 29,696 $ 27,223
Interest expense(c).... 18,690 13,648
Ratio of EBITDAL to
interest
expense(c)........... 1.6x 2.0x
Ratio of earnings to
fixed charges(i)..... 1.0x 1.3x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------
UNAUDITED
AS OF
SEPTEMBER
30,
1991 1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Average net working
capital(j)................ $ 96,327 $ 78,290 $ 79,160 $ 72,568 $ 61,341 $57,960
Total assets................ 323,979 318,127 329,855 293,743 324,536 283,909
Total debt, including
current maturities........ 149,445 142,432 127,053 84,627 101,598 163,339
Total common shareholders'
equity (deficit)(k)....... 12,749 9,705 41,137 39,346 87,669 (8,073 )
</TABLE>
See Notes to Summary Consolidated Financial and Other Data.
12
<PAGE>
NOTES TO SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
(a) In the second quarter of 1995, the Company completed two acquisitions which
added approximately $62 million, $39 million and $55 million in net sales
for the year ended December 31, 1995 and the nine months ended September 30,
1995 and 1996, respectively.
(b) The Company's U.S. inventories are valued at the lower of cost or market.
Cost of goods sold is determined on a last-
in, first-out (LIFO) basis. During the year ended December 31, 1993, the
Company's U.S. cigarette inventory quantities declined and the wholesale
cost of U.S. premium cigarettes significantly declined. These factors
resulted in a substantially lower inventory cost being charged to cost of
goods sold under the LIFO method of valuation compared to the FIFO method in
an amount of $23.0 million, materially impacting the results of operations
during such fiscal year. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for additional information on
the impact of the LIFO inventory valuation method on other accounting
periods.
(c) Historical interest expense does not include amortization of debt
refinancing costs which are classified separately on the Company's income
statement. The pro forma interest calculation assumes (i) the elimination of
historical interest expense under the previous credit facility, (ii)
interest on the Notes at a rate of 11.375% per annum and (iii) interest on
the borrowings under the Senior Credit Facility after giving effect to the
Recapitalization and the Offering and the application of the net proceeds
therefrom. The borrowings under the previous credit facility and under the
Senior Credit Facility bear interest at the same rates, which for purposes
of this calculation are 8.5% for 1995 and 8.0% for the nine months ended
September 30, 1996, the weighted average rates in effect under the previous
credit facility during such periods. A 0.5% change in the interest rate
under the Senior Credit Facility would result in a $0.5 million change to
pro forma interest expense for the full year.
(d) EBITDAL represents operating income plus depreciation, amortization and LIFO
expense, and minus LIFO income (each defined below). EBITDAL should not be
considered in isolation or as a substitute for net income, operating income,
cash flows or other consolidated income or cash flow data prepared in
accordance with generally accepted accounting principles, or as a measure of
a company's profitability or liquidity. EBITDAL is included because it is
one measure used by certain investors to determine a company's ability to
service its indebtedness.
(e) At year end, the Company typically incurs debt to build inventories, which
are then liquidated in future periods. Therefore, cash provided by operating
activities and cash used in financing activities are typically lower at the
end of any fiscal year compared to interim periods.
(f) Depreciation and amortization includes depreciation on property and
equipment, amortization of goodwill and other non-cash charges, and excludes
amortization of debt refinancing costs.
(g) The term "cube" refers to one cubic foot of product, a common unit of
measurement in wholesale distribution.
(h) Distribution operating expenses include the cost of receiving, warehousing,
picking and delivering products purchased by the Company's customers,
excluding depreciation and insurance.
(i) For the purpose of computing the Company's pro forma ratio of earnings to
fixed charges, "earnings" represent pro forma income (loss) before income
taxes and before fixed charges. "Fixed charges" represent pro forma interest
on all other indebtedness (including amortization of debt financing costs
(approximately $1.5 million and $1.2 million on a pro forma basis for the
year ended December 31, 1995 and the nine months ended September 30, 1996,
respectively) and a portion of the operating lease rental expense that is
representative of the interest factor therein (deemed to be one-third of
rental expense)).
(j) Average net working capital represents month-end averages of total current
assets (excluding cash and cash equivalents) less month-end averages of
total current liabilities (excluding current maturities of long-term debt).
(k) As a result of the Recapitalization, the Company has a total common
shareholders' deficit. In the Recapitalization, Jupiter paid $41.3 million
for 75% of the common stock of the Company and Senior Management retained
25% of the common stock of the Company which, based on the price per share
paid by Jupiter, had a value of $13.8 million. Thus, the total value of the
common stock purchased and retained in the Recapitalization was $55.0
million. In addition, in the Recapitalization the Company repurchased common
stock for a total of $141.3 million, consisting of $135.0 million in cash
(including $10.0 million placed into escrow) and Old Subordinated Notes with
an initial value of $6.3 million.
(l) In 1991, the Company closed down various operations, and liquidated the
accounts receivable and inventories of these operations. The funds generated
thereby, net of any associated liabilities (reflectd in cash provided by
investing activities), were used to repay debt under the Company's then
existing senior credit facility (reflected in cash used in financing
activities).
13
<PAGE>
RISK FACTORS
HOLDERS OF EXISTING NOTES AND PROSPECTIVE PURCHASERS OF THE NEW NOTES SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AS WELL AS THE OTHER INFORMATION
SET FORTH ELSEWHERE IN THIS PROSPECTUS, WHICH MAY AFFECT A DECISION TO ACQUIRE
THE NEW NOTES. FOR A DISCUSSION OF CERTAIN POTENTIAL TAX CONSEQUENCES OF SUCH
INVESTMENT, SEE "CERTAIN UNITED STATES TAX CONSIDERATIONS."
SUBSTANTIAL LEVERAGE AND POSSIBLE INABILITY TO MEET DEBT SERVICE OBLIGATIONS
The Company incurred substantial indebtedness in connection with the
Recapitalization and the Offering. Following the consummation of the Exchange
Offer, the Company will remain significantly leveraged. As of September 30,
1996, the Company's total outstanding indebtedness was approximately $163.3
million (exclusive of unused commitments), and the Company had a total common
stockholders' deficit of $8.1 million.
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including the following: (i) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be impaired; (ii) a
substantial portion of the Company's cash flow from operations must be dedicated
to the payment of interest on the Notes and its other existing indebtedness,
thereby reducing the funds available to the Company for other purposes; (iii)
the agreements governing the Company's long-term indebtedness contain certain
restrictive financial and operating covenants which may limit the Company's
ability to complete acquisitions and financings and restrict capital
expenditures; (iv) the indebtedness under the Senior Credit Facility is at
variable rates of interest, which may cause the Company to be vulnerable to
increases in interest rates; (v) all of the indebtedness outstanding under the
Senior Credit Facility is secured by substantially all the assets of the Company
and will become due prior to the time the principal on the Notes will become
due; (vi) the Company is substantially more leveraged than certain of its
competitors, which might place the Company at a competitive disadvantage; (vii)
the Company may be hindered in its ability to adjust rapidly to changing market
conditions; and (viii) the Company's substantial degree of leverage could make
it more vulnerable in the event of a downturn in general economic conditions or
in its business.
The Company's ability to pay the interest on and retire principal of the
Notes and the Company's indebtedness senior in rank to the Notes ("Senior
Indebtedness") is dependent upon its future operating performance, which in turn
is subject to general economic conditions and to financial, business and other
factors, many of which are beyond the Company's control. In the event that the
Company is unable to generate cash flow that is sufficient to service its
obligations in respect of the Notes and the Senior Indebtedness, the market
value and marketability of the Notes could be significantly adversely affected.
Moreover, the Company would be required to adopt one or more alternatives, such
as reducing or delaying capital expenditures, attempting to refinance or
restructure its indebtedness or selling material assets or operations. There can
be no assurance that any of such actions could be effected on satisfactory
terms, that they would enable the Company to satisfy its debt service
requirements or that they would be permitted by the Senior Credit Facility or
the Indenture. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The Company may be required to refinance all or a portion of the Senior
Credit Facility at or prior to its maturity, which is prior to the maturity of
the Notes. Potential measures to raise cash may include the sale of assets or
equity. However, the Company's ability to raise funds by selling assets is
restricted by the Senior Credit Facility, and its ability to effect equity
financings is dependent on results of operations and market conditions. In the
event that the Company is unable to refinance the Senior Credit Facility or
raise funds through asset sales, sales of equity or otherwise, its ability to
pay principal of and interest on the Notes would be adversely affected.
14
<PAGE>
SUBORDINATION OF NOTES; ASSET ENCUMBRANCE
As of September 30, 1996, the Company had $88.3 million of Senior
Indebtedness outstanding (exclusive of unused commitments), all of which was
incurred under the Senior Credit Facility. The Indenture permits the Company to
incur additional Senior Indebtedness, provided certain financial or other
conditions are met. The Notes will be subordinated in right of payment to all
existing and future Senior Indebtedness, including the principal, premium (if
any) and interest with respect to the Senior Indebtedness under the Senior
Credit Facility. The Notes will rank PARI PASSU with all future Senior
Subordinated Indebtedness of the Company. Except in certain circumstances, the
Notes will be effectively subordinated to the claims of creditors, including
trade creditors and preferred shareholders (if any), of the Company's existing
subsidiaries and any subsidiary formed by the Company in the future. See
"Description of the New Notes--Ranking."
The Company may not pay principal of, premium on (if any) or interest on the
Notes, make any deposit pursuant to defeasance provisions or repurchase or
redeem or otherwise retire any Notes (i) if any Senior Indebtedness is not paid
when due or (ii) if any other default on Senior Indebtedness occurs and the
maturity of such Senior Indebtedness is accelerated in accordance with its terms
unless, in either case, the default has been cured or waived, any such
acceleration has been rescinded or such Senior Indebtedness has been paid in
full, except that the Company may pay the Notes upon the approval of the
Representative of the relevant Designated Senior Indebtedness (as defined in the
Indenture). In addition, if any other default exists with respect to the
Designated Senior Indebtedness and certain other conditions are satisfied, the
Company may not make any payments on the Notes for up to 179 days. Upon any
payment or distribution of the assets of the Company in connection with a total
or partial liquidation, dissolution or reorganization of or similar proceeding
relating to the Company, the holders of Senior Indebtedness will be entitled to
receive payment in full before the holders of the Notes are entitled to receive
any payment. See "Description of the New Notes--Ranking."
The Notes are unsecured and thus, in effect, will rank junior to any secured
indebtedness of the Company. The indebtedness outstanding under the Senior
Credit Facility is secured by liens on substantially all of the assets of the
Company. The ability of the Company to comply with the provisions of the Senior
Credit Facility may be affected by events beyond the Company's control. The
breach of any of these covenants could result in a default under the Senior
Credit Facility, in which case, depending on the actions taken by the lenders
thereunder or their successors or assignees, such lenders could elect to declare
all amounts borrowed under the Senior Credit Facility, together with accrued
interest, to be due and payable, and the Company could be prohibited from making
payments of interest and principal on the Notes until the default is cured or
all Senior Indebtedness is paid or satisfied in full. If the Company were unable
to repay such borrowings, such lenders could proceed against their collateral.
If the indebtedness under the Senior Credit Facility were to be accelerated,
there can be no assurance that the assets of the Company would be sufficient to
repay in full such indebtedness and the other indebtedness of the Company,
including the Notes. See "Description of Senior Credit Facility" and
"Description of the New Notes--Ranking."
RESTRICTIVE LOAN COVENANTS
The Senior Credit Facility includes a number of covenants that, among other
things, restrict the ability of the Company and its subsidiaries to dispose of
assets, incur additional indebtedness, prepay other indebtedness or amend
certain other debt instruments, pay dividends, create liens on assets, enter
into sale and leaseback transactions, make investments, loans or advances, make
acquisitions, engage in mergers or consolidations, change the business conducted
by the Company or its subsidiaries, make capital expenditures or engage in
certain transactions with affiliates and otherwise restrict certain corporate
activities. In addition, under the Senior Credit Facility, the Company is
required to comply with specified financial ratios and tests, including minimum
interest coverage ratios, maximum leverage ratios, annual capital expenditures
limitations, net worth tests and current ratio and EBITDA
15
<PAGE>
tests. There can be no assurance that these requirements will be met in the
future. If they are not, the holders of the indebtedness under the Senior Credit
Facility would be entitled to declare such indebtedness immediately due and
payable. See "Description of Senior Credit Facility."
DEPENDENCE ON CIGARETTE SALES
During the period from 1991 through 1995, approximately 72% of the Company's
net sales were derived from sales of cigarettes. Accordingly, any event which
adversely affects the consumption of cigarettes in the Company's market area or
the convenience retail channel could have a material adverse effect on the
Company's results of operations.
The unit volume of cigarettes sold in the United States and Canada has
declined in recent years. A 1995 report issued by the United States government
suggests that, while Americans' consumption of cigarettes stabilized between
1993 and 1994, consumption could ultimately continue to decline in the future if
states or the federal government raise taxes and/or restrictions and
prohibitions on smoking increase. Additional factors that could cause such
decline include reports in the media concerning adverse health effects of
smoking and diminishing social acceptance of smoking.
The Company is particularly dependent on the leading producers of
cigarettes, several of which also produce a variety of food products distributed
by the Company. Approximately 28%, 15%, 14% and 9% of the Company's net sales in
1995 were attributable to the sale of products purchased from Philip Morris
Incorporated ("Philip Morris"), R.J. Reynolds Tobacco Company ("R.J. Reynolds"),
Imperial Tobacco Limited ("Imperial Tobacco") and Brown & Williamson Tobacco
Corporation ("Brown & Williamson"), respectively. The loss of or a significant
change in the Company's relationships with any of these manufacturers could have
a material adverse effect on the Company's business and financial results.
ADVERSE REGULATORY DEVELOPMENTS
The tobacco industry is currently subject to significant regulatory
restrictions, such as the requirement that product packages display warning
labels, a prohibition on television and radio advertising and a prohibition on
sales to minors. In recent years, proposals have been made for additional
federal regulation of tobacco products, including proposals to require
additional warning notices, to disallow advertising and promotional expenses as
deductions under federal tax law, to impose further restrictions, or a complete
ban, on advertising and promotion and to further regulate the production and
distribution of cigarettes and smokeless tobacco.
In August 1996, the United States Food and Drug Administration (the "FDA")
determined that it had jurisdiction over cigarettes and smokeless tobacco
products and issued regulations which restrict and limit the sale, distribution
and advertising of cigarette and smokeless tobacco products, especially to
minors. Included in the regulations are: (1) a federal ban on the sale of
cigarettes and smokeless tobacco products to persons under the age of 18 and a
requirement that retailers check photo identifications of all persons under age
26; (2) a prohibition against the sale of individual cigarettes or small amounts
of smokeless tobacco products; (3) a ban on vending machine sales and
self-service displays except in adult establishments; (4) a ban on the
distribution of free samples of cigarettes and smokeless tobacco; (5) a
limitation on tobacco advertising in all media, other than publications
primarily read by adults, to black-and-white, text-only format; and (6) a ban on
the sale and distribution of promotional items such as tee shirts and caps with
tobacco product logos, and a ban on tobacco product sponsorship of musical,
cultural, sports and other events. There can be no assurance that the
regulations will not result in a material reduction of the consumption of
tobacco products in the United States or will not have a material adverse effect
on the Company's business and financial position.
The regulations are significant not only because of their content but also
because the FDA has concluded that it has jurisdiction over cigarettes and
smokeless tobacco as "combination products
16
<PAGE>
having both a drug component, including nicotine, and device components." The
regulations regulate such products as "devices." Lawsuits have been filed in
federal district court in Greensboro, North Carolina by cigarette manufacturers
and others challenging the FDA's authority to regulate tobacco products. In
addition, a number of bills were introduced during the last session of Congress
that would have blocked the FDA from regulating the tobacco industry. If,
however, the FDA's assertion of jurisdiction withstands challenge, the FDA might
thereby establish its authority to issue regulations restricting the sale of
cigarettes and smokeless tobacco products to adults. While no such regulations
have been proposed, there can be no assurance they will not be proposed in the
future or that any such proposed regulations would not have a material adverse
effect on the Company's business and financial position.
Over the past decade, various state and local governments have imposed
significant regulatory restrictions on tobacco products, including sampling and
advertising bans or restrictions, packaging regulations and prohibitions on
smoking in restaurants, office buildings and public places. Additional state and
local legislative and regulatory actions are being considered and are likely to
be promulgated in the future. The Company is unable to assess the future effects
that these various proposals may have on the sale of the Company's products. The
FDA's regulation of cigarette and smokeless tobacco products would not preempt
individual states from issuing more stringent state or local requirements,
provided those state or local requirements do not conflict with the final FDA
regulations.
Any further regulatory restrictions could, among other things, accelerate
the decline in the consumption of cigarettes and result in a material adverse
effect on the Company.
HEALTH LIABILITY AND LITIGATION
In recent years, several plaintiffs have sued cigarette manufacturers,
alleging that they have suffered lung and oral cancer and other diseases as a
result of smoking or environmental tobacco smoke (ETS). Several of these actions
purport to be class actions brought on behalf of thousands of claimants.
Purported classes include flight attendants alleging personal injury from
exposure to ETS in their workplace and individuals claiming to be addicted to
cigarettes. In August 1996, a Florida jury awarded damages against a tobacco
manufacturer based on a claim of addiction. It is expected that such claims will
be asserted against tobacco manufacturers in the future, and there can be no
assurance that such claims will not be asserted against the Company in the
future.
In May 1996, the Court of Appeals for the Fifth Circuit decertified a
federal class action purportedly brought on behalf of all cigarette smokers in
the United States. Following the decertification, lawyers for the class brought
state class action lawsuits in a number of states, with the objective of filing
such lawsuits in all fifty states, the District of Columbia and Puerto Rico.
Several of these state lawsuits name cigarette distributors such as the Company
as defendants. In June 1996, a subsidiary of the Company was named as a
defendant in a class action lawsuit filed in state court in New Mexico. The
action was later voluntarily dismissed without prejudice in order to permit a
realignment of the parties. The lawsuit was subsequently refiled in September
1996 and voluntarily dismissed October 2, 1996.
The New Mexico lawsuit was most recently refiled on October 10, 1996. A
subsidiary of the Company is named as a defendant in the complaint. The other
defendants include the principal U.S. tobacco manufacturers as well as other
distributors. The case is brought on behalf of a putative class of smokers who
reside in New Mexico, each of whom is allegedly nicotine dependent. The suit
seeks, on behalf of the class, compensatory damages, punitive damages and
equitable relief, including medical monitoring of the class members. The Company
has been indemnified with respect to certain claims alleged in this suit.
On October 2, 1996, the Company was served with a summons and complaint in
an action brought by the County of Los Angeles against major tobacco
manufacturers, the Company and other distributors of tobacco products. The
complaint seeks, inter alia, damages and restitution for monies expended by
17
<PAGE>
the County for the health care of smokers. The Company has been indemnified with
respect to certain claims alleged in this suit.
The Company does not believe that these actions will have a material adverse
effect on the Company's financial condition.
In addition to the class actions, a number of individual actions brought by
several states are pending against cigarette manufacturers and certain other
organizations. The Company has not been named as a defendant in any of these
lawsuits. The lawsuits seek reimbursement of expenses incurred by the states for
the care of citizens allegedly suffering from tobacco-related injuries, diseases
or sickness.
In light of the claimed health risks related to the use of cigarettes and
other tobacco products, there can be no assurance that product liability claims
will not be asserted against the tobacco industry or the Company in the future.
Such lawsuits, if asserted against the tobacco industry or the Company and
adversely determined, could have a material adverse effect on the Company's
business and financial position. The Company carries general liability insurance
but self-insures against liability in respect of health-related claims, which
management believes is consistent with industry practice.
IMPACT OF MANUFACTURERS' CIGARETTE PRICING POLICIES
In 1993, cigarette manufacturers decreased the wholesale price of premium
cigarettes by approximately 25%, resulting in a decrease in the value of the
Company's inventory of approximately $6.6 million. While the manufacturers
reimbursed the Company for the decrease in 1993, cigarette manufacturers could
reduce cigarette prices in the future, and there can be no assurance that
manufacturers would again reimburse the Company for the resulting decrease in
the value of the Company's cigarette inventory.
The Company believes that demand for discount cigarettes, including Best
Buy-Registered Trademark- (the Company's private label discount cigarette), has
declined since 1993 due to the reductions in the differential between premium
brand and discount prices as a result of the premium brand price decreases that
occurred in that year. Aggressive pricing or marketing actions by any of the
tobacco manufacturers may negatively affect the sale of Best
Buy-Registered Trademark- products. In addition, demand for Best
Buy-Registered Trademark- is highly sensitive to pricing actions by tobacco
manufacturers with respect to competitive discount cigarettes. This risk is
heightened because the wholesale price of Best Buy-Registered Trademark- to the
Company is set by its manufacturer, Philip Morris, which also sells competing
premium and discount products. See "Business--Products Distributed."
Historically, a substantial portion of the Company's operating profits on
cigarettes has been attributable to promotional programs sponsored by cigarette
manufacturers. The reduction of these sources of income in the future, without
any substitute incentive programs from manufacturers, could have a material
adverse effect on the Company's business and financial position.
POSSIBLE IMPACT OF INCREASED TOBACCO TAXES
The sale of cigarettes is subject to substantial United States federal
excise taxes as well as various state and local government excise taxes. In
1993, the Clinton administration proposed a new excise tax on cigarettes of
$0.75 per pack, which would have raised the tax from $0.24 per pack to $0.99 per
pack, a 300% increase. While that proposal was not adopted by Congress, there
remains a possibility that similar proposals to increase federal excise taxes
may be put forward in the future. In addition, excise and similar taxes on
cigarettes, which are levied on and typically paid by the distributors, are in
effect in the 50 states, the District of Columbia and several municipalities.
Many states are currently weighing proposals for new excise taxes on cigarettes
and other tobacco products. For example, the voters in Oregon recently passed a
$.30 per pack cigarette tax increase which will become effective on February 1,
1997. Additionally, $0.25 and $0.40 per pack cigarette tax increases were
enacted during 1995 and
18
<PAGE>
1994 in Washington and Arizona, respectively. If a number of states or the
federal government were to increase excise taxes, there could be a resulting
acceleration of the decline in consumption of cigarettes and other tobacco
products which could have a material adverse effect on the Company's business
and financial position.
COMPETITION; LOW MARGINS
The convenience retail distribution industry in the United States and Canada
is highly competitive. The Company competes in the United States with one large
national distribution company, McLane Co. Inc. ("McLane"), which is a subsidiary
of Wal-Mart. McLane operates in substantially all of the Company's markets in
the United States and has substantially greater financial resources than the
Company. In Canada, the Company also faces one large national competitor that
competes in each of the markets it serves. In the United States and Canada, the
Company also competes with numerous regional and local distribution companies,
some of which may be less highly leveraged than the Company and therefore less
restricted by operating covenants imposed by lenders and other debt holders.
In recent years, the Company has also been faced with competition from
warehouse or wholesale clubs, which offer the Company's customers a limited
selection of similar products at equivalent or lower prices but generally with
limited services. In particular, the wholesale clubs have been aggressive in
their promotion and pricing of cigarettes and candy.
Competition in the convenience retail distribution industry is based on
price and service, and the industry is characterized by high unit volumes and
low profit margins. As a result, the Company's success is highly dependent upon
effective financial controls, efficient volume purchasing of non-tobacco
products and differentiating its services from those of its competitors.
DEPENDENCE ON KEY PERSONNEL
The Company's future performance is substantially dependent upon the
continued services of Senior Management. See "Management." The loss of the
services of such persons could have a material adverse effect on the Company's
business and financial position.
CONTROL BY JUPITER PARTNERS L.P.
Jupiter owns and has the power to vote approximately 75% of the outstanding
capital stock of the Company. Accordingly, Jupiter is entitled to elect a
majority of the directors of the Company, approve all amendments to the
Company's Certificate of Incorporation and effect fundamental corporate
transactions such as mergers and asset sales. See "Ownership of Voting
Securities."
REQUIREMENT TO REFINANCE INDEBTEDNESS UPON A CHANGE OF CONTROL
A Change of Control (as defined in the Indenture) could require the Company
to refinance substantial amounts of indebtedness. Upon the occurrence of a
Change of Control, the holders of the Notes would be entitled to require the
Company to repurchase the Notes at a purchase price equal to 101% of the
principal amount of such Notes, plus accrued and unpaid interest, if any, to the
date of purchase. However, the Senior Credit Facility prohibits the purchase of
the Notes by the Company in the event of a Change of Control, unless and until
such time as the indebtedness under the Senior Credit Facility is repaid in
full. The Company's failure to purchase the Notes would result in a default
under the Indenture and the Senior Credit Facility. The Senior Credit Facility
also provides that the indebtedness thereunder becomes due in the event of a
"Change in Control" as defined therein. The inability to repay the indebtedness
under the Senior Credit Facility, if accelerated, would also constitute an event
of default under the Indenture, which could have adverse consequences to the
Company and the holders of the Notes. In the event of a Change of Control, there
can be no assurance that the Company would have
19
<PAGE>
sufficient assets to satisfy all of its obligations under the Senior Credit
Facility and the Notes. See "Description of Senior Credit Facility" and
"Description of the New Notes--Change of Control."
RISK OF DETERMINATION OF A FRAUDULENT CONVEYANCE
If the court in a lawsuit brought by an unpaid creditor or representative of
creditors, such as a trustee in bankruptcy or the Company as a
debtor-in-possession, were to find under relevant federal or state fraudulent
conveyance statutes that the Company did not receive fair consideration or
reasonably equivalent value for certain of the indebtedness, including the
Notes, incurred by the Company in connection with the Recapitalization, and
that, at the time of such incurrence, the Company (i) was insolvent, (ii) was
rendered insolvent by reason of such incurrence or grant, (iii) was engaged in a
business or transaction for which the assets remaining with the Company
constituted unreasonably small capital or (iv) intended to incur, or believed
that it would incur, debts beyond its ability to pay such debts as they matured,
such court, subject to applicable statutes of limitation, could void the
Company's obligations under the Notes, subordinate the Notes to other
indebtedness of the Company or take other action detrimental to the holders of
the Notes.
The measure of insolvency for these purposes will vary depending upon the
law of the jurisdiction being applied. Generally, however, a company will be
considered insolvent for these purposes if the sum of that company's debts is
greater than the fair value of all of that company's property, or if the present
fair salable value of that company's assets is less than the amount that will be
required to pay its probable liability on its existing debts as they become
absolute and matured. Moreover, regardless of solvency, a court could void an
incurrence of indebtedness, including the Notes, if it determined that such
transaction was made with intent to hinder, delay or defraud creditors, or a
court could subordinate the indebtedness, including the Notes, to the claims of
all existing and future creditors on similar grounds. There can be no assurance
as to what standard a court would apply in order to determine whether the
Company was "insolvent" upon consummation of the Recapitalization or the sale of
the Notes.
ADVERSE CONSEQUENCES OF FAILURE TO ADHERE TO EXCHANGE OFFER PROCEDURES
Issuance of the New Notes in exchange for Existing Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Exchange Agent of
such Existing Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. Therefore, holders of Existing
Notes desiring to tender such Existing Notes in exchange for New Notes should
allow sufficient time to ensure timely delivery. Neither the Company nor the
Exchange Agent is under any duty to give notification of defects or
irregularities with respect to the tenders of Existing Notes for exchange.
Existing Notes that are not tendered or are tendered but not accepted will,
following the consummation of the Exchange Offer, continue to be subject to the
existing restrictions upon transfer thereof and, upon consummation of the
Exchange Offer certain registration rights under the Registration Rights
Agreement will terminate.
RECEIPT OF RESTRICTED SECURITIES UNDER CERTAIN CIRCUMSTANCES
Any holder of Existing Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the New Notes may be deemed to
have received restricted securities and, if so, will be required to comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. See "The Exchange Offer--Consequences of
Failure to Exchange; Resales of New Notes."
ADVERSE EFFECT ON MARKET FOR EXISTING NOTES
To the extent that Existing Notes are tendered and accepted in the Exchange
Offer, the trading market for the untendered and tendered but unaccepted
Existing Notes could be adversely affected. See "The Exchange Offer."
20
<PAGE>
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange of Notes pursuant
to the Exchange Offer. This Exchange Offer is intended to satisfy certain of the
Company's obligations under the Registration Rights Agreement. The net proceeds
available to the Company from the sale of the Existing Notes, after deducting
estimated expenses incurred in connection with such sale, were approximately
$71.8 million. Such net proceeds were used to repay the indebtedness under the
Term Loan ($35.0 million principal amount plus accrued interest thereon), which
was incurred in connection with the Recapitalization, and the Existing
Subordinated Notes ($25.0 million initial value plus accreted interest thereon),
which were issued in connection with the Recapitalization. The balance of the
net proceeds (approximately $12.3 million) was used to reduce outstanding
balances under the Revolving Credit Facility. As of September 30, 1996,
availability under the Revolving Credit Facility after taking into account the
borrowing base was $46.4 million. Such availability may be used for general
corporate purposes, which may include future acquisitions. The Company presently
does not have any agreements, commitments or arrangements, and is not engaged in
any negotiations, with respect to any proposed material acquisitions and there
can be no assurance that any acquisition will be consummated in the future. See
"Summary--Transactions Related to the Offering" and "Description of Senior
Credit Facility" for a description of the terms of the indebtedness to be
repaid.
21
<PAGE>
CAPITALIZATION
The following table sets forth, as of September 30, 1996, the capitalization
of the Company. The table should be read in conjunction with the consolidated
financial statements of the Company and the notes thereto contained elsewhere in
this Prospectus. See also "Summary--Transactions Relating to the Offering," "Use
of Proceeds" and "Selected Historical and Pro Forma Consolidated Financial
Data."
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
Debt:
Revolving Credit Facility..................................................... 88,339
11 3/8% Senior Subordinated Notes due 2003.................................... 75,000
-----------
Total debt................................................................ 163,339
-----------
Shareholders' equity:
Common stock, $.01 par value; 10,000,000 shares authorized; 5,500,000 issued
and outstanding............................................................. 55
Additional paid-in capital.................................................... 26,121
Accumulated deficit........................................................... (29,569)
Cumulative foreign currency translation adjustments........................... (1,101)
Additional minimum pension liability.......................................... (3,579)
-----------
Total shareholders' equity (deficit) (a).................................. (8,073)
-----------
Total capitalization...................................................... $ 155,266
-----------
-----------
</TABLE>
- ------------------------
(a) As a result of the Recapitalization, the Company has a total shareholders'
deficit. In the Recapitalization, Jupiter paid $41.3 million for 75% of the
common stock of the Company and Senior Management retained 25% of the common
stock of the Company which, based on the price per share paid by Jupiter,
had a value of $13.8 million. Thus, the total value of the common stock
purchased and retained in the Recapitalization was $55.0 million. In
addition, in the Recapitalization the Company repurchased common stock for a
total of $141.3 million, consisting of $135.0 million cash (including $10.0
million placed into escrow) and Existing Subordinated Notes with an initial
value of $6.3 million.
22
<PAGE>
SELECTED HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth selected historical and pro forma
consolidated financial and other data for the Company. The historical financial
data as of the end of and for each year in the five year period ended December
31, 1995 have been derived from the Company's audited consolidated financial
statements which have been audited by KPMG Peat Marwick LLP, independent
accountants. Such financial statements for the three year period ended December
31, 1995 are included herein together with the report of such accountants
thereon. The historical data for the nine months ended September 30, 1995 and
1996 and as of September 30, 1996 have been derived from the Company's
consolidated financial statements which have not been audited, but reflect, in
the opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the information contained herein.
Interim results are not necessarily indicative of results to be expected for any
fiscal year. The pro forma financial data assume that the Recapitalization and
the Offering had occurred on January 1, 1995 for income statement data for the
year ended December 31, 1995 and on January 1, 1996 for income statement data
for the nine months ended September 30, 1996. The pro forma financial data do
not purport to represent what the Company's results of operations would actually
have been if the Recapitalization and the Offering had occurred at the beginning
of the period indicated, or purport to project the Company's results of
operations for any future period. The consolidated financial data set forth
below should be read in conjunction with the historical consolidated financial
statements of the Company and the related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," all
contained elsewhere in this Prospectus.
23
<PAGE>
SELECTED HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
UNAUDITED
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------- --------------------------
1991(1) 1992 1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- --------------
(DOLLARS IN THOUSANDS, EXCEPT EXPENSE PER CUBE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales (a)............................ $1,688,611 $1,784,852 $1,868,932 $1,855,356 $2,047,187 $1,528,710 $1,637,266
Cost of goods sold (b)................... 1,574,421 1,659,293 1,704,982 1,719,999 1,901,604 1,420,099 1,518,946
---------- ---------- ---------- ---------- ---------- ---------- --------------
Gross profit (b)......................... 114,190 125,559 163,950 135,357 145,583 108,611 118,320
Operating and administrative expenses.... 111,054 115,243 117,411 116,080 125,245 92,583 97,402
---------- ---------- ---------- ---------- ---------- ---------- --------------
Operating income (b)..................... 3,136 10,316 46,539 19,277 20,338 16,028 20,918
Interest expense, net.................... 10,358 5,983 4,887 5,773 6,987 5,408 5,665
Debt refinancing costs (c)............... -- -- -- 1,600 1,065 746 928
---------- ---------- ---------- ---------- ---------- ---------- --------------
Income (loss) before income taxes,
cumulative effects of changes in
accounting principles and extraordinary
item................................... (7,222) 4,333 41,652 11,904 12,286 9,874 14,325
Income tax expense....................... 980 700 2,472 2,816 5,563 4,456 6,274
---------- ---------- ---------- ---------- ---------- ---------- --------------
Income (loss) before cumulative effects
of changes in accounting principles and
extraordinary item..................... (8,202) 3,633 39,180 9,088 6,723 5,418 8,051
Cumulative effect of changes in
accounting principles for:
Income taxes......................... -- -- 492 -- -- -- --
Postretirement benefits other than
pensions........................... -- -- (988) -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- --------------
Income (loss) before extraordinary
item................................... (8,202) 3,633 38,684 9,088 6,723 5,418 8,051
Extraordinary item....................... -- -- -- -- -- -- (1,830)
---------- ---------- ---------- ---------- ---------- ---------- --------------
Net income (loss) (b).................... $ (8,202) $ 3,633 $ 38,684 $ 9,088 $ 6,723 $ 5,418 $ 6,221
---------- ---------- ---------- ---------- ---------- ---------- --------------
---------- ---------- ---------- ---------- ---------- ---------- --------------
OTHER DATA:
EBITDAL (d).............................. $ 20,203 $ 21,848 $ 29,309 $ 24,271 $ 29,696 $ 22,578 $ 27,223
Cash provided by (used in):
Operating activities (e)............... (1,910) 12,425 21,176 54,708 12,529 34,223 43,668
Investing activities................... 44,069 (5,241) (6,806) (5,974) (16,896) (14,375) (4,047)
Financing activities (e)............... (41,177) (2,229) (11,406) (43,586) 11,397 (21,531) (47,908)
Depreciation and amortization (f)........ 6,840 5,805 5,737 5,541 5,943 4,704 4,945
Capital expenditures..................... 2,470 4,295 5,501 5,376 7,286 4,763 3,983
Ratio of earnings to fixed charges (g)... -- 1.4x 5.8x 2.3x 2.0x 2.1x 2.5 x
Number of employees...................... 1,817 1,800 1,885 1,906 2,012 2,068 2,179
Cubes of product distributed (000s)
(h).................................... 15,500 16,161 17,867 19,359 20,550 15,664 17,655
Cubes per employee....................... 8,531 8,978 9,479 10,157 10,214 7,574 8,102
Distribution operating expenses (i)...... $ 45,577 $ 46,930 $ 50,541 $ 51,874 $ 54,061 $ 40,223 $ 43,734
Distribution operating expenses per
cube................................... $ 2.94 $ 2.90 $ 2.83 $ 2.68 $ 2.63 $ 2.57 $ 2.48
PRO FORMA DATA (UNAUDITED):
EBITDAL.................................. $ 29,696 $ 27,223
Interest expense (j)..................... 18,690 13,648
Ratio of EBITDAL to interest expense
(j).................................... 1.6x 2.0 x
Ratio of earnings to fixed charges (g)... 1.0x 1.3 x
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------- --------------
1991 1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Average net working capital (k).......... $ 96,327 $ 78,290 $ 79,160 $ 72,568 $ 61,341 $ 57,960
Total assets............................. 323,979 318,127 329,855 293,743 324,536 283,909
Total debt, including current
maturities............................. 149,445 142,432 127,053 84,627 101,598 163,339
Mandatorily redeemable preferred stock
(l).................................... 24,347 29,146 34,890 41,767 -- --
Total common shareholders' equity
(deficit) (m).......................... 12,749 9,705 41,137 39,346 87,669 (8,073)
</TABLE>
See Notes to Selected Historical and Pro Forma Consolidated Financial and Other
Data.
24
<PAGE>
NOTES TO SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED
FINANCIAL AND OTHER DATA
(a) In the second quarter of 1995, the Company completed two acquisitions which
added approximately $62 million, $39 million and $55 million in net sales
for the year ended December 31, 1995 and the nine months ended September 30,
1995 and 1996, respectively.
(b) The Company's U.S. inventories are valued at the lower of cost or market.
Cost of goods sold is determined on a last-in, first-out (LIFO) basis.
During the year ended December 31, 1993, the Company's U.S. cigarette
inventory quantities declined and the wholesale cost of U.S. premium
cigarettes significantly declined. These factors resulted in a substantially
lower inventory cost being charged to cost of goods sold under the LIFO
method of valuation compared to the FIFO method in an amount of $23.0
million, materially impacting the results of operations during such fiscal
year. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for more information on the impact of the LIFO
inventory valuation method on other accounting periods.
(c) Debt refinancing costs include all costs associated with restructuring and
refinancing debt and amortization of debt issuance costs.
(d) EBITDAL represents operating income plus depreciation, amortization and LIFO
expense, and minus LIFO income (each defined below). EBITDAL should not be
considered in isolation or as a substitute for net income, operating income,
cash flows or other consolidated income or cash flow data prepared in
accordance with generally accepted accounting principles, or as a measure of
a company's profitability or liquidity. EBITDAL is included because it is
one measure used by certain investors to determine a company's ability to
service its indebtedness.
(e) At year end, the Company typically incurs debt to build inventories, which
are then liquidated in future periods. Therefore, cash provided by operating
activities and cash used in financing activities are typically lower at the
end of any fiscal year compared to interim periods.
(f) Depreciation and amortization includes depreciation on property and
equipment, amortization of goodwill and other non-cash charges, and excludes
amortization of debt refinancing costs.
(g) For the purpose of computing the Company's historical and pro forma ratio of
earnings to fixed charges, "earnings" represent historical and pro forma
income (loss) before income taxes and before fixed charges, respectively.
"Fixed charges" represent historical and pro forma interest on all other
indebtedness (including amortization of the SFAS No. 15 troubled debt
restructuring deferred credit (approximately $1.2 million, $2.6 million,
$3.5 million and $2.0 million for the years ended December 31, 1991, 1992,
1993 and 1994, respectively), amortization of debt financing costs
(approximately $1.1 million, $0.7 million, and $0.9 million, for the year
ended December 31, 1995 and the nine months ended September 30, 1995 and
1996, respectively, and approximately $1.5 million and $1.2 million on a pro
forma basis for the year ended December 31, 1995 and the nine months ended
September 30, 1996, respectively) and a portion of the operating lease
rental expense that is representative of the interest factor therein (deemed
to be one-third of rental expense)). For the year ended December 31, 1993,
such ratio was significantly impacted by LIFO income of $23.0 million. The
Company had a deficiency of earnings to fixed charges in 1991 of $7.2
million.
(h) The term "cube" refers to one cubic foot of product, a common unit of
measurement in wholesale distribution.
(i) Distribution operating expenses include the cost of receiving, warehousing,
picking and delivering products purchased by the Company's customers,
excluding depreciation and insurance.
(j) Pro forma interest expense is defined as interest expense exclusive of
amortization of debt issuance costs. The pro forma interest calculation
assumes (i) the elimination of historical interest expense under the
previous credit facility, (ii) interest on the Notes at a rate of 11.375%
per annum and (iii) interest on the borrowings under the Senior Credit
Facility after giving effect to the Recapitalization and the Offering and
the application of the net proceeds therefrom. The borrowings under the
previous credit facility and under the Senior Credit Facility bear interest
at the same rates, which for purposes of this calculation are 8.5% for 1995
and 8.0% for the nine months ended September 30, 1996, the weighted average
rates in effect under the previous credit facility during such periods. A
0.5% change in the interest rate under the Senior Credit Facility would
result in a $0.5 million change to pro forma interest expense for the full
year.
(k) Average net working capital represents month-end averages of total current
assets (excluding cash and cash equivalents) less month-end averages of
total current liabilities (excluding current maturities of long-term debt).
(l) Series B Preferred Stock, with a $50.0 million stated value and a mandatory
redemption date of December 31, 1995, was issued in conjunction with a
restructuring in 1991 and was initially recorded at a discounted fair value
and accreted through March 1995, at which time it was exchanged, along with
warrants owned by the senior lenders, for equity in a holding company that
was also owned by management. At that time, the carrying value of the
Preferred Stock was reclassified into additional paid-in capital.
(m) As a result of the Recapitalization, the Company has a total common
shareholders' deficit. In the Recapitalization, Jupiter paid $41.3 million
for 75% of the common stock of the Company and Senior Management retained
25% of the common stock of the Company which, based on the price per share
paid by Jupiter, had a value of $13.8 million. Thus, the total value of the
common stock purchased and retained in the Recapitalization was $55.0
million. In addition, in the Recapitalization the Company repurchased common
stock for a total of $141.3 million, consisting of $135.0 million in cash
(including $10.0 million placed into escrow) and Old Subordinated Notes with
an initial value of $6.3 million.
(1) In 1991, the Company closed down various operations, and liquidated the
accounts receivable and inventories of these operations. The funds generated
thereby, net of any associated liabilities (reflected in cash provided by
investing activities), were used to repay debt under the Company's then
existing senior credit facility (reflected in cash used in financing
activities).
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Historical and Pro Forma Consolidated Financial Data" and the consolidated
financial statements of the Company and notes thereto included elsewhere in this
Prospectus. The discussion that follows reflects reported results, and as such
does not take into consideration the effects of the Recapitalization and the
Offering on results of operations.
GENERAL
The Company is one of the two largest broad-line, full-service wholesale
distributors of packaged consumer products to the convenience retail industry in
North America. The products distributed by the Company include cigarettes, food
products such as candy, fast food, snacks, groceries and non-alcoholic
beverages, and non-food products such as film, batteries and other sundries,
health and beauty care products and tobacco products other than cigarettes. In
the year ended December 31, 1995, approximately 71%, 20% and 9% of the Company's
net sales and approximately 40%, 41% and 19% of the Company's gross profit were
derived from cigarettes, food products and non-food products, respectively.
Although food and non-food products generally carry higher operating expenses to
pick and handle than cigarettes, the Company believes that such products' net
contribution to earnings, after expenses, is higher than for cigarettes. In
addition, overall gross margins on cigarettes as well as other products are
affected not only by wholesale price changes and volumes but also by amounts
received under promotional programs offered by the manufacturers, which are
recorded as reductions to cost of goods sold.
IMPACT OF REGULATION OF TOBACCO ON THE COMPANY
The tobacco industry is subject to significant regulatory restrictions. In
recent years, these regulations have generally become more restrictive, and the
aggregate unit volume of cigarettes sold in the U.S. and Canada has declined and
is expected to continue to decline. However, during the same period, the
Company's unit sales of cigarettes have increased as a result of (i) a shift in
cigarette purchases to convenience retailers from other retail channels and (ii)
the Company's execution of its business strategy (including the addition of new
customers and effecting selective acquisitions). In addition, the Company's
business strategy has included and continues to include increasing sales of
higher margin, non-tobacco products, a strategy which is intended to mitigate
the impact of possible future declines in unit sales and profitability of its
cigarette distribution business. Nevertheless, it is not possible for the
Company to predict or quantify the impact that current and future regulations
affecting cigarettes and other tobacco products will have on its business in the
future. See "Risk Factors--Adverse Regulatory Developments."
IMPACT OF CIGARETTE PRICING
Since 1993, the wholesale price of cigarettes has been affected by a number
of factors including the following:
"MARLBORO FRIDAY"
In August 1993, the United States tobacco industry, led by Philip Morris,
reduced the wholesale price of premium cigarettes (e.g., Marlboro, Winston,
Salem, etc.) by $4.00 per carton, or approximately 25%. The Company believes the
cigarette manufacturers took this action in order to reduce the pricing
differential in the United States between premium and discount cigarettes.
Following the $4.00 a carton price reduction, the Company immediately reduced
the prices charged to its customers for premium cigarettes. In 1993, 1994 and
1995, the Company sold approximately 42 million, 47 million and 54 million
26
<PAGE>
cartons, respectively, of premium cigarettes and 20 million, 19 million and 20
million cartons, respectively, of discount cigarettes in the domestic market.
REDUCTION OF CANADIAN FEDERAL TAXES
In February 1994, the Canadian federal government substantially reduced the
federal component of tobacco taxes by approximately U.S. $3.60 on all cartons of
cigarettes. This reduction decreased the cost of cigarette products charged to
the Company by the cigarette manufacturers, which in turn caused the Company to
reduce the prices charged to its customers. In addition, the Company's
inventory, trade accounts receivable, and trade accounts payable were reduced.
In 1993, 1994 and 1995, the Company sold approximately 14 million, 15 million
and 15 million cartons, respectively, of cigarettes in the Canadian market.
CIGARETTE PRICE INCREASES
Prior to 1993, the United States cigarette manufacturers raised their prices
approximately twice per year. During that time, cigarette distributors,
including the Company, realized substantial earnings from incremental forward
purchases of cigarette inventory prior to each price increase. During 1993, the
Company realized substantial earnings from forward buying of cigarettes in
advance of price increases.
The decision by Philip Morris and other manufacturers to reduce premium
cigarette prices in 1993 and their subsequent decision not to raise prices on
any category of cigarettes in 1994 eliminated the Company's ability to profit
from cigarette price increases. While price increases did occur in 1995 and
again in 1996, the impact of these price increases on the Company's
profitability was much less than in 1993, as the magnitude of the price
increases per carton was smaller. Additionally, the Company's average cigarette
inventory levels at the time of the price increases were much lower in 1995 and
1996 than in 1993.
For the years ended December 31, 1993, 1994 and 1995 and the nine months
ended September 30, 1995 and 1996, the Company experienced operating profit
attributable to cigarette price increases of $6.5 million, $0.0 million, $1.1
million, $1.1 million and $2.1 million, respectively.
IMPACT OF LIFO INVENTORY VALUATION METHOD
The Company's U.S. inventories are valued at the lower of cost or market.
Cost of goods sold is determined on a last-in, first-out (LIFO) basis using
Producer Price Indices as determined by the U.S. Department of Labor Statistics.
The Company's Canadian inventories are valued on a first-in, first-out (FIFO)
basis. The LIFO method of determining cost of goods sold has had a significant
impact on the results of operations, which is quantified separately in the
discussion below.
During periods of price inflation in the Company's product line, the LIFO
methodology generally results in the impact of inflation on year end inventories
being charged as additional expenses to cost of goods sold while lower costs are
retained in inventories. Historically, increases in the Company's cost of
cigarettes resulted from a combination of cost increases by cigarette
manufacturers and increases in federal and state excise taxes. During the year
ended December 31, 1995 and the nine month periods ended September 30, 1995 and
1996, the impact of using the LIFO method increased the cost of goods sold
("LIFO expense") by $3.4 million, $1.8 million, and $1.4 million, respectively.
In 1995, cigarette and candy manufacturers increased prices contributing to the
LIFO expense of $3.4 million during 1995. For the nine months ended September
30, 1995 and 1996, LIFO expense of $1.8 million and $1.4 million, respectively,
is primarily the result of increases in cigarette prices during those periods.
Conversely, during periods of price deflation, the LIFO methodology
generally results in lower inventory costs being charged to cost of goods sold
while higher costs are retained in inventories ("LIFO income"). In August 1993,
U.S. cigarette manufacturers reduced the wholesale price of their premium
27
<PAGE>
cigarettes by approximately $4.00 per carton or approximately 25% (see "--
Impact of Cigarette Pricing -- 'Marlboro Friday' "). In addition, the Company's
units of cigarette inventory at December 31, 1993 were 18% lower than at
December 31, 1992 as a result of greater promotional activity by cigarette
manufacturers at year end 1992. The impact of these two factors resulted in LIFO
income of $23.0 million for the year ended December 31, 1993. In 1994 there were
no cigarette price increases or decreases; however there were net changes in
units which contributed to the LIFO income of $0.5 million for the year ended
December 31, 1994.
CURRENCY FLUCTUATIONS
During the period 1993 to 1995, the Canadian dollar weakened against the
U.S. dollar, thereby deflating the U.S. dollar value of Canadian revenues in the
Company's consolidated financial statements. On average, the Canadian dollar
weakened approximately 6% in 1993, 5% in 1994, and less than 1% in 1995 from the
prior year. The change in the U.S./Canadian exchange rate had no impact on the
overall financial results of the Canadian operations as virtually all revenues
and expenses are Canadian dollar based.
ACQUISITIONS
In the second quarter of 1995, the Company acquired two Wholesale
Distributors within its existing and contiguous markets: (i) two divisions of
Flaks, Inc., with operations in Albuquerque, New Mexico and Denver, Colorado;
and (ii) Humboldt Distributors, Inc., with operations in Northern California.
These acquisitions were structured as asset purchases of inventory and accounts
receivable. The aggregate consideration for these acquisitions was $9.6 million.
RESULTS OF OPERATIONS
The following table sets forth certain operating results as a percentage of
net sales, for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
Net sales......................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold (a)............................................ 91.2 92.7 92.9 92.9 92.8
--------- --------- --------- --------- ---------
Gross profit (b).................................................. 8.8 7.3 7.1 7.1 7.2
Operating and administrative expenses............................. 6.3 6.3 6.1 6.1 5.9
--------- --------- --------- --------- ---------
Operating income.................................................. 2.5% 1.0% 1.0% 1.0% 1.3%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(a) LIFO (income) expense is included in cost of goods sold.
(b) The Company earned $6.5 million in 1993, $0.0 million in 1994, $1.1 million
in 1995, $1.1 million in the nine months ended September 30, 1995 and $2.1
million in the nine months ended September 30, 1996 from cigarette price
increases.
28
<PAGE>
The following table sets forth gross profit and operating income as a
percentage of net sales, after adjusting for LIFO (income) expense, for the
periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
Gross profit (a).................................................. 8.8% 7.3% 7.1% 7.1% 7.2%
LIFO (income) expense............................................. (1.2) 0.0 0.2 0.1 0.1
--------- --------- --------- --------- ---------
Adjusted gross profit............................................. 7.6 7.3 7.3 7.2 7.3
Operating and administrative expenses............................. 6.3 6.3 6.1 6.1 5.9
--------- --------- --------- --------- ---------
Adjusted operating income......................................... 1.3% 1.0% 1.2% 1.1% 1.4%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(a) The Company earned $6.5 million in 1993, $0.0 million in 1994, $1.1 million
in 1995, $1.1 million in the nine months ended September 30, 1995 and $2.1
million in the nine months ended September 30, 1996 from cigarette price
increases.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
NET SALES. Net sales for the nine months ended September 30, 1996 were
$1,637.3 million, an increase of $108.6 million or 7.1% compared to the same
period in 1995. The increase was due to growth in all product categories of the
Company's operations. In the second quarter of 1995, the Company acquired
selected assets of two businesses, increasing net sales for the nine months
ended September 30, 1996 by approximately $16 million compared to the similar
period in 1995.
Cigarette net sales for the nine months ended September 30, 1996 were
$1,133.0 million, an increase of $57.0 million or 5.3% compared to the same
period in 1995 as a result of increases in unit volumes and increases in prices
of both U.S. and Canadian cigarettes. This increase was also partially due to
the acquisitions described above (approximately $11 million). The Company's
total cigarette unit sales for the nine months ended September 30, 1996 were
68.6 million cartons, an increase of 2.5 million cartons or 3.7% compared to the
same period in 1995. Of this increase, 0.7 million cartons were attributable to
the acquisitions described above. The total increase reflected increases in unit
volume sales of U.S. premium brand cigarettes (which increased by 2.0 million
cartons or 5.1%) and Canadian cigarettes (which increased by 0.6 million
cartons, or 5.6%), offset by a decrease in U.S. discount brand cigarettes (which
decreased by 0.1 million cartons, or 1.3%).
Net sales of food and non-food products for the nine months ended September
30, 1996 were $504.2 million, an increase of $51.6 million or 11.4% compared to
the same period in 1995. This increase was partially due to the acquisitions
described above (which contributed approximately $5 million) and the Company's
focus on increasing food and non-food product sales. The increase primarily
occurred in candy sales, which increased $14.0 million or 9.1%, other tobacco
sales, which increased by $10.9 million or 13.4% and general merchandise sales,
which increased $8.3 million or 25.8%.
GROSS PROFIT. Gross profit for the nine months ended September 30, 1996 was
$118.3 million, an increase of $9.7 million or 8.9% compared to 1995. For the
nine months ended September 30, 1996, the
29
<PAGE>
Company recognized LIFO expense of $1.4 million compared to $1.8 million for the
same period in 1995. The following table illustrates the impact of the LIFO
adjustment on the Company's gross profit margin:
<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
Reported gross profit margin.................................................. 7.1% 7.2%
Impact of LIFO expense........................................................ 0.1 0.1
-- --
Adjusted gross profit margin.................................................. 7.2% 7.3%
-- --
-- --
</TABLE>
The adjusted gross profit margin for the nine months ended September 30,
1996 increased compared to the same period in 1995 primarily because there was
$2.1 million of profits from forward buying of cigarettes in advance of price
increases in 1996 compared to $1.1 million of such profits in 1995. See " --
Impact of Cigarette Pricing -- Cigarette Price Increases."
The adjusted gross profit margin on food and non-food sales increased
slightly compared to the prior year, primarily as a result of a candy price
increase in late 1995.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative
expenses for the nine months ended September 30, 1996 were $97.4 million, an
increase of $4.8 million or 5.2% compared to 1995. However, such expenses for
the nine months ended September 30, 1996 decreased to 5.9% of net sales as
compared to 6.1% for the same period last year due to relatively flat general
and administrative expenses, which are primarily fixed.
OPERATING INCOME. As a result of the above, operating income for the nine
months ended September 30, 1996 was $20.9 million, an increase of $4.9 million
or 30.5% as compared to the same period in 1995. As a percentage of net sales,
operating income for the nine months ended September 30, 1996 was 1.3%, as
compared to 1.0% for the same period in 1995.
NET INTEREST EXPENSE. Net interest expense for the nine months ended
September 30, 1996 was $5.7 million, an increase of $0.3 million or 4.8%
compared to the same period in 1995. The net increase resulted from an increase
in average debt levels due to the Recapitalization, partially offset by lower
average interest rates.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
NET SALES. Net sales for 1995 were $2,047.2 million, an increase of $191.8
million or 10.3% compared to 1994. The increase was the result of growth in all
categories of the Company's operations. Net sales increased by approximately $62
million compared to 1994 due to the acquisition in the second quarter of 1995 of
two businesses described above.
Cigarette net sales for 1995 were $1,446.7 million, an increase of $147.0
million or 11.3% compared to 1994. Cigarette net sales for 1995 in the U.S.
increased in part due to the acquisitions described above which contributed
approximately $42 million in net sales or approximately 3.3 million cartons. The
Company's total cigarette unit volume in 1995 was 88.9 million cartons, an
increase of 8.2 million cartons or 10.2% compared to 1994, reflecting increases
in unit volume sales of U.S. premium brand cigarettes (7.3 million cartons or
15.6%) and U.S. discount brand cigarettes (0.9 million cartons or 4.7%), while
unit volumes of Canadian cigarettes increased by 0.2%. During 1995, prices of
U.S. premium and discount brand cigarettes and Canadian cigarettes increased
slightly, contributing to an increase in cigarette net sales.
30
<PAGE>
Net sales of food and non-food products in 1995 were $600.5 million, an
increase of $44.8 million or 8.1% compared to 1994. Food and non-food net sales
in the U.S. increased in part due to the acquisitions described above which
contributed approximately $20 million in net sales. The principal components of
the total increase in 1995 were candy sales, which increased $13.3 million or
7.0% and beverage products which increased $7.2 million or 16.7%.
GROSS PROFIT. Gross profit for 1995 was $145.6 million, an increase of
$10.2 million or 7.6%, compared to 1994. The increase was primarily due to
increased gross profits from food and non-food product categories. For 1995, the
Company recognized LIFO expense of $3.4 million compared to LIFO income of $0.5
million in 1994, and as a result the adjusted gross profit margin in 1995
remained constant compared to 1994. The following table illustrates the impact
of the LIFO adjustment on the Company's gross profit margin:
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Reported gross profit margin.................................................. 7.3% 7.1%
Impact of LIFO (income) expense............................................... 0.0 0.2
-- --
Adjusted gross profit margin.................................................. 7.3% 7.3%
-- --
-- --
</TABLE>
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative
expenses for 1995 were $125.2 million, an increase of $9.2 million or 7.9%
compared to 1994. Such expenses declined as a percentage of net sales from 6.3%
to 6.1%. The decrease as a percentage of net sales was primarily due to a
decrease in warehouse and delivery expenses as a percentage of net sales
compared to 1994 which was the result of the Company's investment in
productivity enhancements.
OPERATING INCOME. As a result of the above, operating income for 1995 was
$20.3 million, an increase of $1.1 million or 5.5% as compared to 1994. As a
percentage of sales, operating income for 1995 was 1.0%, the same as in 1994.
NET INTEREST EXPENSE. Net interest expense for 1995 was $7.0 million, an
increase of $1.2 million or 21.0% compared to 1994. The net increase resulted
from a $0.8 million decrease in cash interest expense offset by a $2.0 million
non-cash credit. The decrease in cash interest was due to a reduction in average
borrowings due to lower working capital requirements, offset by higher average
interest rates in 1995. The non-cash credit of $2.0 million in 1994 related to
the 1991 restructuring of the Company's credit facility. As a result of such
restructuring, $50.0 million of senior debt was converted into preferred stock
and warrants to purchase common stock of the Company. The difference between the
face value of the debt converted and the fair value assigned to the preferred
stock and warrants was amortized as a reduction of interest expense on an
effective yield basis, and amounted to $2.0 million for 1994.
DEBT REFINANCING COSTS. The Company successfully completed a refinancing in
March 1995. The costs directly related to such refinancing were being amortized
over the term of such debt facility. Debt refinancing costs for 1995 were $1.1
million, compared to $1.6 million in 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
NET SALES. Net sales for 1994 were $1,855.4 million, a decrease of $13.6
million or 0.7% compared to 1993. The decrease was primarily due to a decrease
in cigarette net sales, partially offset by an increase in food and non-food net
sales. Net sales for 1994 as compared to 1993 were negatively influenced by
changes in foreign exchange rates. See "-- Currency Fluctuations."
Cigarette net sales for 1994 were $1,299.7 million, a decrease of $45.0
million or 3.3% compared to 1993. This was despite a 4.0 million or 5.2% carton
increase in the Company's total cigarette unit sales in 1994 compared to 1993.
The decrease in cigarette net sales was due to the following factors: (i) a
31
<PAGE>
decrease in net sales of Canadian cigarettes of $53.7 million or 11.7% as a
result of the February 1994 reduction of U.S. $3.60 per carton in federal taxes
on such cigarettes (see "-- Impact of Cigarette Pricing -- Reduction of Canadian
Federal Taxes") and negative foreign currency rate fluctuations, offset in part
by an increase in unit volume sales of such cigarettes; (ii) an increase in net
sales of U.S. premium brand cigarettes of $4.3 million or 0.6% as a result of an
increase in unit volume sales of 4.5 million cartons or 10.6% which was
substantially offset by the 25% reduction in August 1993 in the wholesale cost
of such cigarettes (see "-- Impact of Cigarette Pricing -- 'Marlboro Friday' ");
and (iii) an increase in net sales of U.S. discount brand cigarettes of $4.4
million or 2.1% as a result of increases in average prices for such cigarettes,
despite a decrease in unit volume sales of such cigarettes of 1.1 million
cartons or 5.5%.
Net sales of food and non-food products for 1994 were $555.7 million, an
increase of $31.4 million or 6.0% compared to 1993. The increase primarily
occurred in candy sales, which increased $10.1 million or 5.6% and fast food
sales, which increased $6.6 million or 13.9%.
GROSS PROFIT. Gross profit for 1994 was $135.4 million, a decrease of $28.6
million or 17.4% compared to 1993. The decrease was attributable in part to much
lower LIFO income for 1994 compared to 1993. For 1994, the Company recognized
LIFO income of $0.5 million compared to LIFO income of $23.0 million for 1993.
The following table illustrates the impact of the LIFO adjustment on the
Company's gross profit margin:
<TABLE>
<CAPTION>
1993 1994
----- -----
<S> <C> <C>
Reported gross profit margin................................................... 8.8% 7.3%
Impact of LIFO (income) expense................................................ (1.2) 0.0
--
---
Adjusted gross profit margin................................................... 7.6% 7.3%
--
--
---
---
</TABLE>
The adjusted gross profit margin for 1994 decreased compared to 1993
primarily because there was $6.5 million of profits from cigarette price
increases, or 0.3% of net sales, in 1993, and none in 1994. See "-- Cigarette
Price Increases". In addition, the decrease in the adjusted gross profit margin
was due to a reduction in overall cigarette gross margins, which was
attributable to a shift in the sales mix from higher margin discount cigarettes
to lower margin premium cigarettes. These decreases in the adjusted gross profit
margin were substantially offset by the 6.0% increase in net sales of food and
non-food products, which carry higher gross profit margins than cigarettes.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative
expenses for 1994 were $116.1 million, a decrease of $1.3 million or 1.1%
compared to 1993. However, such expenses for 1994 remained constant at 6.3% of
net sales as compared to 1993.
OPERATING INCOME. As a result of the above, operating income for 1994 was
$19.3 million, a decrease of $27.3 million or 58.6%, as compared to 1993. As a
percentage of net sales, operating income for 1994 was 1.0%, as compared to 2.5%
for the same period in 1993.
NET INTEREST EXPENSE. Net interest expense for 1994 was $5.8 million, an
increase of $0.9 million or 18.1% compared to 1993. The net increase resulted
from a $0.6 million decrease in cash interest expense offset by a $1.5 million
decrease (from $3.5 million in 1993 to $2.0 million in 1994) in the non-cash
credit related to the 1991 restructuring of the Company's credit facility. The
decrease in cash interest was due to a reduction in average borrowings due to
lower working capital requirements, offset by a general increase in interest
rates.
DEBT REFINANCING COSTS. In 1994, the Company commenced a refinancing
strategy that was terminated and the related costs of $1.6 million were expensed
in 1994.
32
<PAGE>
RECAPITALIZATION AND NOTE OFFERING
Prior to August 7, 1996, the Company was owned by Senior Management and by
the Institutional Shareholders. On August 7, 1996, the Company completed the
Recapitalization. See "Summary-- Transactions Related to the Offering." As a
result of the Recapitalization, Jupiter and Senior Management owned 75% and 25%
of the common stock of the Company, respectively. Also as a result of the
Recapitalization, the Company has a total shareholders' deficit as of September
30, 1996.
In connection with the Recapitalization, the Company entered into the Senior
Credit Facility on August 7, 1996. See "Liquidity and Capital Resources."
Simultaneous with the closing of the Recapitalization, the Company borrowed
under the Senior Credit Facility and used a portion of such borrowings to fully
repay the outstanding debt under the previous credit facility. The early
extinguishment of the previously existing debt resulted in a one-time
extraordinary charge to income in the third quarter of fiscal 1996 to write off
unamortized bank fees of $1.8 million, which is net of a $1.2 million income tax
benefit.
On September 27, 1996, the Company completed the Offering of $75 million of
the Notes. The Notes bear interest at 11 3/8% payable semi-annually on March 15
and September 15 of each year commencing on March 15, 1997. The Notes mature on
September 15, 2003. The net proceeds from the sale of the Notes, after deducting
estimated expenses incurred in connection with such sale, were approximately
$71.8 million. Such net proceeds were used principally to repay the indebtedness
under the Term Loan and the Old Subordinated Notes. The balance of the net
proceeds (approximately $12.3 million) was used to reduce outstanding balances
under the Revolving Credit Facility.
LIQUIDITY AND CAPITAL RESOURCES
On August 7, 1996, in connection with the Recapitalization, the Company
replaced its existing credit facility with the Senior Credit Facility. The
Senior Credit Facility provides for aggregate borrowings under the Revolving
Credit Facility up to $175.0 million until June 30, 2001, subject to borrowing
base limitations, based upon eligible levels of cash, accounts receivable,
inventories and other assets. The Senior Credit Facility also provided for the
$35.0 million Term Loan, which was drawn in its entirety on August 7, 1996, and
which was fully repaid with a portion of the proceeds of the Offering.
Borrowings under the Senior Credit Facility will bear interest at floating rates
based upon the interest rate option selected by the Company. As of September 30,
1996, the amount outstanding under the Revolving Credit Facility was $88.3
million, and an additional $46.4 million after taking into account the borrowing
base was available to be drawn. For a more detailed description of the Senior
Credit Facility, see "Description of Senior Credit Facility."
The Company's liquidity needs arise primarily from the funding of its
working capital needs, capital expenditure programs and debt service
requirements with respect to the Revolving Credit Facility and the Notes. The
Company has no mandatory payments of principal on the Notes scheduled prior to
their final maturity and has no mandatory payments of principal scheduled under
the Revolving Credit Facility, which matures June 30, 2001. The Company has
historically financed its operations through internally generated funds and
borrowings under its credit facilities.
The Company's debt obligations totaled $163.3 million at September 30, 1996,
an increase of $61.7 milion from $101.6 million at December 31, 1995. The net
increase in outstanding debt is due primarily to the Recapitalization, partially
offset by a reduction in working capital funding requirements resulting
principally from decreases in inventory and accounts receivable. Debt
requirements are generally the highest at December 31 when the Company
historically carries higher inventory.
The Company made capital expenditures of $5.5 million, $5.4 million, $7.3
million and $4.0 million in 1993, 1994, 1995, and for the nine months ended
September 30, 1996, respectively. The Company estimates that for the remainder
of 1996, approximately $2 to $3 million of capital expenditures will be
required, principally consisting of warehouse facilities and equipment.
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The Company's principal sources of liquidity are net cash provided by
operating activities and its Revolving Credit Facility. For the nine months
ended September 30, 1996, net cash provided by operating activities was $43.7
million as compared to $34.2 million for the same period in 1995. This
improvement was principally driven by a $4.9 million operating income increase
for the first nine months of 1996 as compared to the 1995 period and by changes
in net working capital. During the fiscal year ended December 31, 1995, net cash
provided by operating activities was $12.5 million compared to $54.7 million in
1994. Net cash flow provided by operating activities reflects, in part, changes
in working capital. At year end, the Company typically builds inventories to
maintain its LIFO position, which inventories are then liquidated in future
periods. Therefore, net cash provided by operating activities is typically lower
at the end of any fiscal year compared to interim periods.
Net cash provided by operating activities in 1994 was positively impacted by
a management decision to reduce inventories, principally cigarette inventories,
by $24.2 million. The Company also benefited in 1994 from improved management of
trade accounts receivable, reducing balances in 1994 by $6.7 million or 7.4% and
a large increase in trade payables at December 31, 1994, which was primarily a
timing benefit.
For the nine months ended September 30, 1995, $9.6 million was invested in
the acquisition of two businesses, primarily consisting of inventory and
receivables. See "--Acquisitions."
IMPACT OF TOBACCO TAXES
State and provincial tobacco taxes represent a significant portion of the
Company's net sales and cost of goods sold attributable to cigarettes and other
tobacco products. During 1995, such taxes on cigarettes represented
approximately 26% of cigarette net sales in the U.S. and 48% in Canada.
Under current law, almost all state and Canadian provincial taxes are
payable by the Company under credit terms which, on the average, exceed the
credit terms the Company has approved for its customers to pay for products
which include such taxes. This practice has benefited the Company's cash flow.
If the Company were required to pay such taxes at the time such obligation is
incurred without the benefit of credit terms, the Company would incur a
substantial permanent increase in its working capital requirements. Consistent
with industry practices, the Company has secured a bond to guarantee its tax
obligations to those states requiring such a surety (a majority of states in the
Company's operating areas).
INFLATION
Historically, cigarette products have experienced higher inflation compared
to the Company's other products. However, during 1993, cigarettes experienced
significant price deflation. Following increases or decreases in prices with
respect to any of the Company's products, the Company generally adjusts its
selling prices, in order to maintain its gross profit, and therefore, inflation
and deflation generally do not have a material impact on the Company's gross
profit. During the past several years, low levels of overall inflation and
resulting low interest rates have benefited the Company's results of operations
because of the Company's high degree of leverage. If interest rates increase (as
a result of increased inflation or otherwise), the Company could be adversely
affected. See "Risk Factors--Substantial Leverage and Debt Service Obligations."
FEDERAL NET OPERATING LOSSES
At December 31, 1995, the Company had available for U.S. federal income tax
return purposes net operating losses approximating $32.0 million, subject to
certain limitations, which will expire between the years 2005 and 2007.
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NEW ACCOUNTING STANDARDS
The Company adopted Statement of Financial Accounting Standard (SFAS) No.
106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS,
effective January 1, 1993. Adoption of SFAS No. 106 resulted in a one-time
charge to net income in 1993 of approximately $1.0 million, which represents the
discounted present value of expected future retiree health benefits attributed
to employee service rendered prior to that date.
The Company adopted SFAS No. 109, ACCOUNTING FOR INCOME TAXES, effective
January 1, 1993. Under the asset and liability method required by SFAS No. 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. The Company has reported the cumulative effect from the change in the
method of accounting for income taxes in its consolidated results of operations
for 1993, which had the impact of increasing consolidated net income by
approximately $0.5 million.
The Company adopted SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, effective January
1, 1996. SFAS No. 121 provides specific guidance regarding when impairment of
long-lived assets such as property and equipment and certain intangibles,
including goodwill, should be recognized and how impairment losses of such
assets should be measured. The effect of the adoption of SFAS No. 121 on the
Company's financial results was immaterial.
In October 1995, SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, was
issued. The standard encourages, but does not require, companies to recognize
compensation expense for grants of stock, stock options and other equity
instruments to employees based on fair value accounting rules. The standard is
effective for fiscal years beginning after December 15, 1995. The Company
adopted a stock option plan in conjunction with the Recapitalization. No options
have yet been granted under this plan and, therefore, adoption of SFAS No. 123
in 1996 is not required. The Company plans to grant options under this plan in
1997 but has not yet determined if it will adopt the accounting provisions of
SFAS No. 123 or only the disclosure provision. The Company does not believe that
adoption of SFAS No. 123 will have a significant effect on its results of
operations or financial condition.
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THE EXCHANGE OFFER
GENERAL
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the Exchange Offer), to exchange up to $75,000,000 aggregate
principal amount of New Notes for a like aggregate principal amount of Existing
Notes properly tendered on or prior to the Expiration Date and not withdrawn as
permitted pursuant to the procedures described below. The Exchange Offer is
being made with respect to all of the Existing Notes: the total aggregate
principal amount of Existing Notes and New Notes will in no event exceed
$75,000,000.
As of the date of this Prospectus, $75.0 million aggregate principal amount
of the Existing Notes was outstanding. This Prospectus, together with the Letter
of Transmittal, is first being sent on or about , 1996, to all
holders of Existing Notes known to the Company. The Company's obligation to
accept Existing Notes for exchange pursuant to the Exchange Offer is subject to
certain conditions as set forth under "--Conditions to the Exchange Offer"
below.
PURPOSE OF THE EXCHANGE OFFER
The Existing Notes were issued by the Company on September 27, 1996 in a
transaction exempt from the registration requirements of the Securities Act.
Accordingly, the Existing Notes may not be reoffered, resold, or otherwise
transferred in the United States unless so registered or unless an applicable
exemption from the registration and prospectus delivery requirements of the
Securities Act is available.
In connection with the issuance and sale of the Existing Notes, the Company
entered into an Exchange and Registration Rights Agreement, dated as of
September 27, 1996 (the "Registration Rights Agreement"), which requires the
Company to use its best efforts to file on or before November 11, 1996 (45 days
after the date of issuance of the Existing Notes) a registration statement
relating to the Exchange Offer (or a shelf registration statement relating to
resales of the Existing Notes) and to cause the registration relating to the
Exchange Offer or the shelf registration statement to become effective on or
before January 10, 1997 (105 days after the date of issuance of the Existing
Notes). The Exchange Offer is being made by the Company to satisfy its
obligations with respect to the Registration Rights Agreement.
Based on no-action letters issued by the staff of the Commission to third
parties in unrelated transactions, the Company believes that the New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any such holder that is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or (ii) any broker-dealer that purchases Notes from the Company
to resell pursuant to Rule 144A or any other available exemption) without
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement or understanding
with any person to participate in the distribution of such New Notes and are not
participating in, and do not intend to participate in, the distribution of such
New Notes. Any holder of Existing Notes who tenders in the Exchange Offer for
the purpose of participating in a distribution of the New Notes may be deemed to
have received restricted securities and, if so, will be required to comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. Thus, any New Notes acquired by
such holders will not be freely transferable except in compliance with the
Securities Act. See "--Consequences of Failure to Exchange; Resale of New
Notes."
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EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
The Exchange Offer will expire at 5:00 P.M., New York City time, on December
, 1996, unless the Company, in its sole discretion, has extended the period of
time for which the Exchange Offer is open (such date, as it may be extended, is
referred to herein as the "Expiration Date"). The Expiration Date will be at
least 20 business days after the commencement of the Exchange Offer in
accordance with Rule 14e-1(a) under the Exchange Act. In addition, the Company
has agreed in the Registration Rights Agreement to keep the Exchange Offer open
for not less than 30 days after the date that notice thereof is first mailed to
the holders of the Existing Notes. The Company expressly reserves the right, at
any time or from time to time, to extend the period of time during which the
Exchange Offer is open (provided that the Exchange Offer will not be extended
beyond the one hundred twentieth day following the commencement thereof), and
thereby delay acceptance for exchange of any Existing Notes, by giving oral
notice (promptly confirmed in writing) or written notice to Bankers Trust
Company of New York (the "Exchange Agent") and by giving written notice of such
extension to the holders thereof or by timely public announcement communicated,
unless otherwise required by applicable law or regulation, by making a release
through the Dow Jones News Service, in each case, no later than 9:00 A.M. New
York City time, on the next business day after the previously scheduled
Expiration Date. During any such extension, all Existing Notes previously
tendered will remain subject to the Exchange Offer unless properly withdrawn.
In addition, the Company expressly reserves the right to terminate or amend
the Exchange Offer and not to accept for exchange any Existing Notes not
theretofore accepted for exchange upon the occurrence of any of the events
specified below under "--Conditions to the Exchange Offer." If any such
termination or amendment occurs, the Company will notify the Exchange Agent and
will either issue a press release or give oral or written notice to the holders
of the Existing Notes as promptly as practicable.
For purposes of the Exchange Offer, a "business day" means any day other
than Saturday, Sunday or a date on which banking institutions are required or
authorized by New York State law to be closed, and consists of the time period
from 12:01 A.M. through 12:00 midnight, New York City time.
PROCEDURES FOR TENDERING EXISTING NOTES
The tender to the Company of Existing Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal.
A holder of Existing Notes may tender the same by (i) properly completing
and signing the Letter of Transmittal or a facsimile thereof (all references in
this Prospectus to the Letter of Transmittal shall be deemed to include a
facsimile thereof) and delivering the same, together with the certificate or
certificates representing the Existing Notes being tendered and any required
signature guarantees, to the Exchange Agent at its address set forth below on or
prior to the Expiration Date (or complying with the procedure for book-entry
transfer described below) or (ii) complying with the guaranteed delivery
procedures described below.
THE METHOD OF DELIVERY OF EXISTING NOTES, LETTERS OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO INSURE TIMELY DELIVERY. NO EXISTING NOTES OR LETTERS OF TRANSMITTAL
SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Existing Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Existing Notes
who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
amount of an
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Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a clearing agency, an insured
credit union, a savings association or a commercial bank or trust company having
an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Existing Notes are registered in the name of a person other
than a signer of the Letter of Transmittal, the Existing Notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by the
Company in its sole discretion, duly executed by the registered holder with the
signature thereon guaranteed by an Eligible Institution.
The Exchange Agent will make a request within two business days after the
date of receipt of this Prospectus to establish accounts with respect to the
Existing Notes at the book-entry transfer facility, The Depository Trust
Company, for the purpose of facilitating the Exchange Offer, and subject to the
establishment thereof, any financial institution that is a participant in the
book-entry transfer facility's system may make book-entry delivery of Existing
Notes by causing such book-entry transfer facility to transfer such Existing
Notes into the Exchange Agent's account with respect to the Existing Notes in
accordance with the book-entry transfer facility's procedures for such transfer.
Although delivery of Existing Notes may be effected through book-entry transfer
into the Exchange Agent's account at the book-entry transfer facility, an
appropriate Letter of Transmittal with any required signature guarantee and all
other required documents must in each case be transmitted to and received or
confirmed by the Exchange Agent at its address set forth below on or prior to
the Expiration Date, or, if the guaranteed delivery procedures described below
are complied with, within the time period provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Existing Note to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received at
its address set forth below on or prior to the Expiration Date a letter,
telegram or facsimile transmission from an Eligible Institution setting forth
the name and address of the tendering holder, the names in which the Existing
Notes are registered and, if possible, the certificate numbers of the Existing
Notes to be tendered, and stating that the tender is being made thereby and
guaranteeing that within three business days after the Expiration Date the
Existing Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Existing Notes into the Exchange Agent's account at the
book-entry transfer facility), will be delivered by such Eligible Institution
together with a properly completed and duly executed Letter of Transmittal (and
any other required documents). Unless Existing Notes being tendered by the
above-described method are deposited with the Exchange Agent within the time
period set forth above (accompanied or preceded by a properly completed Letter
of Transmittal and any other required documents), the Company may, at its
option, reject the tender. Copies of a Notice of Guaranteed Delivery which may
be used by Eligible Institutions for the purposes described in this paragraph
are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Existing Notes (or a confirmation of book-entry transfer of
such Existing Notes into the Exchange Agent's account at the book-entry transfer
facility) is received by the Exchange Agent, or (ii) a Notice of Guaranteed
Delivery or letter, telegram or facsimile transmission to similar effect (as
provided above) from an Eligible Institution is received by the Exchange Agent.
Issuances of New Notes in exchange for Existing Notes tendered pursuant to a
Notice of Guaranteed Delivery or letter, telegram or facsimile transmission to
similar effect (as provided above) by an Eligible Institution will be made only
against deposit of the Letter of Transmittal (and any other required documents)
and the tendered Existing Notes.
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All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Existing Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
tenders of any particular Existing Notes not properly tendered or to not accept
any particular Existing Notes which acceptance might, in the judgment of the
Company or its counsel, be unlawful. The Company also reserves the absolute
right to waive any defects or irregularities or conditions of the Exchange Offer
as to any particular Existing Notes either before or after the Expiration Date
(including the right to waive the ineligibility of any holder who seeks to
tender Existing Notes in the Exchange Offer). The interpretation of the terms
and conditions of the Exchange Offer as to any particular Existing Notes either
before or after the Expiration Date (including the Letter of Transmittal and the
instructions thereto) by the Company shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of
Existing Notes for exchange must be cured within such reasonable period of time
as the Company shall determine. Neither the Company, the Exchange Agent nor any
other person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Existing Notes for exchange, nor
shall any of them incur any liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Existing Notes, such Existing Notes must be
endorsed or accompanied by appropriate powers of attorney, in either case signed
exactly as the name or names of the registered holder or holders appear on the
Existing Notes.
If the Letter of Transmittal or any Existing Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and, unless waived by the
Company, proper evidence satisfactory to the Company of their authority to so
act must be submitted.
By tendering, each holder will represent to the Company in the Letter of
Transmittal that, among other things, the New Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
person receiving such New Notes, whether or not such person is the holder, that
neither the holder nor any such other person has an arrangement or understanding
with any person to participate in the distribution of such New Notes, that
neither the holder nor any such other person is participating in or intends to
participate in the distribution of such New Notes and that neither the holder
nor any such other person is an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company.
Each broker-dealer that receives New Notes for its own account in exchange
for Existing Notes, where such Existing Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution."
WITHDRAWAL RIGHTS
Tenders of Existing Notes may be withdrawn at any time prior to the
Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter must
be received by the Exchange Agent prior to the Expiration Date at its address
set forth below. Any such notice of withdrawal must (i) specify the name of the
person having tendered the Existing Notes to be withdrawn (the "Depositor"),
(ii) identify the Existing Notes to be withdrawn (including the certificate
number or numbers and principal amount of such Existing Notes), (iii) be signed
by the holder in the same manner as the original signature on the Letter of
Transmittal by which such Existing Notes were tendered or as otherwise described
above (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee under the Indenture
register the transfer of such Existing Notes into the name of the person
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<PAGE>
withdrawing the tender and (iv) specify the name in which any such Existing
Notes are to be registered, if different from that of the depositor. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company in its sole discretion, which
determination will be final and binding on all parties. Any Existing Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Existing Notes wthich have been tendered for
exchange and which are properly withdrawn will be returned to the holder thereof
without cost to such holder as soon as practicable after such withdrawal.
Properly withdrawn Existing Notes may be retendered by following one of the
procedures described under "--Procedures for Tendering Existing Notes" above at
any time on or prior to the Expiration Date.
ACCEPTANCE OF EXISTING NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Existing Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Existing Notes. See "--Conditions to the Exchange Offer" below. For purposes of
the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Existing Notes for exchange when, as and if the Company has given oral
and written notice thereof to the Exchange Agent.
For each Existing Note accepted for exchange, the holder of such Existing
Note will receive a New Note having a principal amount equal to that of the
surrendered Existing Note.
In all cases, issuance of New Notes for Existing Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Existing Notes or a timely
Book-Entry Confirmation of such Existing Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility, a properly completed and duly executed
Letter of Transmittal and all other required documents. If any tendered Existing
Notes are not accepted for any reason set forth in the terms and conditions of
the Exchange Offer or if Existing Notes are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or non-exchanged
Existing Notes will be returned without expense to the tendering holder thereof
(or, in the case of Existing Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described below, such non-exchanged Existing
Notes will be credited to an account maintained with such Book-Entry Transfer
Facility) as promptly as practicable after the expiration of the Exchange Offer.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Existing Notes and may terminate or amend the Exchange Offer if at any time
before the acceptance of such Existing Notes for exchange or the exchange of the
New Notes for such Existing Notes any of the following events shall occur:
(i) any injunction, order or decree shall have been issued by any court
or any governmental agency that would prohibit, prevent or otherwise
materially impair the ability of the Company to proceed with the Exchange
Offer; or
(ii) the Exchange Offer shall violate any applicable law or any
applicable interpretation of the staff of the Commission.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time from
time to time in its sole discretion. The failure by the Company at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
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<PAGE>
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, the Company will not accept for exchange any Existing Notes
tendered, and no New Notes will be issued in exchange for any such Existing
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of 1939
(the "TIA"). In any such event the Company is required to use every reasonable
effort to obtain the withdrawal of any stop order at the earliest possible time.
The Exchange Offer is not conditioned upon any minimum principal amount of
Existing Notes being tendered for exchange.
EXCHANGE AGENT
Bankers Trust Company has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at one of the addresses set forth below. Questions and requests
for assistance, requests for additional copies of this Prospectus or of the
Letter of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
<TABLE>
<CAPTION>
BY MAIL: BY HAND: BY OVERNIGHT MAIL OR COURIER
<S> <C> <C>
BT Services Tennessee, Inc. Bankers Trust Company BT Services Tennessee, Inc.
Reorganization Unit Corporate Trust and Agency Group Corporate Trust and Agency Group
P.O. Box 292737 Receipt & Delivery Window Reorganization Unit
Nashville, TN 37229-2737 4 Albany Street 648 Grassmere Park Road
New York, NY 10006 Nashville, TN 37211
For information, call:
(800) 735-7777
Confirm: (615) 835-3572
Fax: (615) 835-3701
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY.
Bankers Trust Company also acts as Trustee under the Indenture.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The cash
expenses to be incurred by the Company in connection with the Exchange Offer
will be paid by the Company.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
approximately $236,000, which includes fees and expenses of the Exchange Agent,
Trustee, registration fees, accounting, legal, printing and related fees and
expenses.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company.
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Neither the delivery of this Prospectus nor any exchange made hereunder shall,
under any circumstances, create any implication that there has been no change in
the affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Existing Notes in any jurisdiction in
which the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction.
TRANSFER TAXES
Holders who tender their Existing Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith except that holders who
instruct the Company to register New Notes in the name of, or request that
Existing Notes not tendered or not accepted in the Exchange Offer be returned
to, a person other than the registered tendering holder will be responsible for
the payment of any applicable transfer tax thereon.
ACCOUNTING TREATMENT
The New Notes will be recorded at the carrying value of the Existing Notes
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company upon the exchange of New Notes for Existing Notes. Expenses incurred in
connection with the issuance of the New Notes will be amortized over the term of
the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF NEW NOTES
Holders of Existing Notes who do not exchange their Existing Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Existing Notes as set forth in the legend
thereon as a consequence of the issuance of the Existing Notes pursuant to the
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws.
Existing Notes not exchanged pursuant to the Exchange Offer will continue to
remain outstanding in accordance with their terms. In general, the Existing
Notes may not be offered or sold unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Existing Notes under the
Securities Act. However, (i) if the Initial Purchaser so requests with respect
to Existing Notes not eligible to be exchanged for New Notes in the Exchange
Offer and held by it following consummation of the Exchange Offer or (ii) if any
holder of Existing Notes is not eligible to participate in the Exchange Offer
or, in the case of any holder of Existing Notes that participates in the
Exchange Offer, does not receive freely tradable New Notes in exchange for
Existing Notes, the Company is obligated to file a registration statement on the
appropriate form under the Securities Act relating to the Existing Notes held by
such persons.
Based on certain no-action letters issued by the staff of the Commission to
third parties in unrelated transactions, the Company believes that New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any such holder which
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or (ii) any broker-dealer that purchases Notes from the Company
to resell pursuant to Rule 144A or any other available exemption) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement or understanding
with any person to participate in the distribution of such New Notes and are not
participating in, and do not intend to participate in, the distribution of such
New Notes. If any holder has any arrangement or understanding with respect to
the distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such holder (i) could not rely on the applicable interpretations of the staff of
the Commission and (ii) must comply with the
42
<PAGE>
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. A broker-dealer who holds
Existing Notes that were acquired for its own account as a result of market
making or other trading activities may be deemed to be an "underwriter" within
the meaning of the Securities Act and must, therefore, deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
New Notes. Each such broker-dealer that receives New Notes for its own account
in exchange for Existing Notes, where such Existing Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge in the Letter of Transmittal that it will deliver a
prospectus in connection with any resale of such New Notes. See "Plan of
Distribution."
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company has
agreed, pursuant to the Registration Rights Agreement and subject to certain
specified limitations therein, to register or qualify the New Notes for offer or
sale under the securities or blue sky laws of such jurisdictions as any holder
of the Notes reasonably requests in writing.
Participation in the Exchange Offer is voluntary, and holders of Existing
Notes should carefully consider whether to participate. Holders of the Existing
Notes are urged to consult their financial and tax advisors in making their own
decision on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Existing Notes pursuant to the terms of, this Exchange Offer,
the Company will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of Existing Notes who do not tender their Existing Notes in
the Exchange Offer will continue to hold such Existing Notes and will be
entitled to all the rights, and limitations applicable thereto, under the
Indenture, except for any such rights under the Registration Rights Agreement
that by their terms terminate or cease to have further effectiveness as a result
of the making of this Exchange Offer. See "Description of Exchange Notes." All
untendered Existing Notes will continue to be subject to the restrictions on
transfer set forth in the Indenture. To the extent that Existing Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
Existing Notes could be adversely affected.
The Company may in the future seek to acquire untendered Existing Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company has no present plan to acquire any Existing
Notes which are not tendered in the Exchange Offer.
43
<PAGE>
BUSINESS
GENERAL
The Company, with annual net sales of over $2.0 billion, is one of the two
largest broad-line, full-service wholesale distributors of packaged consumer
products to the convenience retail industry in North America. The Company's
principal customers include traditional and petroleum convenience stores,
grocery stores, drug stores, mass merchandisers and liquor stores. The Company
offers its customers a wide variety of products--approximately 33,500 stock
keeping units (SKUs)--including cigarettes, candy, snacks, fast food, groceries,
health and beauty care products and other general merchandise.
The Company's 19 distribution facilities employ state-of-the-art equipment
and systems to efficiently serve over 29,000 customer locations throughout the
western regions of the United States and Canada. Over the past five years, the
Company has invested approximately 50% of its capital expenditures to introduce
advanced distribution technology into its warehouse and delivery functions. The
Company's sophisticated management information system ("MIS") utilizes
proprietary software to integrate order entry, warehouse operations, routing,
delivery and accounting. In addition, this advanced MIS allows for the
electronic exchange of information with suppliers and customers, improving
inventory management and operating efficiency.
The Company's principal markets in the United States encompass 13 western
states, including California, Colorado and western Texas. The Company has also
established a more limited presence in Nebraska, Kansas, Oklahoma, Arkansas and
Missouri. The Company services its United States customers from 15 distribution
facilities, seven of which are located in California. In Canada (which
represented approximately 25% of net sales in 1995), the Company serves five
provinces, British Columbia, Alberta, Saskatchewan, Manitoba and, on a limited
basis, western Ontario from four distribution facilities.
HISTORY
The Company's origins date back to 1888, when Glaser Bros., a
family-owned-and-operated candy and tobacco distribution business, was founded.
In 1989, the Company was acquired by a financial buyer. In 1994, the Company
repurchased such group's common stock ownership in the Company, and Senior
Management and certain lenders acquired equity in a new holding company which
held all of the stock of the Company. In August 1996, the Company underwent the
Recapitalization. The Company's equity is now held by Jupiter and Senior
Management, with Jupiter owning a controlling 75% stake and Senior Management
owning the remaining 25%. See "Summary -- Transactions Related to the Offering."
INDUSTRY OVERVIEW
Wholesale Distributors provide valuable services to both manufacturers of
consumer products and convenience retailers. Manufacturers benefit from
Wholesale Distributors' broad retail coverage, inventory management and
efficient processing of small orders. Wholesale Distributors provide convenience
retailers access to a broad product line, the ability to place small quantity
orders, inventory management and access to trade credit. In addition, large
full-service Wholesale Distributors such as the Company offer retailers the
ability to participate in manufacturer-sponsored marketing programs,
merchandising and category management services and systems focused on minimizing
customers' investment in inventory. Total sales for United States Wholesale
Distributors have grown at a compound annual rate of 4.4% over the past five
years from approximately $59 billion in 1991 to approximately $70 billion in
1995, according to U.S. DISTRIBUTION JOURNAL, an industry publication.
Management believes that this growth reflects: (i) continued strong revenue
growth in the traditional convenience store channel; (ii) a shift in cigarette
purchases from carton outlets (principally grocery stores) to pack outlets (such
as convenience retailers); (iii) an increase in the variety of products sold by
convenience stores; and (iv) an
44
<PAGE>
expansion of the industry's retail customer base to encompass distribution to
channels beyond convenience stores.
The Wholesale Distribution industry is highly fragmented and has
historically consisted of a large number of small, privately owned businesses
and a small number of large, full-service Wholesale Distributors serving
multiple geographic regions. Relative to smaller competitors, large distributors
such as the Company benefit from several competitive advantages, including
purchasing power, the ability to service chain accounts, economies of scale in
sales and operations, the ability to spread fixed corporate costs over a larger
revenue base and the resources to invest in MIS and other productivity enhancing
technology. These factors have led to a consolidation of the Wholesale
Distribution industry as companies either exit the industry or are acquired by
large distributors seeking to further leverage their existing operations. Based
on industry reports, the number of Wholesale Distributors in the United States
has declined from more than 1,500 in 1985 to fewer than 1,000 in 1995. According
to U.S. DISTRIBUTION JOURNAL, only ten such distributors had net sales in excess
of $400 million in 1995. Management believes Core-Mark will have significant
opportunities to participate in the ongoing consolidation of the industry.
BUSINESS STRATEGY
The Company's current Senior Management joined the Company beginning in late
1990 and successfully initiated several measures to increase sales of core
operations and enhance productivity and profitability. These measures included:
(i) disposing of non-core operations; (ii) increasing the customer base; (iii)
decentralizing certain operational responsibilities; (iv) strengthening
financial controls; (v) improving operating systems and processes; and (vi)
reconfiguring and upgrading facilities. Largely as a result of these
initiatives, the Company's net sales and EBITDAL increased at compound annual
growth rates of 5% and 10%, respectively, from 1991 to 1995. During this same
period, the Company also reduced its average monthly working capital (excluding
cash and debt) from 5.7% of net sales to 3.0% of net sales.
The Company's business strategy is to further increase net sales and improve
operating margins. To achieve these goals, the Company intends to: (i) increase
sales to existing customers, particularly of higher gross margin, non-cigarette
products; (ii) add new customer locations in existing markets, particularly
along existing routes; (iii) continue to implement distribution productivity
enhancement programs; and (iv) make selective acquisitions.
INCREASE SALES TO EXISTING CUSTOMERS. Because the Company generally carries
many products that its typical retail store customer purchases from other
suppliers, a primary element of its growth strategy is to increase sales to
existing customers. The Company's typical customer purchases its products from
the Company, from manufacturers who distribute directly to retailers and from a
variety of smaller local distributors or jobbers. The Company is particularly
focused on replacing local distributors and jobbers in order to increase sales
of health and beauty care products and general merchandise products, all of
which carry higher gross margins than cigarettes (cigarette sales constituted
approximately 71% of the Company's net sales in 1995 and approximately 40% of
gross profit). As part of this effort, the Company provides compensation
incentives to its sales force and a number of value-added services and marketing
programs to its customers. These programs include: (i) Convenience
2000-Registered Trademark- (which offers enhanced purchasing power and
promotions to small, independent convenience stores); (ii) Smart Sets (which
helps ensure that retailers display the right product in the right place); (iii)
Profit Builder and Promo Power (regular Company publications which describe new
products and manufacturer promotions); and (iv) the recently initiated Tully's
To Go-TM- program (which offers retailers high margin fast food products without
the franchise fees or ongoing royalty fees of typical franchises).
ADD NEW CUSTOMER LOCATIONS IN EXISTING MARKETS. The Company is also seeking
to leverage its existing distribution network by securing additional customers
on existing routes. With 262 salespersons and 293 route drivers currently
serving approximately 29,000 customer locations in 18 states and five Canadian
provinces, the Company believes it has many opportunities to add additional
customers at
45
<PAGE>
low marginal distribution costs. The Company is also beginning to focus on a
number of new trade channels, including hotel gift shops, military bases,
correctional facilities, college bookstores, movie theaters and video rental
stores. In addition, some large retail chains such as Long's and Safeway are
beginning to outsource the distribution of certain products that the Company can
supply. The Company believes that there is significant opportunity to increase
net sales and profitability by adding new customers and maximizing economies of
scale.
PRODUCTIVITY ENHANCEMENT PROGRAMS. During the past five years, the Company
has devoted approximately 50% of its capital expenditures, or approximately
$12.0 million, to a variety of productivity enhancement programs. The Company
believes these programs were major contributors to a 2.7% per year reduction
between 1991 and 1995 in distribution operating expenses per "cube," (or cubic
foot of product, a common unit of measurement in Wholesale Distribution),
despite annual increases in wages. These productivity enhancement programs
include: (i) BOSS, a batch order selection system that increases the efficiency
and reduces the cost of full-case order fulfillment; (ii) Pick-to-Light, a
paperless picking system that reduces the travel time for the selection of
less-than-full-case order fulfillment; (iii) Radio Frequency, a hand-held
wireless computer technology that eliminates paperwork and updates receiving
inventory levels and stocking requirements on a real-time basis; (iv) Checker
Automation, an on-line order verification system that has significantly reduced
labor costs by automating inspection of order accuracy; and (v) fleet management
tools such as Roadshow, a software program that optimizes the routing of
customer deliveries. The Company intends to continue to pursue cost reductions
by completing the roll-out of these and other programs.
SELECTIVE ACQUISITIONS. The Wholesale Distribution industry is highly
fragmented and comprised mainly of a large number of small, privately held
businesses. Management believes that the consolidation that has taken place over
the past five years will continue and that numerous attractive acquisition
opportunities will arise. Given the current utilization rates of the Company's
existing warehouse and distribution facilities as well as the quality of the
Company's in-house MIS capability, management believes that a significant amount
of incremental revenues can be integrated into the Company's operations without
significant additions to fixed costs. The Company's management team has
completed two acquisitions since April 1995, representing net sales of
approximately $55 million for the nine months ended September 30, 1996.
PRODUCTS DISTRIBUTED
The products distributed by the Company include cigarettes, food products
such as candy, fast food, snacks, groceries and non-alcoholic beverages, and
non-food products such as film, batteries and other sundries, health and beauty
care products and tobacco products other than cigarettes. The products the
Company offers its customers consist of approximately 33,500 SKUs from over
1,900 suppliers and manufacturers. Due to the different consumer preferences
throughout the Company's markets, each distribution facility generally offers
its customers between approximately 4,000 and 15,000 SKUs.
46
<PAGE>
The following table indicates the categories of products the Company
distributes and sets forth certain information regarding net sales derived from
each product category for the periods ended as indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
COMPOUND SEPTEMBER
YEAR ENDED DECEMBER 31, ANNUAL 30,
-------------------------------------------------------------------- GROWTH RATE ------------
1991 1992 1993 1994 1995 1991-1995 1995
------------ ------------ ------------ ------------ ------------ ----------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales(a):
Cigarettes...... $ 1,237,562 $ 1,301,296 $ 1,344,707 $ 1,299,687 $ 1,446,697 4.0% $ 1,076,083
Food............ 312,615 326,937 351,940 378,156 410,095 7.0% 311,447
Non-food........ 138,434 156,619 172,285 177,513 190,395 8.3% 141,180
------------ ------------ ------------ ------------ ------------ ------------
Subtotal...... 451,049 483,556 524,225 555,669 600,490 7.4% 452,627
------------ ------------ ------------ ------------ ------------ ------------
Total....... $ 1,688,611 $ 1,784,852 $ 1,868,932 $ 1,855,356 $ 2,047,187 4.9% $ 1,528,710
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Percent of net
sales:
Cigarettes...... 73.3% 72.9% 72.0% 70.1% 70.7% 70.4%
Food............ 18.5% 18.3% 18.8% 20.4% 20.0% 20.4%
Non-food........ 8.2% 8.8% 9.2% 9.5% 9.3% 9.2%
------------ ------------ ------------ ------------ ------------ ------------
Subtotal...... 26.7% 27.1% 28.0% 29.9% 29.3% 29.6%
------------ ------------ ------------ ------------ ------------ ------------
Total....... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Total cigarette
carton volume.... 73,453 73,427 76,740 80,703 88,933 66,180
<CAPTION>
% CHANGE
1996 9/95-9/96
------------ -----------
<S> <C> <C>
Net sales(a):
Cigarettes...... $ 1,133,029 5.3%
Food............ 340,177 9.2%
Non-food........ 164,060 16.2%
------------
Subtotal...... 504,237 11.4%
------------
Total....... $ 1,637,266 7.1%
------------
------------
Percent of net
sales:
Cigarettes...... 69.2%
Food............ 20.8%
Non-food........ 10.0%
------------
Subtotal...... 30.8%
------------
Total....... 100.0%
------------
------------
Total cigarette
carton volume.... 68,644
</TABLE>
- ------------------------------
(a) In the second quarter of 1995, the Company completed two acquisitions which
added approximately $62 million, $39 million and $55 million in net sales
for the year ended December 31, 1995 and the nine months ended September
30, 1995 and 1996, respectively.
CIGARETTE PRODUCTS
In 1995, cigarette products accounted for approximately 71% of the Company's
net sales. The Company offers substantially all brands of cigarettes from all of
the major manufacturers, including approximately 750 SKUs of national premium
labels such as Marlboro, Winston and Player, approximately 400 SKUs of national
discount labels such as Viceroy and Doral, and deep discount labels such as the
Company's private label brand, Best Buy-Registered Trademark-, as well as Basic,
Best Value, Monarch and GPC. Net sales from cigarette products increased at a
compound annual growth rate of 4.0% from $1,237.6 million in 1991 to $1,446.7
million in 1995.
In 1995, the United States cigarette industry sold 487 billion sticks
(individual cigarettes) compared to 510 billion sticks in 1991 according to the
U.S. Department of Agriculture. This represents a compound annual decline of
1.1% in United States unit sales over this period. The Canadian cigarette
industry has experienced a larger decline in unit sales, in large part due to
retail prices that are two to three times higher than in the United States. In
the Company's principal Canadian markets, unit sales of cigarettes declined by
an average of 2.4% annually from 1991 to 1995 according to the National
Association of Tobacco and Confectionary Distributors.
47
<PAGE>
Despite the overall decline in total unit sales of cigarettes, United States
convenience stores have actually increased their market share of cigarette unit
sales from 1991 to 1995, primarily at the expense of grocery stores and
supermarkets, according to independent surveys by two cigarette manufacturers.
The Company has licensed Philip Morris as the exclusive manufacturer of Best
Buy-Registered Trademark- brand cigarettes. This contract, extending until
December 31, 1998, provides for a fixed annual payment to the Company. The
Company has also licensed other wholesale distributors exclusively to sell Best
Buy-Registered Trademark- in regions where the Company does not have a presence
and earns a royalty on all such sales.
FOOD AND NON-FOOD PRODUCTS
In 1995, food and non-food products (including tobacco products other than
cigarettes) accounted for approximately 29% of the Company's net sales. The
Company offers its customers a wide variety of food and non-food products (over
32,000 SKUs), including candy, snacks, fast food, groceries, non-alcoholic
beverages, health and beauty care products and general merchandise. The
Company's strategy is to offer its convenience retail store customers a variety
of food and non-food products at reasonable prices in flexible quantities. Net
sales from food and non-food items increased at a compound annual growth rate of
7.4% from $451.0 million in 1991 to $600.5 million in 1995.
FOOD PRODUCTS. The Company offers approximately 4,600 SKUs of candy
products and 1,800 SKUs of snack products. The Company's candy products include
such brand name items as Snickers, Hershey Kisses, M&M's, Lifesavers and
Dentyne. The Company also offers its own private label "Cable
Car"-Registered Trademark- candy line. The Company's snack products include
brand names such as Keebler, Nabisco and Planters. In 1995, candy products and
snack products together accounted for approximately 12% of the Company's net
sales. Net sales from candy and snack products have increased by a compound
annual growth rate of 8.3% from $173.7 million in 1991 to $238.6 million in
1995.
The Company offers approximately 6,500 SKUs of grocery products, including
national brand name items such as Del Monte, Carnation, Kellogg's and Purina
ranging from canned vegetables, soups, cereals, baby food, frozen foods, soaps
and paper products to pet foods. The Company offers approximately 1,100 SKUs of
non-alcoholic beverages, including juices under brand names such as Tropicana,
Veryfine and Gatorade.
The Company also offers approximately 4,300 SKUs of fast food products,
including prepared sandwiches, hot deli foods, slush drinks, hot beverages,
pastries and pizza, as well as packaged supplies and paper goods, including
brand name items such as Superior Coffee, Tyson chicken, Oscar Mayer meats and
Kraft and Heinz condiments. Since 1994, the Company has targeted the fountain,
slush, hot beverage (coffee and hot chocolate) and frozen food product
categories, which present significant growth opportunities as sales in these
product categories are among the fastest growing product offerings of the
convenience store industry. In addition, the Company recently introduced Tully's
To Go-TM-, a turnkey fast food program that gives the Company's convenience
retail customers a cost-effective alternative to the franchised programs offered
by national fast food chains. In 1995, fast food, grocery and non-alcoholic
beverage products accounted for approximately 8% of the Company's net sales. Net
sales from grocery products, non-alcoholic beverages and fast food products
increased at a compound annual growth rate of 5.4% from $138.9 million in 1991
to $171.5 million in 1995.
NON-FOOD PRODUCTS. The Company offers approximately 8,500 SKUs of general
merchandise, approximately 4,200 SKUs of health and beauty care products and
approximately 1,200 SKUs of tobacco products other than cigarettes. General
merchandise products range from film, tape, batteries, cigarette lighters and
glue to automotive products and include brand names such as Fuji, Kodak, Scotch
and Mead Envelope. Health and beauty care products include analgesics, hair
care, cosmetics, hosiery, dental products and lotions, from manufacturers of
brand names such as Crest, Tylenol, Johnson & Johnson Band-Aid, Vicks, Gillette
and Jergens. The Company's broad assortment of tobacco products
48
<PAGE>
includes imported and domestic cigars, smokeless tobacco (snuff), chewing
tobacco, smoking tobacco and smoking accessories.
In 1995, general merchandise, health and beauty care products and
non-cigarette tobacco products accounted for approximately 9% of the Company's
net sales. From 1991 to 1995, net sales from general merchandise increased at a
compound annual growth rate of 14.1%, from $26.1 million in 1991 to $44.3
million in 1995. During the same five-year period, net sales from health and
beauty care products increased at a compound annual growth rate of 4.3%, from
$30.2 million in 1991 to $35.8 million in 1995, and net sales from cigars and
tobacco products increased at a compound annual growth rate of 7.7%, from $82.1
million in 1991 to $110.3 million in 1995.
CUSTOMERS
The Company serves over 29,000 customer locations. Approximately 50% of the
Company's 1995 net sales were attributable to privately-owned stores and local
chains serviced primarily by one of the Company's distribution facilities
("independents"), while the remainder were attributable to national chains and
regional chains serviced by more than one of the Company's distribution
facilities ("chains"). The Company's current customer base is comprised of a
wide range of retailers, including traditional and petroleum convenience stores,
grocery stores, drug stores, mass-merchandisers and liquor stores. Recently, the
Company has begun to expand its distribution to hotel gift shops, military
bases, correctional facilities, college bookstores, movie theaters and video
rental stores, which, together with other customer segments, the Company
classifies as "Other." (See table below.) In 1995, the Company's largest
customer accounted for 3.7% of net sales, and the Company's ten largest
customers accounted for approximately 25% of net sales. These top ten customers
are all chains and approximately 75% of the net sales to this group constituted
sales to petroleum convenience store chains.
The following table indicates the Company's net sales from different
customer segments for the years ended December 31, 1994 and 1995 (dollars in
thousands):
<TABLE>
<CAPTION>
1994 1995
-------------------------- --------------------------
AMOUNT % OF TOTAL AMOUNT % OF TOTAL
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Petroleum convenience stores............................... $ 791,504 42.66% $ 861,988 42.11%
Traditional convenience stores............................. 254,911 13.74 271,250 13.25
Grocery stores............................................. 169,185 9.12 184,475 9.01
Drug stores................................................ 148,459 8.00 158,280 7.73
Mass merchandisers......................................... 133,197 7.18 142,427 6.96
Liquor stores.............................................. 104,773 5.65 104,207 5.09
Other...................................................... 253,327 13.65 324,560 15.85
------------- ----------- ------------- -----------
Total................................................ $ 1,855,356 100.00% $ 2,047,187 100.00%
------------- ----------- ------------- -----------
------------- ----------- ------------- -----------
</TABLE>
The Company strives to offer its customers greater flexibility, service and
value than other distributors. The Company's willingness to work with retailers
to arrive at a suitable delivery time, thereby allowing the store owner to
schedule its labor requirements effectively, is an important facet of this
flexibility. The Company believes that its ability to provide customized retail
pricing, unique to an individual store's needs, bar-coded shelf labels to assist
in effective shelf space management, timely communication of manufacturer price
change information, seasonal and holiday special product/promotional offerings
and salesperson assistance in order preparation are also important to the
retailer in its selection of the Company as its supplier.
As a result of its size and geographic coverage, the Company supplies a
number of regional and national chain corporations and, therefore, is able to
distribute products to all or substantially all such customers' individual store
locations in the Company's market area.
49
<PAGE>
SALES AND MARKETING
The Company's sales and marketing strategy is to offer a broad range of
services to its convenience retail customers intended to help them improve their
sales and profitability. In so doing, the Company seeks to become the primary
supplier to its customers and to persuade such customers to purchase as many of
their SKUs from the Company as the Company distributes.
SALES FORCE
The Company has a well-trained and incentivized sales force to execute its
sales and marketing strategy. As of August 1996, the Company employed over 700
sales and marketing personnel, of which approximately 178 were commissioned
sales representatives, 84 were associate sales representatives, and the
remainder were product merchandisers, product specialists, category managers,
sales managers, national sales force and other sales personnel. The Company has
made a significant commitment to professional training of its commissioned sales
representatives. All entry-level personnel go through a formal, two week
in-house training course covering industry concepts, selling skills, product
knowledge and in-store merchandising techniques as well as three weeks of
structured training at the division level. Experienced personnel attend training
in advanced selling techniques, negotiation skills and sales analysis.
The Company's commissioned sales representatives, who are located throughout
the Company's distribution center network, are principally responsible for
servicing specific customers in their assigned territories. Each commissioned
sales representative's compensation is primarily composed of commissions which
are based on the Company's gross profit on the sales made by such sales
representative. The Company pays higher percentage commissions on sales of food
and non-food products than on cigarette products so as to motivate its sales
force to sell more higher gross margin food and non-food products. The Company's
national sales group and other corporate sales and marketing personnel are
assigned to service larger national or regional chain customers as well as to
develop marketing programs and monitor the performance and consistency of the
commissioned sales force and overall customer service levels. The Company's
product specialists and category management specialists provide the sales
representatives with information on marketing strategies relating to the
Company's products and promotions and provide customers with tools to increase
the customer's sales and profits by improving their merchandising. Sales
representatives are supplemented by merchandisers, who conduct store resets,
service merchandise-specific commodities, and maintain Smart Sets, which is the
Company's category management system.
MARKETING PROGRAMS
Since 1993, the Company has sought to leverage its size by introducing to
its customers a number of marketing programs and value-added services. The
Company believes that most of its competitors lack the resources to match its
marketing programs and value-added services. These programs are designed not
only to increase customers' sales and profits, but also to strengthen customers'
relationships with the Company and encourage them to buy more food and non-food
products from the Company. The Company's goal is to increase its gross profits
by increasing its net sales from sales of food and non-food products, which have
significantly higher gross margins than cigarettes. Although food and non-food
products also generally carry higher operating expenses to pick and handle than
cigarettes, the Company believes that such products' net contribution to
earnings, after expenses, is higher than for cigarettes. The Company offers
marketing programs and value-added services in two areas, support programs and
systems.
50
<PAGE>
SUPPORT PROGRAMS
PROFIT BUILDER is a monthly publication mailed directly to customers
outlining new products and manufacturers' specials. This is the Company's main
written communication vehicle with its customers.
PROMO POWER is a bi-monthly promotional vehicle organized by the Company
featuring off shelf and end-of-aisle displays of manufacturers' products at
reduced costs to the retailer.
CONVENIENCE 2000-REGISTERED TRADEMARK- ("C-2000") seeks to improve the
competitiveness of certain independent convenience stores by linking retailers
as if they were supported by the purchasing power, sales and marketing resources
of a national chain organization. The Company's C-2000 program is designed to
provide independent convenience stores with improved purchasing power with
respect to regularly scheduled food and non-food product promotions arranged by
the Company with its suppliers. The Company selects the products, quantities and
retail price, and automatically ships the products to the retailers monthly, as
well as providing point-of-service promotional materials. Approximately 1,000
individual customer locations are currently enrolled in the program. The
Company's goal for C-2000 is for it to evolve into a national network of
independent convenience store operators to which the Company would supply a wide
array of programs and services.
SMART SETS is the Company's category management system. The Company provides
retailers with "plan-o-grams" for each commodity group using its internal data,
along with information from supplier partners. The objective is to ensure that
retailers have the right product in the right place.
TULLY'S TO GO-TM- is the Company's recently introduced turnkey fast food
program, which makes available to its convenience store customers an alternative
to the franchised programs offered by national fast food chains, such as Taco
Bell, Pizza Hut and Subway. These franchised programs have had success in the
convenience store market, although they generally require significant up-front
franchise fees and start-up costs as well as ongoing royalty payments. Tully's
To Go-TM- requires no franchise fee or ongoing royalty payments from the
customer, although it requires an initial equipment purchase by the customer.
Like the franchise programs of the national chains, Tully's To Go-TM- includes
all the equipment, supplies and food product required to start up a fast food
operation within a convenience store. Since its introduction in 1996, Tully's
has been installed in 14 locations. The Company believes that Tully's To Go-TM-
will have the effect of strengthening relationships with customers.
In addition, the Company has enabled its suppliers and customers to
participate in other programs in which the supplier provides a variety of fast
food and other store equipment (such as coffee machines, microwave ovens, roller
grills, etc.) at minimal or no up front cost to the customer. These programs are
intended to incentivize the customers to purchase from the Company products that
the supplier manufactures to use with the equipment. One such program, the
Superior Coffee Program, was implemented beginning in January 1993 and currently
includes approximately 950 customer locations.
SYSTEMS
The Company's scale has provided the necessary resources to invest in and
develop MIS systems dedicated to customer value added services.
SPACEVUES. The Company makes available to its customers a computerized
shelf space management system called SpaceVUES. The Company's category
management specialists utilize this system to design a shelf and store layout
that seeks to maximize sales volume, profitability and efficient use of space
based upon product movement information, local demographics, product package
dimensions, gross profit margins and other variables.
ELECTRONIC DATA INTERCHANGE (EDI). The Company's EDI capability enables it
to process retailers' and suppliers' purchase orders, invoices and payments
electronically, thereby reducing administrative work for the Company, customers
and suppliers.
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<PAGE>
ADVANTAGE POS. In conjunction with NCR and COPES software, the Company has
developed Advantage POS, a point-of-sale equipment program that provides bar
code scanners, backroom computer systems and electronic check-out equipment. The
system improves customers' inventory management, allows automatic ordering and
reporting capabilities, ensures accuracy of retail pricing and improves retail
customer service. In 1992, only about 2% of convenience retail stores had POS
equipment, compared to approximately 16% in 1995. The Company arranges for the
sale to its customers of hardware and software systems and introduces its
customers to third parties who finance such purchases. The Advantage POS system
facilitates additional purchases of the Company's products by increasing the
customer's communications and strengthening its relationship with Core-Mark.
INVENTORY CONTROL. The Company offers its retailers an inventory management
program, which includes electronic order entry to expedite accurate order
placement, permanent shelf labels that, by identifying a "home" for all
products, reduce lost sales from out-of-stocks, and a monthly velocity report
which tracks product movement and gross profit by department.
OTHER SERVICES. The Company provides other services to its customers,
including production of sales analyses, market and trend analysis information,
order guides, full service merchandising, electronic price change notification
and regular product promotions.
SUPPLIERS AND MANUFACTURERS
The Company purchases products for resale to its customers from over 1,900
suppliers and manufacturers located throughout the United States and Canada.
Although the Company purchases cigarette and tobacco products from all major
United States and Canadian manufacturers, in 1995, approximately 28%, 15%, 14%
and 9% of the Company's net sales were derived from products purchased by the
Company from Philip Morris, R.J. Reynolds, Imperial Tobacco and Brown &
Williamson, respectively. No other supplier's products represented more than 10%
of net sales. In addition, Philip Morris manufactures the Company's private
label Best Buy-Registered Trademark- cigarettes.
The Company generally has no long-term purchase agreements (other than for
Best Buy-Registered Trademark- products) and buys substantially all its products
as needed. The Company believes that it is an important customer to each of its
principal suppliers. In addition, because of the size of its sales force, its
technological capability and distribution expertise, the Company provides a key
channel of distribution that many manufacturers could not otherwise serve
economically. The Company's large sales force allows weekly contact with the
vast majority of its customers, providing the manufacturers access on a more
frequent basis than their own sales force would allow.
Both food and non-food manufacturers routinely offer volume, promotional,
advertising and other allowances to wholesale distributors. In addition, the
Company often negotiates on a corporate-wide basis special arrangements with
manufacturers under which the Company obtains volume discounts, additional
allowances or rebates by leveraging its total purchasing power.
CIGARETTE PRODUCTS
The Company controls major purchases of cigarettes centrally in order to
minimize inventory levels. Daily replenishment of cigarette inventory and brand
selection is controlled by the local division based on demands of the local
market. The U.S. cigarette manufacturers charge all wholesale customers the same
price for national brand cigarettes regardless of volume purchased. However,
cigarette manufacturers do offer certain structured incentive programs
(including Philip Morris' Masters Program and R.J. Reynolds' Partners Program)
to wholesalers instead of the routine allowances associated with non-cigarette
products. These programs are based upon, among other things, purchasing volume
and often include performance-based criteria related to the quality of the
Company's efforts to keep certain brands and volumes of cigarettes on the retail
shelves.
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FOOD PRODUCTS
Food products (other than frozen foods) are purchased directly from
manufacturers by buyers in each of the Company's distribution facilities.
Management believes that decentralized purchasing of food products results in
higher service levels, improved product availability tailored to individual
markets and reduced inventory investment. Although each division has individual
buyers, the Company negotiates corporate pricing where possible to maximize
purchasing power.
In February 1996, the Company established a new division, Artic Cascade, a
consolidated frozen warehouse which purchases frozen foods for all of the
Company's divisions. By consolidating the frozen food purchases of all United
States divisions, the Company is able to obtain such products at lower cost.
Buying in one location also allows the Company to offer a wide selection of
quality products to retailers at more competitive prices. The Company offers
monthly specials so retailers can promote and compete more effectively. In
addition, the Company offers schematics that show the retailer how best to
arrange frozen food to promote sales in this fast growing category.
NON-FOOD PRODUCTS
The majority of the Company's non-food products other than cigarettes and
tobacco products (primarily health and beauty care products and general
merchandise) are purchased by Allied Merchandising Industry ("AMI"), one of the
Company's operating divisions that specializes in these categories. This
specialization seeks to ensure a better selection and more competitive wholesale
costs and enables the Company to reduce its overall general merchandise and
health and beauty care inventory levels. Tobacco products other than cigarettes,
like food products, are purchased directly from the manufacturers by each of the
divisions.
MANAGEMENT INFORMATION SYSTEMS
The Company has committed substantial resources to its MIS department. This
commitment reflects the Company's belief that it can significantly enhance
efficiency, profitability and competitiveness through investments in technology
that smaller competitors find difficult to match. The Company's MIS function
processes order entry, generates customer pick lists for the warehouse, controls
inventory, generates purchase orders, routes customer deliveries, generates
customer invoices, processes cash collections on accounts receivable and
maintains the Company's accounting records. All the Company's divisions operate
with state-of-the-art IBM AS/400s. In the United States, AS/400s are located at
five "host" sites, and nine satellite divisions run their operations remotely
from the host sites. In Canada, all four divisions run from two computers in
Vancouver, B.C. At the center of the MIS system is the Company's self-developed,
proprietary software, which integrates several commercial software packages such
as Roadshow, Inven (E-3) and McCormick and Dodge general ledger system, and most
recently, the Company is in the process of developing a data warehousing system.
This software is maintained and continuously enhanced by the Company's MIS
department, which is staffed by an experienced team of development and design
professionals, with an average Core-Mark tenure of ten years. The Company
believes that its MIS capabilities will serve the Company's needs for the
foreseeable future.
The proprietary software which links the Company's software packages,
systems and equipment also allows the Company to accurately track labor
productivity down to the worker level. The Company utilizes this information to
make staffing decisions and reward productivity. EMPOWER, the Company's current
incentive program, rewards warehouse and distribution employees for productivity
improvements based on their historical performance.
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DISTRIBUTION
The Company has made substantial progress over the past five years in
modernizing its operational capabilities. From 1991 through 1995, the Company's
distribution operating expenses per cube have been reduced by approximately 2.7%
per year, despite annual wage increases. While approximately 50% of capital
expenditures have been made to maintain the Company's facilities and equipment,
the remaining 50% have been made to improve productivity.
WAREHOUSING
The Company maintains 19 distribution facilities, of which 15 are located in
the western United States and four are located in western Canada. These
distribution facilities include two consolidating warehouse facilities, one of
which services health and beauty care and general merchandise products (AMI) and
the other of which services frozen food (Artic Cascade). Each day the average
distribution facility receives 200 to 300 customer orders (primarily through
hand-held computer devices known as Telxon units). During the night, these
orders are picked and loaded into trucks in reverse order of scheduled delivery,
either in full case boxes or in totes. Early the next morning an average of 14
trucks per distribution facility depart to deliver product to approximately 20
customers per truck. Dry, frozen and chilled products can be accommodated on
each delivery.
Each distribution facility is outfitted with modern equipment (including
freezers and coolers as required) for receiving, stocking, order selection and
loading a large volume of customer orders on trucks for delivery. Each facility
provides warehouse, distribution, sales and support functions for its geographic
area under the supervision of a division manager. In addition, the Company
believes that the majority of its distribution facilities have the capacity to
absorb significant future growth in net sales.
The Company has implemented a number of technologically-driven programs that
have had a major impact on the efficiency of warehouse operations. These
programs are in various stages of roll-out across the Company's distribution
facilities and include the following:
BATCH ORDER SELECTION SYSTEM (BOSS). The Company is in the process of
converting certain of its distribution facilities to a batch order selection
system (BOSS), which permits more efficient handling of full cases of products.
Approximately 50% of the Company's products are shipped in full case form. The
basic concept of BOSS is that productivity and cost savings can be achieved by
batch picking (multiple orders at the same time) instead of picking one order at
a time. Batch picking reduces the amount of time pickers and loaders must spend
traveling within the distribution facility. It is designed to reduce the amount
of lifting required by warehouse personnel, thereby reducing the potential for
injury, as well as to reduce product damage and wear and tear on equipment.
Another of its functions is to expedite loading. Eleven of the Company 's
facilities are currently using BOSS, and five divisions are scheduled to be
converted over the next two years.
PICK-TO-LIGHT. For orders placed in less than full case quantities, such as
boxes of candy, cartons of cigarettes and cans of soup, the Company in 1995
installed the Pick-to-Light system, which guides the warehouse employee through
the picking process via a system of computer-driven lights and L.E.D.s (light
emitting diodes). When the employee has completed an order, the system also
determines his location in the aisle and starts the next order at that location.
This system eliminates paper pick lists and enables the employee to pick more
product per work hour than is possible using traditional methods. Three of the
Company's facilities are currently using the Pick-To-Light system and 11
facilities are scheduled to have the system installed over the next three years.
PLANNED ITEM RETRIEVAL (PIR). Usually coupled with a BOSS installation, the
PIR system uses five foot wide, instead of the conventional ten foot wide,
aisles in order to improve warehouse space utilization. Instead of selecting
product only from the two bottom levels of the rack, the system is designed to
permit selection at all levels, from floor to ceiling. This configuration allows
the Company to store slower moving product more efficiently and allows warehouse
employees to avoid having to move
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across the face of lower velocity product on every trip through the warehouse.
While the concept of PIR is common in grocery wholesale warehouses, the Company
believes it is one of the first to adopt this concept in the convenience
distribution industry. Eleven divisions are presently equipped with PIR and four
more are scheduled for conversion over the next two years.
RADIO FREQUENCY (RF). RF is a radio frequency system which improves
efficiency through paperless, real-time inventory management including inventory
receiving, warehouse re-stocking and, in certain applications, customer order
selection. RF connects hand-held computer devices carried by warehouse employees
with a base station/host computer via radio waves. The Company believes it is
one of the first distributors in the industry to embrace this technology. The
system provides the Company with better inventory control utilizing less
clerical labor than was previously possible. Ten distribution centers are
presently equipped with RF technology and the Company plans to convert all the
remaining divisions over the next three years.
CHECKER AUTOMATION. The Company has significantly reduced labor costs in
connection with the visual inspection of orders for accuracy through a system
called Checker Automation. This system is an on-line verification system which
tracks totes (containers in which customer product is packed) and cigarette
carton counts using a computer terminal positioned at the end of each selection
line. Checker Automation has significantly reduced the labor component of
ensuring order accuracy by eliminating substantially all order checkers in the
Company's distribution centers in which the system has been installed. Designed,
developed and implemented by in-house resources, Checker Automation has been
installed in 13 of the Company's distribution centers and plans to convert three
more divisions by the end of 1996.
INVENTORY CONTROL. The Company has significantly improved its inventory
control systems over the last five years. Since 1990, annual inventory losses
due to inventory shrinkage have declined significantly, from $3.9 million to
approximately $0.2 million in 1995. Full physical inventories are taken twice a
year at each facility, and cycle counts are taken continuously throughout the
year.
FLEET
The Company's trucking system includes 47 straight trucks, 179 tractors and
202 trailers. Approximately 19% of the Company's trucks and tractors and 84% of
trailers are owned by the Company; the remainder are leased. The Company's
standard is to maintain its transportation fleet to an average age of five years
or less. The Company has outsourced its maintenance requirements through fleet
service providers, predominantly Ryder and Rollins. Service of power units
(tractors, straight trucks and vans) is accomplished through "full service
lease" programs. The maintenance is an integral part of the leasing program,
which provides built-in cost incentives to assure the equipment is maintained
according to manufacturer specifications.
Under the current management team, the quality of the Company's fleet has
been significantly upgraded in the past five years. In 1991, the Company's
typical delivery vehicle was a 20/22 foot "dry box" straight truck. Today, the
typical Company delivery vehicle is a tractor and 28-foot, dual-temperature,
refrigerated trailer. This configuration provides the Company with a substantial
increase in operating flexibility. For example, to service outlying areas,
"doubles" (two trailers pulled behind one tractor) can be utilized to transport
and split units between two delivery drivers, thus greatly increasing the
efficiency of service from a single distribution center. The refrigerated
capability of the fleet enables frozen and chilled product to be handled in a
manner that is commensurate with quality standards employed by leading grocery
wholesalers and food service distributors.
The Company employs a state-of-the-art, computerized truck routing system
generated by software called "Roadshow" to efficiently construct delivery
routes. Before orders are dispatched, Roadshow automatically determines a route
for the truck to accommodate delivery times requested by the customer in a
manner that minimizes miles driven and/or driver labor costs. In addition, in
certain locations
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the Company has invested in various security and productivity measures,
including Tele Trac, a technology which enables the Company to track truck
locations on a computer screen on a real-time basis. Among other benefits, the
system allows effective security monitoring and rapid response capability. The
Company is currently exploring installation of on-board computer devices to
monitor driver productivity, driving behavior and customer service.
The Company backhauls product from suppliers' facilities on return trips
from customer deliveries. Backhauling generated $1.0 million in 1995, which was
applied to reduce net distribution expense. The Company expects to increase its
backhauling efforts in the future.
COMPETITION
The convenience retail distribution business is comprised of one national
distributor in the United States (McLane, a subsidiary of Wal-Mart) and several
national distributors in Canada, a number of large, multi-regional competitors
(participants with a presence in several contiguous regional markets) and a
large number of small, privately owned businesses that compete in one or two
markets. Multi-regionals include, the Company in the west, GSC Enterprises in
the south and southeast and EBY Brown in the midwest. Relative to smaller
competitors, multi-regional distributors such as the Company benefit from
several competitive advantages, including greater purchasing power, the ability
to service chain accounts, scale cost advantages in sales and warehouse
operations, the ability to spread fixed corporate costs over a larger revenue
base and the resources to invest in both MIS and productivity enhancing
technology. These factors have led to a consolidation of the industry as small
competitors exit the industry and some larger convenience retail distributors
seek acquisitions to increase the utilization of their existing operations.
Based on industry reports and management estimates, the Company believes the
number of Wholesale Distributors in the United States has declined from more
than 1,500 in 1985 to fewer than 1,000 in 1995. According to the U.S.
DISTRIBUTION JOURNAL, only ten of these distributors had net sales in excess of
$400 million in 1995.
The Company also competes with wholesale clubs. Wholesale clubs have become
a competitive factor in the industry, particularly in California markets. The
wholesale clubs have been aggressive in their pricing of cigarettes and candy,
and wholesalers have been forced to reduce margins to compete in densely
populated markets with a large number of wholesale clubs. Wholesale clubs
require the convenience store owner to take the time to travel, to shop at their
location, pay cash and choose from a very limited selection. They also provide
none of the merchandising support that Core-Mark routinely offers. Consequently,
national chains do not purchase product at the wholesale clubs. The Company has
grown sales even in territories with such clubs.
The principal competitive factors in the Company's business include price,
customer order fill rates, trade credit and the level and quality of value-added
services offered. Management believes the Company competes effectively by
offering a full product line, flexible delivery schedules, competitive prices,
high levels of customer service and an efficient distribution network.
EMPLOYEES
As of September 30, 1996, the Company had 2,179 employees.
The Company is a party to local collective bargaining agreements with the
International Brotherhood of Teamsters covering clerical, warehouse and
transportation personnel at its facilities in Hayward, California and covering
warehouse and transportation personnel in Las Vegas, Nevada. The Company is
party to a collective bargaining agreement with United Food Commercial Workers
covering warehouse and transportation personnel in Calgary, Alberta. In
addition, the Company is currently negotiating with the bargaining unit of
employees at its Victoria, British Columbia facility. The agreements covering
employees in Hayward and Las Vegas expire on January 15, 1997 and March 31,
1999, respectively. The Company has commenced the re-negotiation of the
agreement covering the Hayward employees. The agreement covering employees in
Calgary expires on August 31, 1998. These agreements cover an aggregate of less
than 10% of the Company's employees.
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Management believes that the Company's relations with its employees are
satisfactory.
PROPERTIES
The Company does not own any real property. The principal executive offices
of the Company are located in South San Francisco, California, and consist of
approximately 22,000 square feet of leased office space. In addition, the
Company leases approximately 24,000 square feet in Vancouver, British Columbia
for its Canadian regional corporate, tax and management information systems
departments and 13 small offices for use by sales personnel in certain parts of
the United States and Canada. The Company also leases its 19 distribution
facilities, 15 of which are located in the western United States and four in
western Canada. Each distribution facility is equipped with modern equipment
(including freezers and coolers at 18 facilities) for receiving, stocking, order
selection and shipping a large volume of customer orders. The Company believes
that it currently has sufficient capacity at its distribution facilities to meet
its anticipated needs and that its facilities are in satisfactory condition.
The Company's leases expire on various dates between 1996 and 2005, and in
many instances give the Company renewal options. The aggregate rent paid in
connection with the Company's distribution facilities, regional sales offices
and corporate and administrative offices was approximately $5.2 million in 1994
and $5.6 million in 1995. The Company's distribution facilities range from
19,000 to 200,000 square feet and account for approximately 1.5 million square
feet in aggregate. Management believes that the Company's current utilization of
warehouse facilities is approximately 70% in the aggregate.
REGULATORY MATTERS
The United States Food and Drug Administration has adopted a number of
regulations restricting the sale distribution and advertising of cigarettes and
smokeless tobacco products. See "Risk Factors-- Adverse Regulatory
Developments."
The Company is subject to various federal, state and local environmental,
health and safety laws and regulations. Generally, these laws impose limitations
on the discharge of pollutants and the presence of hazardous substances in the
workplace and establish standards for vehicle and employee safety and for the
handling of solid and hazardous wastes. These laws include the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Clean Air Act, the Hazardous Materials
Transportation Act and the Occupational Safety and Health Act. Future
developments, such as stricter environmental or employee health and safety laws
and regulations thereunder, could affect the Company's operations. The Company
does not currently anticipate that the cost of its compliance with or of any
foreseeable liabilities under environmental and employee health and safety laws
and regulations will have a material adverse affect on its business and
financial condition.
LEGAL MATTERS
In May 1996, the Court of Appeals for the Fifth Circuit decertified a
federal class action purportedly brought on behalf of all cigarette smokers in
the United States. Following the decertification, lawyers for the class brought
state class action lawsuits in a number of states, with the objective of filing
such lawsuits in all fifty states, the District of Columbia and Puerto Rico.
Several of these state lawsuits name cigarette distributors such as the Company
as defendants. In June 1996, a subsidiary of the Company was named as a
defendant in a class action lawsuit filed in state court in New Mexico. The
action was later voluntarily dismissed without prejudice in order to permit a
realignment of the parties. The lawsuit was subsequently refiled in September
1996 and voluntarily dismissed October 2, 1996.
The New Mexico lawsuit was most recently refiled on October 10, 1996. A
subsidiary of the Company is named as a defendant in the complaint. The other
defendants include the principal U.S. tobacco manufacturers as well as other
distributors. The case is brought on behalf of a putative class of
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smokers who reside in New Mexico, each of whom is allegedly nicotine dependent.
The suit seeks, on behalf of the class, compensatory damages, punitive damages
and equitable relief, including medical monitoring of the class members. The
Company has been indemnified with respect to certain claims alleged in this
suit.
On October 2, 1996, the Company was served with a summons and complaint in
an action brought by the County of Los Angeles against major tobacco
manufacturers, the Company and other distributors of tobacco products. The
complaint seeks, inter alia, damages and restitution for monies expended by the
County for the health care of smokers. The Company has been indemnified with
respect to certain claims alleged in this suit.
The Company does not believe that these actions will have a material adverse
effect on the Company's financial condition.
In addition, the Company is a party to other lawsuits incurred in the
ordinary course of its business. The Company believes it is adequately insured
with respect to such lawsuits or that such lawsuits will not result in losses
material to its consolidated financial position or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows (ages as
of September 30, 1996):
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Gary L. Walsh.............................. 54 Chairman and Chief Executive Officer and
Director
Robert A. Allen............................ 47 President and Chief Operating Officer and
Director
Leo F. Korman.............................. 49 Senior Vice President, Chief Financial
Officer and Secretary
Basil P. Prokop............................ 53 President, Canada Division
J. Michael Walsh........................... 48 Senior Vice President, Distribution
Leo Granucci............................... 58 Senior Vice President, Sales and Marketing
Thomas A. Berglund......................... 36 Director
Terry J. Blumer............................ 38 Director
John F. Klein.............................. 33 Director
John A. Sprague............................ 44 Director
</TABLE>
GARY L. WALSH has been Chairman and Chief Executive Officer since 1990, and
served as President from 1990 until 1996. He has been a director of the Company
since 1990. Prior to 1990, he served as Chief Executive Officer of Food Services
of America, a food distribution company. Mr. Walsh has more than 30 years of
management experience in the food distribution industry.
ROBERT A. ALLEN has been President and Chief Operating Officer since January
1996. Prior to that time, he served as Senior Vice President, Distribution from
1992 through 1996, and as Vice President, Distribution from 1989 to 1992. He has
been a director of the Company since 1994. Before joining the Company, he served
as Executive Vice President and Chief Operating Officer of Twin City Wholesale
Drug Company of Minneapolis.
LEO F. KORMAN has been Senior Vice President and Chief Financial Officer
since January 1994 and served as Vice President and Chief Financial Officer from
1991 to 1994.
BASIL P. PROKOP has been President of the Canada Division since 1992. Mr.
Prokop joined the Company in 1984.
J. MICHAEL WALSH has been Senior Vice President, Distribution since January
1996. Prior thereto, he served as Senior Vice President, Operations since 1992
and served as Vice President, Operations from 1991 to 1992.
LEO GRANUCCI has been Senior Vice President, Sales and Marketing since 1994.
Prior thereto, he served for seven years as Executive Vice President of Sales
and Marketing at Bergen Brunswig, a wholesale pharmaceutical distribution
company.
THOMAS A. BERGLUND has been a director of the Company since August 1996. He
has been a Vice President at Jupiter since 1994. Prior to that he served for
three years as an employee of the Invus Group, a privately funded buy-out group
specializing in food-related companies.
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TERRY J. BLUMER has been a director of the Company since August 1996. Prior
to co-founding Jupiter in 1994, Mr. Blumer was associated with Goldman, Sachs &
Co. for over eight years, most recently as an Executive Director.
JOHN F. KLEIN has been a director of the Company since August 1996. He has
been an associate at Jupiter since November 1995. Prior to that, he served for
three years as a consultant at Bain & Company, a management consulting firm, and
as a manager in the Turnaround and Corporate Recovery Services Group at Price
Waterhouse.
JOHN A. SPRAGUE has been a director of the Company since August 1996. Prior
to co-founding Jupiter in 1994, Mr. Sprague was associated with Forstmann Little
& Co. for eleven years, most recently as a partner. He is a director of
Heartland Wireless Communications, Inc.
Directors are elected for one year terms and hold office until their
successors are elected and qualified or until their earlier resignation or
removal. Executive officers of the Company are appointed by and serve at the
discretion of the Board of Directors. The only family relationship between any
of the executive officers or directors is between Gary L. Walsh and J. Michael
Walsh, who are brothers.
COMPENSATION OF DIRECTORS
Directors of the Company do not receive compensation for service as
directors other than reimbursement for reasonable expenses incurred in
connection with attending the meetings.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to the Company's chief
executive officer and its five other most highly compensated executive officers
for the year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OTHER ANNUAL ALL OTHER
FISCAL SALARY BONUS COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($)(1)
- --------------------------------------------------------- ----------- ------------ ------------ -------------- --------------
Gary L. Walsh............................................ 1995 $ 311,539 $ 312,000 -- $ 35,621
Chairman and Chief Executive Officer
Robert A. Allen.......................................... 1995 $ 183,601 $ 132,500 -- $ 38,490
Senior Vice President, Distribution
Leo F. Korman............................................ 1995 $ 190,944 $ 110,000 -- $ 23,207
Senior Vice President and Chief Financial Officer
Basil P. Prokop.......................................... 1995 $ 172,813 $ 38,909 -- $ 4,293
President, Canada Division(2)
J. Michael Walsh......................................... 1995 $ 177,120 $ 126,500 -- $ 22,378
Senior Vice President, Operations
Leo Granucci............................................. 1995 $ 192,923 $ 105,000 $ 48,677(3) $ 4,649
Senior Vice President, Sales and Marketing
</TABLE>
- ------------------------
(1) Consists of the sum of: (i) Company matching contributions to the Savings
Plan (defined below) in the following amounts: Mr. Allen, $4,620; Mr.
Korman, $4,620; Mr. J.M. Walsh, $3,976; and Mr. Granucci, $1,415; (ii)
Company matching contributions to the RRSP (defined below) for Mr. Prokop in
the amount of $3,528; (iii) life and other insurance premiums in the
following amounts: Mr. G.L. Walsh, $4,862; Mr. Allen, $3,111; Mr. Korman,
$3,207; Mr. Prokop, $765; Mr. J.M. Walsh, $3,022; and Mr. Granucci, $3,234;
and (iv) income received in connection with the cancellation of certain
stock options in the following amounts: Mr. G.L. Walsh, $30,759; Mr. Allen,
$30,759; Mr. Korman, $15,380; and Mr. J.M. Walsh, $15,380.
(2) Represents Canadian dollars converted into U.S. dollars at an assumed rate
of U.S. $0.73/Can. $1.00 ("Converted US Dollars").
(3) Consists of relocation expenses.
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CERTAIN AGREEMENTS WITH MANAGEMENT
Each member of Senior Management, constituting the Company's top six
executive officers, has entered into a Severance and Non-Competition Agreement
with the Company, dated as of August 7, 1996 (collectively, the "Severance and
Non-Competition Agreements"), which provides that if the employment of such
officer party thereto is terminated other than for Cause (as defined therein) or
other than as a result of such officer's resignation for Good Reason (as defined
therein), the Company may, in its sole discretion, continue to pay to such
officer, for a period of up to one year following such termination, such
officer's base salary as in effect on the effective date of such termination.
Under the Severance and Non-Competition Agreements, each of such officers has
agreed not to engage in activities that compete with those of the Company (i)
while such officer is an employee of the Company and (ii) if the Company makes
the severance payments described above to such officer, for an additional period
of one year after such employment terminates if such officer's employment with
the Company terminates for Cause or as a result of his resignation other than
for Good Reason.
INDEMNIFICATION AGREEMENTS
Each of the Company's directors and Mr. Leo F. Korman, the Company's Chief
Financial Officer, and Ms. Debra L. Varian, the Company's Controller
(collectively, the "Indemnitees"), is party to an identical indemnification
agreement with the Company. Pursuant to such agreements, the Company has agreed
generally to indemnify and hold harmless each Indemnitee against any losses
incurred in connection with any suit, arbitration or proceeding resulting from
such Indemnitee's service as an officer, agent, employee or director of the
Company, provided that the Company will generally not be required to indemnify
an Indemnitee in connection with losses arising out of the Indemnitee's own
fraudulent or willful misconduct. Each indemnification agreement terminates upon
the occurrence of a Change of Control (as defined in the agreements) of the
Company, provided that the Company's obligations to indemnify for events
occurring prior to such Change of Control continue.
STOCK OPTION PLAN
The Company has adopted a Stock Option Plan pursuant to which stock options
may be granted to officers, directors and key personnel of the Company and
certain of its affiliates (the "Plan"). Under the Plan, a committee appointed
by, and consisting of two or more members of, the board of directors of the
Company is authorized to administer the Plan. Options granted under the Plan are
generally exercisable through the eighth anniversary of the date of grant,
vesting proportionately over a five-year period beginning on the date of grant.
Options with respect to not more than 300,000 shares may be granted pursuant to
the Plan. Special provisions are included in the Plan covering termination of
employment, breach of any noncompetition or confidentiality agreement with the
Company, and rights relating to the drag-along and tag-along of options in the
event a tag-along right or drag-along right is exercised as provided in the
Stockholders Agreement. See "Ownership of Voting Securities--Stockholders
Agreement." The Plan also provides for acceleration of vesting of options in the
event of a Deemed Change in Control of the Company (as defined in the Plan). No
options have been granted under the Plan.
THE SAVINGS PLAN
The Company maintains the Core-Mark International, Inc. Nest Egg Savings
Plan (the "Savings Plan"), which is a defined contribution plan with a cash or
deferred arrangement (as described under Section 401(k) of the Internal Revenue
Code of 1986, as amended). All non-union U.S. employees of the Company and its
affiliates (unless a bargaining agreement expressly provides for participation)
are eligible to participate in the Savings Plan after completing one year of
service.
Eligible employees may elect to contribute on a tax deferred basis from 1%
to 10% of their compensation (as defined in the Savings Plan), subject to
statutory limitations. A contribution of up to 6%
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is considered to be a "basic contribution" and the Company makes a matching
contribution of $0.50 for each dollar of a participant's basic contribution (all
of which may be subject to certain statutory limitations).
Each participant has a fully vested (nonforfeitable) interest in all
contributions made by the individual and all earnings thereon. Each participant
must be employed at the end of each quarter to receive an allocation of matching
contribution for the most recent calendar quarter.
The amount of Company matching contributions that the following officers
have accrued in the Savings Plan as of December 31, 1995 is as follows: Robert
A. Allen $14,706.43; Leo Granucci $1,415.34; Leo F. Korman $14,093.12; and J.
Michael Walsh $15,304.46. Gary L. Walsh is not a participant in the Savings
Plan.
THE REGISTERED RETIREMENT SAVINGS PLAN (CANADA)
The Company maintains the Core-Mark International, Inc. Group Retirement
Savings Plan (Canada) (the "Registered Retirement Savings Plan" or "RRSP"),
which is a defined contribution plan with a cash or deferred arrangement (as
described under the Department of National Revenue Taxation Income Tax Act). All
non-union Canadian employees of the Company and its affiliates (unless a
bargaining agreement expressly provides for participation) are eligible to
participate in the Registered Retirement Savings Plan after completing one year
of service.
Eligible employees may elect to contribute on a tax deferred basis from 1%
to 10% of their compensation (as defined in the RRSP), subject to statutory
limitations. A contribution of up to 6% is considered to be a "basic
contribution" and the Company makes a matching contribution of $.50 for each
dollar of a participant's basic contribution (all of which may be subject to
certain statutory limitations).
The amount of Company matching contributions that the following officers
have accrued in the Registered Retirement Savings Plan as of December 31, 1995
is as follows: Basil P. Prokop $19,813.00 (in Converted US Dollars).
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OWNERSHIP OF VOTING SECURITIES
The following table set forth as of the date of this Prospectus certain
information regarding the beneficial ownership of the common stock of the
Company (i) by each person who is known by the Company to own beneficially more
than 5% of the outstanding shares of common stock of the Company, (ii) by each
of the Company's directors and executive officers, and (iii) by all directors
and executive officers as a group. The Company believes that the beneficial
owners of the securities listed below, based on information furnished by such
owners, have sole investment and voting power with respect to all the shares of
common stock of the Company shown as being beneficially owned by them.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON STOCK OF PERCENTAGE OF
THE COMPANY TOTAL SHARES OF
NAME AND ADDRESS OF BENEFICIALLY COMMON STOCK OF
BENEFICIAL OWNERS(A) OWNED THE COMPANY
- ----------------------------------------------------------------------------- ------------------ -----------------
<S> <C> <C>
Jupiter...................................................................... 4,125,000 75.0%
Robert A. Allen.............................................................. 281,875 5.1
Leo Granucci................................................................. 158,125 2.9
Leo F. Korman................................................................ 213,125 3.9
Basil P. Prokop.............................................................. 164,999 3.0
Gary L. Walsh................................................................ 343,751 6.2
J. Michael Walsh............................................................. 213,125 3.9
Thomas A. Berglund........................................................... 0 --
Terry J. Blumer.............................................................. 4,125,000(b) 75.0
John F. Klein................................................................ 0 --
John A. Sprague.............................................................. 4,125,000(b) 75.0
All directors and executive officers
as a group (10 persons) (b).................................................. 5,500,000 100.0%
</TABLE>
- ------------------------
(a) The address for Jupiter, Mr. Berglund, Mr. Blumer, Mr. Klein and Mr. Sprague
is 30 Rockefeller Plaza, Suite 4525, New York, New York 10112. The address
for Gary L. Walsh, Mr. Allen, Mr. Granucci, Mr. Korman, Mr. Prokop and J.
Michael Walsh is 395 Oyster Point Boulevard, Suite 415, South San Francisco,
California 94080.
(b) Represents the shares owned by Jupiter. Messrs. Sprague and Blumer exercise
investment and voting power over the shares owned by Jupiter and accordingly
are deemed to "beneficially own" such shares in accordance with Rule 13d-3
promulgated under the Exchange Act. Each of Messrs. Blumer and Sprague
disclaim beneficial ownership of all shares of the Company owned by Jupiter,
except to the extent of their respective ownership interests in such
partnership.
STOCKHOLDERS AGREEMENT
On August 7, 1996, the Company entered into a Stockholders Agreement (the
"Stockholders Agreement") with Jupiter and the Senior Management (the
"Management Stockholders"), which parties constitute all of the Company's common
stockholders. The Stockholders Agreement (a) places significant restrictions on
the ability of a Management Stockholder to transfer, pledge or otherwise dispose
of 60% of his shares of common stock of the Company (the "Restricted Shares")
prior to the Company's initial public offering of common stock, and limits the
amount of Restricted Shares that may be sold by such Management Stockholder
after such initial public offering, (b) restricts the ability of a Management
Stockholder to pledge his shares of common stock that do not constitute
Restricted Shares, (c) grants "tag-along" rights (i.e., rights to participate in
a sale on a PRO RATA basis) to each stockholder in connection with the sale (i)
by Jupiter of any of its common stock of the Company and (ii) by a Management
Stockholder of any of his Restricted Shares, and (d) grants to Jupiter
"drag-along" rights (i.e., the right to require Management Stockholders to
participate on a PRO RATA basis in a sale by Jupiter)
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with respect to shares of common stock held by the Management Stockholders,
whether or not Restricted Shares, in connection with a sale by Jupiter of common
stock constituting at least 1% of the Company's common stock. The Stockholders
Agreement also grants to the Company, first, and Jupiter, second, certain call
rights with respect to the purchase of Restricted Shares held by a Management
Stockholder in the event that, prior to the fifth anniversary of the date of the
Stockholders Agreement, such Management Stockholder's employment with the
Company is terminated (other than as a result of death, disability or
resignation for Good Reason (as defined therein)). The call provision also
applies in the event such Management Stockholder breaches his obligations under
the Severance and Non-Competition Agreement described under "Management--
Certain Agreements with Management". The purchase price with respect to such
call rights under the Stockholders Agreement is the lower of $10 per share and a
specified formula described therein (the "Repurchase Formula"), in the event the
call right arises as a result of such Management Stockholder's termination for
Cause (as defined therein), his resignation other than for Good Reason or a
breach of his obligations under the Severance and Non-Competition Agreement to
which he is a party. The purchase price with respect to a call right arising as
a result of any other employment termination is the Repurchase Formula. Jupiter
has agreed that neither it nor the Company will exercise their respective call
rights with respect to the Restricted Shares held by Gary L. Walsh in the event
that, after December 31, 1997, his employment with the Company is terminated
without cause or he resigns without cause or for good reason.
REGISTRATION RIGHTS AGREEMENT
Pursuant to a Registration Rights Agreement, dated as of August 7, 1996 (the
"Registration Rights Agreement"), the Company granted certain demand
registration rights to Jupiter and certain "piggy-back" registration rights to
Jupiter and the Management Stockholders with respect to the sale of common stock
of the Company held by them. In addition to customary priority cut-back
provisions relating to underwritten offerings, the Registration Rights Agreement
imposes limitations on the number of shares of common stock of the Company that
may be included in a "piggy-back" registration by a Management Stockholder.
CERTAIN TRANSACTIONS
In connection with a restructuring of the Company in 1994, Gary L. Walsh,
Robert A. Allen, Leo F. Korman, Basil P. Prokop, J. Michael Walsh and Leo
Granucci (together, "Senior Management") entered into an equity sharing
arrangement with the Institutional Shareholders, which were the prior lenders to
the Company. As a result of this arrangement and subsequent transactions, Senior
Management owned approximately a 53% equity interest in the Company at the time
of the Recapitalization.
On August 7, 1996, in connection with the Recapitalization, the Company
redeemed all of the common stock held by the Institutional Shareholders
(representing approximately 47% of the total outstanding equity interests) and a
portion of the common stock held by the Senior Management (representing
approximately 44% of the total outstanding equity interests) on a pro rata basis
for $135.0 million in cash and $6.3 million initial value of Management Notes,
except that the Institutional Shareholders did not receive any Management Notes.
Of such cash amount, $10.0 million was placed into escrow as a reserve in
respect of representations and warranties in connection with the sale of the
Company's common stock to Jupiter. The portion of the common stock previously
held by Senior Management which was not redeemed represented 8.9% of the equity
interests in the Company outstanding immediately prior to the Recapitalization
and represents in the aggregate 25% of the outstanding common stock following
the Recapitalization. Such stock would have a value of $13.8 million if valued
at the price per share paid by Jupiter to the Company for its common stock.
Jupiter Partners, Inc., an affiliate of Jupiter, received a $2.15 million
advisory fee from the Company in connection with the Recapitalization and the
Senior Credit Facility transactions.
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DESCRIPTION OF SENIOR CREDIT FACILITY
The credit agreement dated as of August 7, 1996 (the "Senior Credit
Facility") among the Company, the several lenders from time to time parties
thereto (collectively, the "Lenders") and The Chase Manhattan Bank, as
administrative agent and collateral agent (the "Agent"), provides for a $175.0
million Revolving Credit Facility as well as a $35 million Term Loan, which was
repaid from the proceeds of the Offering. Chase Securities Inc. acted as advisor
and arranger in connection with the Senior Credit Facility (the "Arranger"). The
following is a summary description of the principal terms of the Senior Credit
Agreement and is subject to and qualified in its entirety by reference to the
definitive Senior Credit Facility and the other loan documents, which are
available upon request from the Company.
STRUCTURE. Loans under the Senior Credit Facility consist of a Revolving
Credit Facility in the amount of up to $175.0 million subject to compliance with
a borrowing base and customary conditions as set forth in the Senior Credit
Facility. Of the total, $40.0 million is available in the form of letters of
credit. $20 million of such letters of credit do not count against the borrowing
base.
In connection with the closing of the Recapitalization, the Company borrowed
the full amount of the Term Loan and approximately $100.0 million under the
Revolving Credit Facility, which amounts were used to fund redemptions,
refinance existing debt and pay closing expenses as described under
"Summary--Transactions Related to the Offering." In connection with the closing
of the Offering, the proceeds of the Offering were used to repay the Term Loan
($35.0 million principal amount plus accrued interest thereon) and to reduce
outstanding balances under the Revolving Credit Facility (approximately $12.3
million). At September 30, 1996, the amount that would have been available to be
drawn under the Revolving Credit Facility after taking into account the
borrowing base would have been approximately $46.4 million. The remaining
availability under the Revolving Credit Facility may be utilized to meet the
Company's working capital requirements, including issuance of stand-by and trade
letters of credit. The Company also may utilize the remaining availability under
the Revolving Credit Facility to fund acquisitions (subject to certain tests)
and capital expenditures.
SECURITY; GUARANTY. The obligations of the Company under the Senior Credit
Facility are unconditionally guaranteed, jointly and severally, by each existing
and subsequently acquired or organized active subsidiary of the Company. In
addition, the Senior Credit Facility and the guarantees thereof are secured by
substantially all the assets of the Company and the guarantors (collectively,
the "Collateral"), including but not limited to (i) a first priority pledge of
all the capital stock of each such subsidiary of the Company and (ii) perfected
first priority security interests in substantially all tangible and intangible
assets of the Company and the guarantors (including but not limited to accounts
receivable, inventory, equipment, intellectual property, general intangibles,
cash and proceeds of the foregoing), in each case subject to certain limited
exceptions.
AMORTIZATION; INTEREST. The Senior Credit Facility bears interest at a rate
per annum equal (at the Company's option) to: (i) the Agent's Eurodollar Rate
plus 2.5% or (ii) an Alternate Base Rate (equal to the highest of the Agent's
prime rate, a certificate of deposit rate plus 1% or the Federal Funds effective
rate plus 1/2 of 1%) plus 1.5%. Amounts relating to principal under the Senior
Credit Facility not paid when due bear interest at a default rate equal to 2.0%
above the otherwise applicable rate. The Revolving Credit Facility matures on
June 30, 2001.
PREPAYMENTS. The Senior Credit Facility permits the Company to prepay loans
and to permanently reduce revolving credit commitments, in whole or in part, at
any time. Any prepayment of Eurodollar loans other than at the end of an
interest period will be subject to reimbursement of breakage costs.
FEES. The Company is required to pay the Lenders, on a quarterly basis, a
commitment fee equal to 1/2 of 1% per annum on the undrawn portion of the Senior
Credit Facility. The Company is also required to pay (i) a per annum letter of
credit fee of 2.5% of the aggregate amount of outstanding letters of credit
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(less any fronting fee); (ii) a fronting bank fee for the letter of credit
issuing bank equal to 1/4 of 1% per annum; (iii) annual administration fees and
(iv) agent, arrangement and other similar fees.
COVENANTS. The Senior Credit Facility contains a number of covenants that,
among other things, restrict the ability of the Company and its subsidiaries to
dispose of assets, incur additional indebtedness, prepay other indebtedness or
amend certain other debt instruments, pay dividends, create liens on assets,
enter into sale and leaseback transactions, make investments, loans or advances,
make acquisitions, engage in mergers or consolidations, change the business
conducted by the Company or its subsidiaries, make capital expenditures or
engage in certain transactions with affiliates and otherwise restrict certain
corporate activities. In addition, under the Senior Credit Facility, the Company
is required to maintain specified financial ratios and tests, including minimum
interest coverage ratios, maximum leverage ratios, annual capital expenditures
limitations, net worth tests and current ratio and EBITDA tests.
The Senior Credit Facility also contains provisions that prohibit any
modifications of the Indenture in any manner adverse to the Lenders and that
limit the Company's ability to refinance the Notes without the consent of the
Lenders.
EVENTS OF DEFAULT. The Senior Credit Agreement contains customary events of
default, including payment defaults, breach of representations and warranties,
covenant defaults, cross-defaults and cross-acceleration to certain other
indebtedness, certain events of bankruptcy and insolvency, ERISA, judgment
defaults, actual or asserted invalidity of any security interest and Change of
Control of the Company (as defined in the Senior Credit Facility) in certain
circumstances as set forth therein.
DESCRIPTION OF CAPITAL STOCK
The authorized common stock of the Company consists of 10,000,000 shares of
common stock, par value $.01 per share ("Common Stock"). At the date hereof,
there are 5,500,000 shares of Common Stock issued and outstanding, 4,125,000 of
which are held by Jupiter and 1,375,000 of which are held by the Senior
Management. Each share of Common Stock entitles the holder thereof to one vote
on all matters to be voted on by shareholders of the Company. Pursuant to the
restrictions contained in the Senior Credit Facility and the Indenture, the
Company is not expected to be able to pay dividends on its Common Stock for the
foreseeable future, other than certain limited dividends permitted by the Senior
Credit Facility and the Indenture. In the event of a liquidation, dissolution or
winding-up of the Company, the holders of the Common Stock are entitled to share
in the remaining assets of the Company after payment of all liabilities
(including payments required to be made to holders of the Notes) and after all
other shares of stock ranking senior to the Common Stock in respect of any
distribution upon the liquidation, dissolution or winding-up of the Company. The
Common Stock does not provide holders thereof with any pre-emptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding shares of the Common
Stock are fully paid and non-assessable. See also "Management--Certain
Agreements With Management."
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DESCRIPTION OF THE NEW NOTES
GENERAL
The Company (which for purposes of this Description of the New Notes refers
solely to Core-Mark International, Inc.) issued $75,000,000 aggregate principal
amount of Existing Notes on September 27, 1996 (the "Issue Date") pursuant to an
Indenture dated as of such date (the "Indenture"), between the Company and
Bankers Trust Company, as trustee (the "Trustee"). The New Notes will also be
issued under the Indenture which will be qualified under the Trust Indenture Act
upon effectiveness of the Registration Statement of which this Prospectus is a
part. The form and terms of the New Notes are the same as the form and terms of
the Existing Notes except that the New Notes will have been registered under the
Securities Act and, therefore, will not bear legends restricting their transfer
pursuant to the Securities Act. The New Notes and the Existing Notes are
collectively referred to as the "Notes." The terms of the New Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act as in effect on the date of the Indenture. The New
Notes are subject to all such terms, and holders of New Notes are referred to
the Indenture and the Trust Indenture Act for a statement thereof. Certain
capitalized terms used herein and not otherwise defined have the meanings set
forth in the section "Certain Definitions".
The following summary of certain provisions of the Indenture and the Notes
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part thereof by the
Trust Indenture Act of 1939, as amended. A copy of the Indenture has been filed
with the Commission as an exhibit to the Registration Statement of which this
Prospectus is a part and is incorporated herein by reference.
The Notes may be exchanged or transferred at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially shall
be the corporate trust office of the Trustee, Bankers Trust Company, at Four
Albany Street, New York, New York 10006; Corporate Trust Department).
The New Notes will be issued only in fully registered form, without coupons,
in principal denominations of $1,000 and any integral multiple of $1,000. No
service charge will be made for any registration of transfer or exchange of
Notes, but the Company may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection
therewith.
TERMS OF THE NOTES
The Notes are and will be unsecured senior subordinated obligations of the
Company, limited to $75.0 million aggregate principal amount, and will mature on
September 15, 2003. Each Note will bear interest at a rate per annum shown on
the front cover of this Prospectus from September 27, 1996, or from the most
recent date to which interest has been paid or provided for, payable
semiannually to Holders of record at the close of business on the March 1 or
September 1 immediately preceding the interest payment date on March 15 and
September 15 of each year, commencing March 15, 1997.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole or in part,
at any time on or after September 15, 2000, and prior to maturity, upon not less
than 30 nor more than 60 days' prior notice mailed by first-class mail to each
Holder's registered address, at the following redemption prices (expressed as a
percentage of principal amount), plus accrued interest, if any, to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the
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relevant interest payment date), if redeemed during the 12-month period
commencing on September 15 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- -------------------------------------------------------------------------------- ------------
<S> <C>
2000............................................................................ 105.688%
2001............................................................................ 102.844%
2002 and thereafter............................................................. 100.000%
</TABLE>
In addition, at any time and from time to time prior to September 15, 1999,
the Company may redeem in the aggregate up to 30% of the original aggregate
principal amount of the Notes with the proceeds of one or more Public Equity
Offerings by the Company following which there is a Public Market, at a
redemption price (expressed as a percentage of principal amount thereof) of
111.375% plus accrued interest, if any, to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date) upon not less than 30 nor more than 60
days' prior notice mailed to each Holder's registered address; PROVIDED,
HOWEVER, that at least 70% of the original aggregate principal amount of the
Notes must remain outstanding after each such redemption.
At any time on or prior to September 15, 2000, the Notes may also be
redeemed as a whole at the option of the Company upon the occurrence of a Change
of Control, upon not less than 30 nor more than 60 days' prior notice (but in no
event more than 90 days after the occurrence of such Change of Control) mailed
by first-class mail to each Holder's registered address, at a redemption price
equal to 100% of the principal amount thereof plus the Applicable Premium as of,
and accrued but unpaid interest, if any, to, the date of redemption (the
"Redemption Date") (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date).
MANDATORY REDEMPTION
Except as set forth under "--Change of Control" and "--Certain
Covenants--Limitation on Sale of Assets", the Company is not obligated to make
any mandatory redemption of or sinking fund payments with respect to the Notes.
SELECTION
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee on a pro rata basis, by lot or by such other method
as the Trustee in its sole discretion shall deem to be fair and appropriate,
although no Note of $1,000 in original principal amount or less will be redeemed
in part. If any Note is to be redeemed in part only, the notice of redemption
relating to such Note shall state the portion of the principal amount thereof to
be redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note.
RANKING
The indebtedness evidenced by the Notes is unsecured Senior Subordinated
Indebtedness, is subordinated in right of payment, as set forth in the
Indenture, to all existing and future Senior Indebtedness, ranks PARI PASSU in
right of payment with all existing and future Senior Subordinated Indebtedness
and is senior in right of payment to all existing and future Subordinated
Obligations. The Notes are also effectively subordinated to any Secured
Indebtedness to the extent of the value of the assets securing such
Indebtedness. However, payment from the money or the proceeds of U.S. Government
Obligations held in any defeasance trust described under "Defeasance" below is
not subordinated to any Senior Indebtedness or subject to the restrictions
described herein.
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Certain of the operations of the Company are conducted through its
Subsidiaries. Claims of creditors of such Subsidiaries, including trade
creditors, and claims of preferred stockholders (if any) of such Subsidiaries
generally will have priority with respect to the assets and earnings of such
Subsidiaries over the claims of creditors of the Company, including holders of
the Notes. The Notes, therefore, are effectively subordinated to creditors
(including trade creditors) and preferred stockholders (if any) of Subsidiaries
of the Company. At September 30, 1996, the total liabilities of the Company's
Subsidiaries were approximately $9.0 million, including Trade Payables. Although
the Indenture limits the incurrence of Indebtedness and preferred stock of
certain of the Company's Subsidiaries, such limitation is subject to a number of
significant qualifications.
At September 30, 1996, the outstanding Senior Indebtedness was $88.3
million, all of which was Secured Indebtedness. Although the Indenture contains
limitations on the amount of additional Indebtedness which the Company may
Incur, under certain circumstances the amount of such Indebtedness could be
substantial and, in any case, such Indebtedness may be Senior Indebtedness. See
"Certain Covenants--Limitation on Indebtedness" below.
"Senior Indebtedness" means all principal of, premium (if any), accrued
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, guarantees and other amounts owing with
respect to all Indebtedness of the Company, including all Bank Indebtedness,
whether outstanding on the Issue Date or thereafter Incurred, unless in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding it is provided that such obligations are not superior in right of
payment to the Notes; PROVIDED, HOWEVER, that Senior Indebtedness shall not
include (1) any obligation of the Company to any Subsidiary, (2) any liability
for Federal, state, local or other taxes owed or owing by the Company, (3) any
Trade Payables, (4) any Indebtedness or obligation of the Company which is
subordinate or junior in any respect to any other Indebtedness or obligation of
the Company, including any Senior Subordinated Indebtedness and any Subordinated
Obligations, (5) any obligations with respect to any Capital Stock, or (6) any
Indebtedness Incurred in violation of the Indenture.
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Notes in accordance with the provisions of the Indenture. The
Notes in all respects rank PARI PASSU with all other Senior Subordinated
Indebtedness. The Company has agreed in the Indenture that it will not Incur,
directly or indirectly, any Indebtedness which is subordinate or junior in
ranking in any respect to Senior Indebtedness unless such Indebtedness is Senior
Subordinated Indebtedness or is expressly subordinated in right of payment to
Senior Subordinated Indebtedness. Unsecured Indebtedness is not deemed to be
subordinate or junior to Secured Indebtedness merely because it is unsecured.
The Company may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under
"Defeasance" below and may not otherwise purchase, redeem or otherwise retire
any Notes (collectively, "pay the Notes") if (i) any Senior Indebtedness is not
paid when due or (ii) any other default on Senior Indebtedness occurs and the
maturity of such Senior Indebtedness is accelerated in accordance with its terms
unless, in either case, the default has been cured or waived and any such
acceleration has been rescinded or such Senior Indebtedness has been paid in
full. However, the Company may pay the Notes without regard to the foregoing if
the Company and the Trustee receive written notice approving such payment from
the Representative of the Designated Senior Indebtedness with respect to which
either of the events set forth in clause (i) or (ii) of the immediately
preceding sentence has occurred and is continuing. During the continuance of any
default (other than a default described in clause (i) or (ii) of the second
preceding sentence) with respect to any Designated Senior Indebtedness pursuant
to which the maturity thereof may be accelerated immediately without further
notice (except such notice as may be required to effect such acceleration) or
the expiration of any applicable grace periods, the Company may not pay the
Notes for a period (a
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"Payment Blockage Period") commencing upon the receipt by the Trustee and the
Company of written notice (a "Blockage Notice") of such default from the
Representative of the Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (or earlier if
such Payment Blockage Period is terminated (i) by written notice to the Trustee
and the Company from the Person or Persons who gave such Blockage Notice, (ii)
because the default giving rise to such Blockage Notice is no longer continuing
or (iii) because such Designated Senior Indebtedness has been repaid in full).
Notwithstanding the provisions described in the immediately preceding sentence,
unless the holders of such Designated Senior Indebtedness or the Representative
of such holders have accelerated the maturity of such Designated Senior
Indebtedness, the Company may resume payments on the Notes after the end of such
Payment Blockage Period. Not more than one Blockage Notice may be given in any
consecutive 360-day period, irrespective of the number of defaults with respect
to Designated Senior Indebtedness during such period. However, if any Blockage
Notice within such 360-day period is given by or on behalf of any holders of
Designated Senior Indebtedness other than the Bank Indebtedness, the
Representative of the Bank Indebtedness may give another Blockage Notice within
such period. In no event, however, may the total number of days during which any
Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate
during any 360 consecutive day period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or its property, the holders of Senior Indebtedness will
be entitled to receive payment in full of the Senior Indebtedness before the
Noteholders are entitled to receive any payment and until the Senior
Indebtedness is paid in full, any payment or distribution to which Noteholders
would be entitled but for the subordination provisions of the Indenture will be
made to holders of the Senior Indebtedness as their interests may appear. If a
distribution is made to Noteholders that due to the subordination provisions
should not have been made to them, such Noteholders are required to hold it in
trust for the holders of Senior Indebtedness and pay it over to them as their
interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness or the Representative of such holders of the acceleration.
The Company may not pay the Notes until five Business Days after such holders or
the Representative of the Designated Senior Indebtedness receive notice of such
acceleration and, thereafter, may pay the Notes only if the subordination
provisions of the Indenture otherwise permit payment at that time.
By reason of such subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than the Noteholders, and creditors of
the Company who are not holders of Senior Indebtedness or of Senior Subordinated
Indebtedness (including the Notes) may recover less, ratably, than holders of
Senior Indebtedness and may recover more, ratably, than the holders of Senior
Subordinated Indebtedness.
SAME DAY PAYMENT
The Indenture requires that payments in respect of Notes (including
principal, premium and interest) be made by wire transfer of immediately
available funds to the accounts specified by the Holders or, if no such account
is specified, by mailing a check to each Holder's registered address.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder will have the right to require the Company to repurchase
all or any part of such Holder's Notes at a purchase price in cash equal to 101%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
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the date of repurchase (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date); PROVIDED, HOWEVER, that notwithstanding the occurrence of a Change of
Control, the Company shall not be obligated to purchase the Notes pursuant to
this covenant in the event that it has exercised its right to redeem all of the
Notes as described under
"--Optional Redemption":
(i) prior to the first public offering of Voting Stock of the Company,
the Permitted Holders cease to be the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of a
majority in the aggregate of the total voting power of the Voting Stock of
the Company, whether as a result of issuance of securities of the Company,
any merger, consolidation, liquidation or dissolution of the Company, any
direct or indirect transfer of securities or otherwise (for purposes of this
clause (i), the Permitted Holders shall be deemed to beneficially own any
Voting Stock of a corporation (the "specified corporation") held by any
other corporation (the "parent corporation") so long as the Permitted
Holders beneficially own (as so defined), directly or indirectly, in the
aggregate a majority of the voting power of the Voting Stock of the parent
corporation);
(ii) (A) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that such person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
which right is subject to no conditions other than passage of time and
conditions substantially within the control of the parties to such
acquisition)), directly or indirectly, of more than 35% of the total voting
power of the Voting Stock of the Company and (B) the Permitted Holders
"beneficially own" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act), directly or indirectly, in the aggregate a lesser percentage of the
total voting power of the Voting Stock of the Company than such other person
and do not have the right or ability by voting power, contract or otherwise
to elect or designate for election a majority of the Board of Directors (for
the purposes of this clause (ii), such other person shall be deemed to
beneficially own any Voting Stock of a specified corporation held by a
parent corporation, if such other person "beneficially owns" (as defined in
this clause (ii)), directly or indirectly, a majority of the voting power of
the Voting Stock of such parent corporation;
(iii) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the sale
of all or substantially all the assets of the Company to another Person (in
each case, other than a Person that is controlled by the Permitted Holders),
and, in the case of any such merger or consolidation, the securities of the
Company that are outstanding immediately prior to such transaction and which
represent 100% of the aggregate voting power of the Voting Stock of the
Company are changed into or exchanged for cash, securities or property,
unless pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of the
surviving corporation that represent immediately after such transaction, at
least a majority of the aggregate voting power of the Voting Stock of the
surviving corporation; or
(iv) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election by such Board of Directors or whose
nomination for election by the shareholders of the Company was approved by a
vote of a majority of the directors of the Company then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office.
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With respect to sub-paragraph (iii) above, the meaning of the phrase "all or
substantially all" varies according to the facts and circumstances of the
subject transactions and is subject to judicial interpretation. The phrase has
no clearly established meaning under New York law (which is the governing law of
the Indenture) and has been the subject of limited judicial interpretation in a
few jurisdictions. It has not been interpreted to represent a specific
quantitative test. Accordingly, in certain circumstances it may be unclear as to
whether a Change of Control has occurred. The determination of whether a Change
of Control has occurred is a determination based on the facts and circumstances
of the subject transaction. There can be no assurance as to how a court
interpreting New York law would interpret the phrase.
Subject to the provision in the first paragraph under "--Change of Control",
within 30 days following any Change of Control, the Company shall mail a notice
to each Holder with a copy to the Trustee stating: (1) that a Change of Control
has occurred and that such Holder has the right to require the Company to
purchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of repurchase (subject to the right of Holders of record on a record date to
receive interest on the relevant interest payment date); (2) the circumstances
and relevant facts and financial information regarding such Change of Control;
(3) the repurchase date (which shall be no earlier than 30 days nor later than
60 days from the date such notice is mailed); and (4) the instructions
determined by the Company, consistent with this covenant, that a Holder must
follow in order to have its Notes purchased.
Neither the Board of Directors of the Company nor the Trustee may waive
compliance by the Company with its obligations under the Change of Control
covenant. However, the Change of Control covenant may be amended in a manner
that eliminates or limits a Holder's ability to cause the Company to repurchase
such Holder's Notes as long as any such amendment is approved by a Holder or
Holders of a majority in principal amount of the outstanding Notes. See
"--Amendments and Waivers."
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this covenant by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
described below, including the limitation on the Company's ability to incur
indebtedness, the Company is not prohibited from entering into certain
transactions, including acquisitions, refinancings, recapitalizations or other
highly leveraged transactions, that do not constitute a Change of Control under
the Indenture. Such transactions could adversely affect Holders by increasing
the indebtedness of the Company, some or all of which may be senior to the
Notes, or otherwise adversely affecting the Company's capital structure and
credit ratings.
The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the Credit Agreement. In addition, the
Senior Credit Facility prohibits the purchase of the Notes by the Company in the
event of a Change of Control, unless and until such time as the indebtedness
under the Senior Credit Facility is repaid in full. At November 26, 1996,
approximately $89.1 million was outstanding under the Senior Credit Facility,
all of which would be required to be repaid before the Company could repurchase
the Notes in connection with a Change of Control. Furthermore, although the
Company does not currently have any securities or liabilities which rank PARI
PASSU with the Notes, future indebtedness or liabilities which do rank PARI
PASSU with the Notes or future Senior Indebtedness of the Company also may
contain prohibitions of certain events which would constitute a
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Change of Control or require such Senior Indebtedness to be repurchased upon a
Change of Control which could adversely affect the Company's ability to
repurchase the Notes. Moreover, the exercise by the Holders of their right to
require the Company to repurchase the Notes could cause a default under such
Senior Indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase on the Company. Finally, the Company's
ability to pay cash to the Holders upon a repurchase may be limited by the
Company's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
LIMITATION ON INDEBTEDNESS. (a) The Company will not, and will not permit
any Restricted Subsidiary to, Incur any Indebtedness; PROVIDED, HOWEVER, that
the Company (but not any Restricted Subsidiary) may Incur Indebtedness if on the
date of such Incurrence the Consolidated Coverage Ratio would be greater than
2.0:1, if such Indebtedness is Incurred on or prior to September 30, 1999, and
2.5:1 if such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness: (i) Indebtedness
of the Company and its Restricted Subsidiaries outstanding from time to time
pursuant to the Credit Agreement or otherwise in an amount not to exceed (A) the
sum (the "Maximum Amount") of (x) 85% of the net book value of the consolidated
Total Receivables of the Company and its Restricted Subsidiaries (other than the
Receivables Subsidiary) and (y) 80% of the net book value of the consolidated
inventory of the Company and its Restricted Subsidiaries (other than the
Receivables Subsidiary), determined in accordance with GAAP, and (B) $20 million
but only in respect of letters of credit; (ii) Indebtedness of the Receivables
Subsidiary Incurred pursuant to Receivables Financings; (iii) Indebtedness of
the Company owing to and held by any Wholly Owned Subsidiary or Indebtedness of
a Restricted Subsidiary owing to and held by the Company or any Wholly Owned
Subsidiary; PROVIDED, HOWEVER, that any subsequent issuance or transfer of any
Capital Stock or any other event which results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of
any such Indebtedness (except to the Company or a Wholly Owned Subsidiary) will
be deemed, in each case, to constitute the Incurrence of such Indebtedness by
the issuer thereof; (iv) Indebtedness represented by the Notes (and the Note
Guarantees), any Indebtedness (other than the Indebtedness described in clauses
(i) and (iii) above) outstanding on the Issue Date and any Refinancing
Indebtedness Incurred in respect of any Indebtedness described in clause (i),
this clause (iv) or paragraph (a); (v) (A) Indebtedness of a Restricted
Subsidiary Incurred and outstanding on or prior to the date on which such
Restricted Subsidiary was acquired by the Company (other than Indebtedness
Incurred as consideration in, in contemplation of, or to provide all or any
portion of the funds or credit support utilized to consummate, the transaction
or series of related transactions pursuant to which such Restricted Subsidiary
became a Subsidiary or was otherwise acquired by the Company); PROVIDED,
HOWEVER, that at the time such Restricted Subsidiary is acquired by the Company,
the Company would have been able to Incur $1.00 of additional Indebtedness
pursuant to paragraph (a) after giving effect to the Incurrence of such
Indebtedness pursuant to this clause (v) and (B) Refinancing Indebtedness
Incurred by a Restricted Subsidiary in respect of Indebtedness Incurred by such
Restricted Subsidiary pursuant to this clause (v); (vi) Indebtedness (A) in
respect of performance bonds, bankers' acceptances, letters of credit and surety
or appeal bonds provided by the Company and its Restricted Subsidiaries in the
ordinary course of their business and which do not secure other Indebtedness,
and (B) under Currency Agreements and Interest Rate Agreements; PROVIDED,
HOWEVER, that, in the case of Currency Agreements and Interest Rate Agreements,
such Currency Agreements and Interest Rate Agreements do not increase the
Indebtedness of the Company outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or interest rates or
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by reason of fees, indemnities and compensation payable thereunder; or (vii)
Indebtedness of the Company (but not of a Restricted Subsidiary) in an aggregate
principal amount on the date of Incurrence which, when added to all other
Indebtedness Incurred pursuant to this clause (vii) and then outstanding, will
not exceed $10 million.
(c) Notwithstanding the foregoing, the Company may not Incur any
Indebtedness pursuant to paragraph (b) above if the proceeds thereof are used,
directly or indirectly, to repay, prepay, redeem, defease, retire, refund or
refinance any Subordinated Obligations unless such Indebtedness will be
subordinated to the Notes to at least the same extent as such Subordinated
Obligations. The Company may not Incur any Indebtedness if such Indebtedness is
subordinate or junior in ranking in any respect to any Senior Indebtedness
unless such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness. In
addition, the Company may not Incur any Secured Indebtedness which is not Senior
Indebtedness unless contemporaneously therewith effective provision is made to
secure the Notes equally and ratably with such Secured Indebtedness for so long
as such Secured Indebtedness is secured by a Lien.
LIMITATION ON RESTRICTED PAYMENTS. (a) The Company will not, and will not
permit any Restricted Subsidiary, directly or indirectly, to (i) declare or pay
any dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation involving
the Company) except dividends or distributions payable solely in its Capital
Stock (other than Disqualified Stock) and except dividends or distributions
payable to the Company or another Restricted Subsidiary (and, if such Restricted
Subsidiary is not a Wholly Owned Subsidiary, to its other shareholders on a pro
rata basis in accordance with their respective ownership of the class of Capital
Stock affected), (ii) purchase, redeem, retire or otherwise acquire for value
any Capital Stock of the Company or any Restricted Subsidiary held by Persons
other than the Company or another Restricted Subsidiary, (iii) purchase,
repurchase, redeem, defease or otherwise acquire or retire for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of acquisition) or (iv) make any Investment
(other than a Permitted Investment) in any Person (any such dividend,
distribution, purchase, redemption, repurchase, defeasance, other acquisition,
retirement or Investment being herein referred to as a "Restricted Payment") if
at the time the Company or such Restricted Subsidiary makes such Restricted
Payment: (1) a Default will have occurred and be continuing (or would result
therefrom); (2) the Company could not Incur at least $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under "--Limitation
on Indebtedness"; or (3) the aggregate amount of such Restricted Payment and all
other Restricted Payments (the amount so expended, if other than in cash, to be
determined in good faith by the Board of Directors, whose determination will be
conclusive and evidenced by a resolution of the Board of Directors) declared or
made subsequent to the Issue Date would exceed the sum of: (A) 50% of the
Consolidated Net Income accrued during the period (treated as one accounting
period) from October 1, 1996, to the end of the most recent fiscal quarter
ending prior to the date of such Restricted Payment and as to which financial
results have been made publicly available (but in no event ending more than 135
days prior to the date of such Restricted Payment) (or, in case such
Consolidated Net Income is a deficit, minus 100% of such deficit); (B) the
aggregate Net Cash Proceeds received by the Company from the issue or sale of
its Capital Stock (other than Disqualified Stock) and the amount received in
cash as voluntary contributions to the capital of the Company, subsequent to the
Issue Date (other than an issuance or sale to a Subsidiary of the Company or an
employee stock ownership plan or other trust established by the Company or any
of its Restricted Subsidiaries); (C) the amount by which Indebtedness of the
Company or its Restricted Subsidiaries is reduced on the Company's balance sheet
upon the conversion or exchange (other than by a Subsidiary) subsequent to the
Issue Date of any Indebtedness of the Company or its Restricted Subsidiaries
convertible or exchangeable for Capital Stock (other than
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Disqualified Stock) of the Company (less the amount of any cash or other
property distributed by the Company or any Restricted Subsidiary upon such
conversion or exchange); and (D) the amount equal to the net reduction in
Investments in Unrestricted Subsidiaries resulting from (i) payments of
dividends, repayments of the principal of loans or advances or other transfers
of assets to the Company or any Restricted Subsidiary from Unrestricted
Subsidiaries or (ii) the redesignation of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the definition of
"Investment") not to exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary, which amount was included in the
calculation of the amount of Restricted Payments.
(b) The provisions of the foregoing paragraph (a) will not prohibit: (i)
any purchase or redemption of Capital Stock of the Company or Subordinated
Obligations made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than Disqualified Stock
and other than Capital Stock issued or sold to a Subsidiary or an employee stock
ownership plan or other trust established by the Company or any of its
Restricted Subsidiaries); PROVIDED, HOWEVER, that (A) such purchase or
redemption will be excluded in the calculation of the amount of Restricted
Payments and (B) the Net Cash Proceeds from such sale will be excluded from
clause (3)(B) of paragraph (a) above; (ii) any purchase or redemption of
Subordinated Obligations made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Indebtedness of the Company which is permitted
to be Incurred pursuant to the covenant described under
"--Limitation on Indebtedness"; PROVIDED, HOWEVER, that such purchase or
redemption will be excluded in the calculation of the amount of Restricted
Payments; (iii) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by the covenant described under "--
Limitation on Sales of Assets and Subsidiary Stock"; PROVIDED, HOWEVER, that
such purchase or redemption will be excluded in the calculation of the amount of
Restricted Payments; (iv) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividend would have
complied with this covenant; PROVIDED, HOWEVER, that such dividend will be
included in the calculation of the amount of Restricted Payments; or (v) the
repurchase of shares of common stock of the Company from, or the payment of the
stock appreciation on any options to purchase common stock of the Company held
by, any officer or employee of the Company or any of its Subsidiaries pursuant
to the terms of the agreements (including employment agreements) or plans (or
amendments thereto) approved by the Board of Directors under which such
individuals purchase or sell or are granted the option to purchase or sell,
shares of such common stock; PROVIDED, HOWEVER, that the aggregate amount of
such repurchases shall not exceed $2.5 million in any calendar year and $7.5
million in the aggregate from the Issue Date; PROVIDED FURTHER, HOWEVER, that
such repurchases shall be included in the calculation of the amount of
Restricted Payments.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness owed to the Company, (ii) make any loans or
advances to the Company or (iii) transfer any of its property or assets to the
Company, except: (1) any encumbrance or restriction pursuant to applicable law
or an agreement in effect at or entered into on the Issue Date including those
arising under the Credit Agreement; (2) any encumbrance or restriction with
respect to a Restricted Subsidiary pursuant to an agreement relating to any
Indebtedness Incurred by such Restricted Subsidiary prior to the date on which
such Restricted Subsidiary was acquired by the Company (other than Indebtedness
Incurred as consideration in, in contemplation of, or to provide all or any
portion of the funds or credit support utilized to consummate, the transaction
or series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was otherwise acquired by the Company) and
outstanding on such date; (3) any encumbrance or restriction pursuant to an
agreement constituting Refinancing Indebtedness of
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Indebtedness Incurred pursuant to an agreement referred to in clause (1) or (2)
of this covenant or this clause (3) or contained in any amendment to an
agreement referred to in clause (1) or (2) of this covenant or this clause (3);
PROVIDED, HOWEVER, that the encumbrances and restrictions contained in any such
refinancing agreement or amendment are no less favorable to the Noteholders than
encumbrances and restrictions contained in such agreements; (4) in the case of
clause (iii), any encumbrance or restriction (A) that restricts in a customary
manner the subletting, assignment or transfer of any property or asset that is
subject to a lease, license or similar contract, (B) contained in security
agreements or mortgages securing Indebtedness of a Restricted Subsidiary to the
extent such encumbrance or restrictions restrict the transfer of the property
subject to such security agreements or mortgages, (C) arising in connection with
any transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or asset not otherwise prohibited by the Indenture, or (D)
arising or agreed to in the ordinary course of business, PROVIDED that such
encumbrance or restriction does not, individually or in the aggregate together
with other similar encumbrances and restrictions, impair the value of the
property or assets of the Company or any Restricted Subsidiary in any material
manner; (5) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; and (6) any encumbrance or
restriction with respect to the Receivables Subsidiary pursuant to an agreement
relating to Indebtedness of the Receivables Subsidiary which is permitted under
the covenant described under "-- Limitation on Indebtedness" or pursuant to an
agreement relating to a Financing Disposition to or by the Receivables
Subsidiary in connection with a Receivables Financing.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) The Company will
not, and will not permit any Restricted Subsidiary to, make any Asset
Disposition unless (i) the Company or such Restricted Subsidiary receives
consideration (including by way of relief from, or by any other Person assuming
sole responsibility for, any liabilities, contingent or otherwise) at the time
of such Asset Disposition at least equal to the fair market value, as determined
in good faith by the Board of Directors, whose determination will be conclusive
and evidenced by a resolution of the Board of Directors (including as to the
value of all noncash consideration), of the shares and assets subject to such
Asset Disposition; (ii) at least 80% of the consideration thereof received by
the Company or such Restricted Subsidiary is in the form of cash; PROVIDED,
HOWEVER, that in respect of an Asset Disposition, more than 20% of the
consideration may consist of consideration other than cash or cash equivalents
if (A) the portion of such consideration that does not consist of cash or cash
equivalents consists of assets of a type ordinarily used in the operation of the
Company's distribution business (including Capital Stock of a Person that
becomes a Restricted Subsidiary and that holds such assets) to be used by the
Company or a Restricted Subsidiary in the conduct of the Company's business, (B)
the terms of such Asset Disposition have been approved by a majority of the
members of the Board of Directors having no personal stake in such transaction,
and (C) if the value of the assets being disposed of by the Company or such
Restricted Subsidiary in such transaction (as determined in good faith by such
members of the Board of Directors) is at least $15 million, the Board of
Directors has received a written opinion of a nationally recognized investment
banking firm to the effect that such Asset Disposition is fair, from a financial
point of view, to the Company and the Company has delivered a copy of such
opinion to the Trustee; and (iii) an amount equal to 100% of the Net Available
Cash from such Asset Disposition is applied by the Company (or such Restricted
Subsidiary, as the case may be) (A) FIRST, to the extent the Company elects (or
is required by the terms of any Senior Indebtedness or Indebtedness (other than
Preferred Stock) of a Wholly Owned Subsidiary), to prepay, repay or purchase
Senior Indebtedness or such Indebtedness (in each case other than Indebtedness
owed to the Company or an Affiliate of the Company) within 360 days after the
later of the date of such Asset Disposition or the receipt of such Net Available
Cash; (B) SECOND, to the extent of the balance of Net Available Cash after
application in accordance with clause (A), to the extent the Company or such
Restricted Subsidiary elects, to reinvest in Additional Assets (including by
means of an Investment in Additional Assets by a Restricted Subsidiary with Net
Available Cash received by the Company
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or another Restricted Subsidiary) within 360 days from the later of such Asset
Disposition or the receipt of such Net Available Cash; (C) THIRD, to the extent
of the balance of such Net Available Cash after application in accordance with
clauses (A) and (B), to make an Offer (as defined below) to purchase Notes
pursuant to and subject to the conditions set forth in paragraph (b) of this
covenant, and (D) FOURTH, to the extent of the balance of such Net Available
Cash after application in accordance with clauses (A), (B) and (C), to fund (to
the extent consistent with any other applicable provision of the Indenture) any
corporate purpose; PROVIDED, HOWEVER that in connection with any prepayment,
repayment or purchase of Indebtedness pursuant to clause (A) or (C) above, the
Company or such Restricted Subsidiary will retire such Indebtedness and will
cause the related loan commitment (if any) to be permanently reduced in an
amount equal to the principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this covenant, the Company and the
Restricted Subsidiaries will not be required to apply any Net Available Cash in
accordance with this covenant except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which are not applied in accordance
with this covenant exceed $500,000.
For the purposes of this covenant, the following are deemed to be cash: (x)
the assumption of Indebtedness of the Company (other than Disqualified Stock of
the Company) or any Restricted Subsidiary and the release of the Company or such
Restricted Subsidiary from all liability on such Indebtedness in connection with
such Asset Disposition and (y) securities received by the Company or any
Restricted Subsidiary from the transferee that are promptly converted by the
Company or such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of
Notes pursuant to clause (a)(iii)(C) of this covenant, the Company will be
required to purchase Notes tendered pursuant to an offer by the Company for the
Notes (the "Offer") at a purchase price of 100% of their principal amount plus
accrued interest to the date of purchase in accordance with the procedures
(including prorationing in the event of oversubscription) set forth in the
Indenture. If the aggregate purchase price of Notes tendered pursuant to the
Offer is less than the Net Available Cash allotted to the purchase of the Notes,
the Company will apply the remaining Net Available Cash in accordance with
clause (a)(iii)(D) of this covenant. The Company will not be required to make an
Offer for Notes pursuant to this covenant if the Net Available Cash available
therefor (after application of the proceeds as provided in clauses (a)(iii)(A)
and (a)(iii)(B) of this covenant) is less than $5 million (which lesser amount
will be carried forward for purposes of determining whether an Offer is required
with respect to the Net Available Cash from any subsequent Asset Disposition).
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this covenant by virtue thereof.
(d) The Company will not, and will not permit any Restricted Subsidiary to,
make any Financial Disposition in connection with a Receivables Financing unless
the Board of Directors shall have determined in good faith, which determination
will be conclusive and evidenced by a resolution of the Board of Directors, that
such Financing Disposition is made at fair market value.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. (a) The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter into
or conduct any transaction (including, the purchase, sale, lease or exchange of
any property or the rendering of any service) with any Affiliate of the Company
(an "Affiliate Transaction") on terms (i) that are less favorable to the Company
or such Restricted Subsidiary, as the case may be, than those that could be
obtained at the time of such
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transaction in arm's-length dealings with a Person who is not such an Affiliate
and (ii) that, in the event such Affiliate Transaction involves an aggregate
amount in excess of $1 million, are not in writing and have not been approved by
a majority of the members of the Board of Directors having no personal stake in
such Affiliate Transaction. In addition, if such Affiliate Transaction involves
an amount in excess of $5 million (other than fees to investment banking firms
constituting customary underwriting discounts for offerings of securities or
customary advisory fees for merger and acquisition or recapitalization
transactions) a fairness opinion must be provided by a nationally recognized
appraisal or investment banking firm.
(b) The provisions of the foregoing paragraph (a) will not prohibit (i) any
Restricted Payment permitted to be paid pursuant to the covenant described under
"--Limitation on Restricted Payments," (ii) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise pursuant to, or the
funding of, employment arrangements, stock options and stock ownership plans
approved by the Board of Directors, or other employee benefit arrangements with
any officer, director or employee of the Company entered into in the ordinary
course of business consistent with past practices of the Company, (iii) loans or
advances to employees in the ordinary course of business consistent with past
practices of the Company, (iv) the payment of reasonable fees to directors of
the Company and its Subsidiaries who are not employees of the Company or its
Subsidiaries or (v) any transaction between the Company and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries.
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LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. The Company will not sell any shares of Capital Stock of a
Restricted Subsidiary, and will not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell any shares of its Capital Stock except (i)
subject to the covenant described under "--Limitation on the Disposition of
Assets of the Company to Restricted Subsidiaries", to the Company or a Wholly
Owned Subsidiary, (ii) pursuant to arrangements entered into prior to the time a
Person becomes a Restricted Subsidiary (other than arrangements entered into in
contemplation of the transaction or series of related transactions pursuant to
which such Person became a Restricted Subsidiary) or (iii) if, immediately after
giving effect to such issuance or sale, such Restricted Subsidiary would no
longer constitute a Restricted Subsidiary. The proceeds of any sale of such
Capital Stock permitted under this covenant will be treated as Net Available
Cash from an Asset Disposition and must be applied in accordance with the terms
of the covenant described under "-- Limitation on Sales of Assets and Subsidiary
Stock."
LIMITATION ON LIENS. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create or permit to exist any
Lien (other than Liens on Receivables that are the subject of a Receivables
Financing) on any of its property or assets (including Capital Stock), whether
owned on the Issue Date or thereafter acquired, securing any Indebtedness other
than Senior Indebtedness unless contemporaneously therewith effective provision
is made to secure the Notes equally and ratably with (or on a senior basis to,
in the case of Indebtedness subordinated in right of payment to the Notes) such
obligation for so long as such obligation is so secured.
SEC REPORTS. Notwithstanding that the Company may not be required to be or
remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company will file with the SEC, if permitted by the SEC, and
provide the Trustee and Noteholders and prospective Noteholders (upon request)
with the annual reports and the information, documents and other reports which
are specified in Sections 13 and 15(d) of the Exchange Act. The Company also
will comply with the other provisions of TIA Section 314(a).
LIMITATION ON THE DISPOSITION OF ASSETS OF THE COMPANY TO RESTRICTED
SUBSIDIARIES. The Company will not, and will not permit any Guarantor
Subsidiary to, sell, lease, transfer or make any other disposition of any
property or assets (including shares of Capital Stock of a Subsidiary) (each
referred to for the purposes of this covenant as a "disposition") to a
Restricted Subsidiary other than (i) a disposition to a Restricted Subsidiary
that at the time of such disposition is or becomes a Guarantor Subsidiary
pursuant to a Note Guarantee, (ii) dispositions (other than a Financing
Disposition in connection with a Receivables Financing) with a fair market value
of less than $2.5 million in the aggregate for all Restricted Subsidiaries in
any fiscal year, (iii) a Financing Disposition in connection with a Receivables
Financing, (iv) a disposition permitted by the covenant described under
"--Limitation on Restricted Payments" and (v) dispositions of inventory in the
ordinary course of business.
LIMITATION ON LINES OF BUSINESS. The Company will not, and will not permit
any Restricted Subsidiary to, engage in any business, other than those
businesses in which the Company or its Restricted Subsidiaries are engaged on
the Issue Date or which are reasonably related thereto.
MERGER AND CONSOLIDATION
The Company will not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor Company") will
be a corporation, partnership, limited liability company or business trust
organized and existing under the laws of the United States of America, any State
thereof or the District of Columbia and the Successor Company (if not the
Company) will expressly assume, by an indenture supplemental to the Indenture,
executed and delivered to the Trustee, in form reasonably satisfactory to the
Trustee, all the obligations of the Company under the Notes and the Indenture;
(ii) immediately after
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giving effect to such transaction (and treating any Indebtedness which becomes
an obligation of the Successor Company or any Restricted Subsidiary as a result
of such transaction as having been Incurred by the Successor Company or such
Restricted Subsidiary at the time of such transaction), no Default will have
occurred and be continuing; (iii) except in the case of a merger the sole
purpose of which is to change the Company's jurisdiction of incorporation,
immediately after giving effect to such transaction, the Successor Company would
be able to Incur an additional $1.00 of Indebtedness under paragraph (a) of the
covenant described under "--Limitation on Indebtedness"; (iv) immediately after
giving effect to such transaction, the Successor Company will have Consolidated
Net Worth in an amount which is not less than the Consolidated Net Worth of the
Company immediately prior to such transaction; and (v) the Company will have
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger or transfer and such supplemental
indenture (if any) comply with the Indenture. Notwithstanding the foregoing
clauses (ii), (iii) and (iv), any Restricted Subsidiary may consolidate with,
merge into or transfer all or part of its properties and assets to the Company.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture, but the
predecessor Company in the case of a lease of all or substantially all its
assets will not be released from the obligation to pay the principal of and
interest on the Notes.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in any
payment of interest on any Note when due, whether or not prohibited by the
provisions described under "Ranking" above, continued for 30 days, (ii) a
default in the payment of principal of any Note when due at its Stated Maturity,
upon optional redemption, upon required repurchase, upon declaration or
otherwise, whether or not such payment is prohibited by the provisions described
under "Ranking" above, (iii) the failure by the Company to comply with its
obligations under the covenant described under "Merger and Consolidation" above,
(iv) the failure by the Company to comply for 30 days after notice with any of
its obligations under the covenants described under "Change of Control" or
"Certain Covenants" above (in each case, other than a failure to purchase
Notes), (v) the failure by the Company to comply for 60 days after notice with
its other agreements contained in the Indenture, (vi) the failure by the Company
or any Significant Subsidiary to pay any Indebtedness within any applicable
grace period after final maturity or the acceleration of any such Indebtedness
by the holders thereof because of a default if the total amount of such
Indebtedness unpaid or accelerated exceeds $5 million or its foreign currency
equivalent (the "cross acceleration provision"), (vii) certain events of
bankruptcy, insolvency or reorganization of the Company or a Significant
Subsidiary (the "bankruptcy provisions"), (viii) the rendering of any judgment
or decree for the payment of money in excess of $5 million or its foreign
currency equivalent against the Company or a Significant Subsidiary and (A) an
enforcement proceeding thereon is commenced which is not promptly stayed or (B)
such judgment or decree remains outstanding for a period of 60 days following
such judgment and is not discharged, waived or stayed (the "judgment default
provision") or (ix)(A) any Note Guaranty ceases to be in full force and effect
(except as contemplated by the terms thereof) or any Guarantor Subsidiary denies
or disaffirms its obligations under the Indenture or any Note Guaranty and such
default continues for 10 days or (B) any Guarantor Subsidiary fails to comply
for 60 days after notice with any of its obligations in its Note Guarantee.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a default under clauses (iv) or (v) will not constitute an Event of
Default until the Trustee or the Holders of 25% in principal amount of the
outstanding Notes notify the Company of the default and
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the Company does not cure such default within the time specified in clauses (iv)
and (v) after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the outstanding Notes by notice to the
Company and the Trustee may declare the principal of and accrued but unpaid
interest on all the Notes to be due and payable. Upon such a declaration, such
principal and interest will be due and payable immediately. If an Event of
Default relating to certain events of bankruptcy, insolvency or reorganization
of the Company occurs and is continuing, the principal of and interest on all
the Notes will become immediately due and payable without any declaration or
other act on the part of the Trustee or any Holders. Under certain
circumstances, the Holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such Holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
Holders of at least 25% in principal amount of the outstanding Notes have made a
written request to the Trustee to pursue the remedy, (iii) such Holders have
offered the Trustee reasonable security or indemnity against any loss, liability
or expense, (iv) the Trustee has not complied with such request within 60 days
after the receipt of the request and the offer of security or indemnity and (v)
the Holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction inconsistent with such request within such 60-day
period. Subject to certain restrictions, the Holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other Holder or that would involve the Trustee in personal liability. Prior
to taking any action under the Indenture, the Trustee will be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
within the earlier of 90 days after it occurs or 30 days after it is known to a
Trust Officer or written notice of it is received by the Trustee. Except in the
case of a Default in the payment of principal of, premium (if any) or interest
on any Note, the Trustee may withhold notice if and so long as a committee of
its Trust Officers in good faith determines that withholding notice is in the
interests of the Noteholders. In addition, the Company is required to deliver to
the Trustee, within 120 days after the end of each fiscal year, a certificate
indicating whether the signers thereof know of any Default that occurred during
the previous year. The Company also is required to deliver to the Trustee,
within 30 days after the occurrence thereof, written notice of any event which
would constitute certain Defaults, their status and what action the Company is
taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the Holders of a majority in principal amount of the outstanding Notes and
any past default or its consequences may be waived with the consent of the
Holders of a majority in principal amount of the Notes (other than a default in
the payment of principal of or interest on the Notes, which may not be waived
without the consent of
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each Holder affected) then outstanding. However, without the consent of each
Holder of an outstanding Note affected, no amendment may, among other things,
(i) reduce the amount of Notes whose Holders must consent to an amendment, (ii)
reduce the rate of or extend the time for payment of interest on any Note, (iii)
reduce the principal of or extend the Stated Maturity of any Note, (iv) reduce
the premium payable upon the redemption of any Note or change the time at which
any Note may be redeemed as described under "--Optional Redemption" above, (v)
make any Note payable in money other than that stated in the Note, (vi) make any
change to the subordination provisions of the Indenture that adversely affects
the rights of any Holder, (vii) impair the right of any Holder to receive
payment of principal of and interest on such Holder's Notes on or after the due
dates therefor or to institute suit for the enforcement of any payment on or
with respect to such Holder's Notes or (viii) make any change in the amendment
provisions which require each Holder's consent or in the waiver provisions.
Without the consent of any Holder, the Company and Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations of the Company
under the Indenture, to provide for uncertificated Notes in addition to or in
place of certificated Notes (provided that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code), to change the subordination provisions to limit or terminate the benefits
to any holder of Senior Indebtedness, to add Guarantees with respect to the
Notes, to secure the Notes, to add to the covenants of the Company for the
benefit of the Noteholders or to surrender any right or power conferred upon the
Company, to make any change that does not adversely affect the rights of any
Holder, to provide for the issuance and authorization of Exchange Notes or to
comply with any requirement of the SEC in connection with the qualification of
the Indenture under the TIA. However, no amendment may be made to the
subordination provisions of the Indenture that adversely affects the rights of
any holder of Senior Indebtedness then outstanding unless the holders of such
Senior Indebtedness (or any group or representative thereof authorized to give a
consent) consent to such change.
The consent of the Noteholders is not necessary under the Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Noteholders a notice briefly describing such amendment.
However, the failure to give such notice to all Noteholders, or any defect
therein, will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A Noteholder may transfer or exchange Notes in accordance with the
Indenture. Upon any transfer or exchange, the registrar and the Trustee may
require a Noteholder, among other things, to furnish appropriate endorsements
and transfer documents and the Company may require a Noteholder to pay any taxes
required by law or permitted by the Indenture. The Company is not required to
transfer or exchange any Note selected for redemption or to transfer or exchange
any Note for a period of 15 days prior to a selection of Notes to be redeemed.
The Notes will be issued in registered form and the registered holder of a Note
will be treated as the owner of such Note for all purposes.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under the covenants
described under "--Certain Covenants", the
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operation of the cross acceleration provision, the bankruptcy provisions with
respect to Subsidiaries, the judgment default provision described under
"Defaults" above, the provisions with respect to Guarantor Subsidiary defaults
and the limitations contained in clauses (iii) and (iv) under "--Merger and
Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Subsidiaries) or (viii) under "--Defaults" above or because of the failure of
the Company to comply with clause (iii) or (iv) under "--Merger and
Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to Federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
THE TRUSTEE
Bankers Trust Company is to be the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the Notes.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any tangible property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock
constituting a minority interest in any Person that at such time is a Restricted
Subsidiary; PROVIDED, HOWEVER, that, in the case of clauses (ii) and (iii), such
Restricted Subsidiary is primarily engaged in a Related Business.
"Adjusted Operating Income" for any period means (a) the sum of (x) the
Operating Income for such period, plus (y) the following to the extent deducted
in calculating such Operating Income: (i) Consolidated Non-Cash Charges and (ii)
LIFO expense, if any, for such period, minus (b) LIFO income, if any, for such
period. Notwithstanding the foregoing, the depreciation and amortization of a
Subsidiary of the Company shall be added to Operating Income to compute Adjusted
Operating Income only to the extent (and in the same proportion) that the
operating income of such Subsidiary was included in calculating Operating Income
and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Subsidiary without prior
approval (that
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has not been obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to such Subsidiary or its stockholders.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "--Certain Covenants-- Limitation on
Transactions with Affiliates" and "--Certain Covenants--Limitation on Sales of
Assets and Subsidiary Stock" only, "Affiliate" shall also mean any beneficial
owner of shares representing 5% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or warrants to
purchase such Voting Stock (whether or not currently exercisable) and any Person
who would be an Affiliate of any such beneficial owner pursuant to the first
sentence hereof.
"Applicable Premium" means, with respect to a Note at any Redemption Date,
the greater of (i) 1.0% of the principal amount of such Note and (ii) the excess
of (A) the present value at such time of (1) the redemption price of such Note
at September 15, 2000 (such redemption price being described under "--Optional
Redemption") plus (2) all required interest payments (excluding accrued but
unpaid interest) due on such Note through September 15, 2000, computed using a
discount rate equal to the Treasury Rate plus 75 basis points, over (B) the
principal amount of such Note.
"Asset Disposition" means any sale, lease, transfer or other disposition of
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares), property or other assets (each referred to for the purposes
of this definition as a "disposition") by the Company or any of its Restricted
Subsidiaries (including any disposition by means of a merger, consolidation or
similar transaction) in one transaction or in a series of related transactions
which shall be viewed as one transaction other than (i) a disposition (other
than a Financing Disposition in connection with a Receivables Financing) by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of inventory in the
ordinary course of business, (iii) dispositions (other than a Financing
Disposition in connection with a Receivables Financing) with a fair market value
of less than $500,000 in the aggregate in any fiscal year, (iv) a Financing
Diposition in connection with a Receivables Financing provided that immediately
after such Financing Disposition the Indebtedness (other than Indebtedness in
respect of letters of credit) outstanding pursuant to clause (b)(i) of the
covenant described under "Certain Covenants--Limitation on Indebtedness" is
equal to or less than the Maximum Amount, (v) for purposes of the provisions
described under "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" only, a disposition subject to the covenant described under
"-- Certain Covenants--Limitation on Restricted Payments" and (vi) the
disposition of all or substantially all the assets of the Company permitted by
the covenant described under "Merger and Consolidation".
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect of
the Credit Agreement, as amended or modified from time to time, and any
Refinancing Indebtedness Incurred in respect thereof, including principal,
premium (if any), interest (including interest accruing on or after the filing
of any petition in bankruptcy or for reorganization relating to the Company
whether or not a claim
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for post-filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, guarantees and all other amounts payable
thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means a day other than a Saturday, Sunday or other day on
which banking institutions in New York State are authorized or required by law
to close.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Adjusted Operating Income for the period of
the most recent four consecutive fiscal quarters ending prior to the date of
such determination and as to which financial statements have been made publicly
available (but in no event ending more than 135 days prior to such date of
determination) to (ii) Consolidated Interest Expense for such four fiscal
quarters; PROVIDED, HOWEVER, that (1) if the Company or any Restricted
Subsidiary has Incurred any Indebtedness since the beginning of such period that
remains outstanding on such date of determination or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence
of Indebtedness, Adjusted Operating Income and Consolidated Interest Expense for
such period shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been Incurred on the first day of such
period and the discharge of any other Indebtedness repaid, repurchased, defeased
or otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period (except that in the case
of Indebtedness to finance seasonal fluctuations in working capital needs
Incurred under a revolving credit or similar arrangement, the amount thereof
shall be deemed to be the average daily balance of such Indebtedness during such
four quarter period), (2) if since the beginning of such period the Company or
any Restricted Subsidiary shall have made any Asset Disposition, the Adjusted
Operating Income for such period shall be reduced by an amount equal to the
Adjusted Operating Income (if positive) directly attributable to the assets
which are the subject of such Asset Disposition for such period or increased by
an amount equal to the Adjusted Operating Income (if negative) directly
attributable thereto for such period and Consolidated Interest Expense for such
period shall be reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Indebtedness of the Company or any Restricted
Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to
the Company and its continuing Restricted Subsidiaries in connection with such
Asset Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent the
Company and its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale), (3) if since the beginning of such period the
Company or any Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or an Investment in or acquisition of
any Person which becomes a Restricted Subsidiary) or an acquisition of assets,
including any acquisition or Investment occurring in connection
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with a transaction causing a calculation to be made under the Indenture, which
constitutes all or substantially all of an operating unit of a business,
Adjusted Operating Income and Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis to the transaction
(including the Incurrence of any Indebtedness and repayment of then existing
debt) as if such Investment or acquisition occurred on the first day of such
period and (4) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition or any Investment or acquisition of assets that
would have required an adjustment pursuant to clause (2) or (3) above if made by
the Company or a Restricted Subsidiary during such period, Adjusted Operating
Income and Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto as if such Asset Disposition, Investment
or acquisition of assets occurred on the first day of such period. For purposes
of this definition, whenever pro forma effect is to be given to an acquisition
of assets, the amount of Operating Income relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting Officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term as at the
date of determination in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total
consolidated interest expense of the Company and its Restricted Subsidiaries,
plus, to the extent Incurred by the Company and its Restricted Subsidiaries in
such period but not included in such interest expense, (i) interest expense
attributable to capital leases, (ii) amortization of debt discount, (iii)
capitalized interest, (iv) noncash interest expense, (v) commissions, discounts
and other fees and charges with respect to letters of credit and bankers'
acceptance financing, (vi) net costs associated with Hedging Obligations
(including amortization of fees), (vii) Preferred Stock dividends in respect of
all Preferred Stock of Subsidiaries and Disqualified Stock of the Company held
by Persons other than the Company or a Wholly Owned Subsidiary, (viii) the
interest portion of any deferred payment obligation, (ix) interest actually paid
on any Indebtedness of any other Person, (x) the cash contributions to any
employee stock ownership plan or similar trust to the extent such contributions
are used by such plan or trust to pay interest or fees to any Person (other than
the Company) in connection with Indebtedness Incurred by such plan or trust and
(ix) the earned discount or yield with respect to the sale of Receivables
(without duplication of amounts included in Operating Income) but in no event
shall Consolidated Interest Expense include the amortization of fees incurred on
or prior to the Issue Date in respect of the Credit Agreement or the issuance of
the Notes or bank agency fees under the Credit Agreement.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its consolidated Subsidiaries; PROVIDED, HOWEVER, that there
shall not be included in such Consolidated Net Income: (i) any net income (loss)
of any Person if such Person is not a Restricted Subsidiary, except that (A)
subject to the limitations contained in clause (iv) below, the Company's equity
in the net income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually distributed
by such Person during such period to the Company or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution to a Restricted Subsidiary, to the limitations contained in clause
(iii) below) and (B) the Company's equity in a net loss of any such Person
(other than an Unrestricted Subsidiary) for such period shall be included in
determining such Consolidated Net Income, (ii) any net income (loss) of any
person acquired by the Company or a Subsidiary in a pooling of interests
transaction for any period prior to the date of such acquisition, (iii) any net
income (loss) of any Restricted Subsidiary if such Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such
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Restricted Subsidiary, directly or indirectly, to the Company, except that (A)
subject to the limitations contained in (iv) below, the Company's equity in the
net income of any such Restricted Subsidiary for such period shall be included
in such Consolidated Net Income up to the aggregate amount of cash that could
have been distributed by such Restricted Subsidiary during such period to the
Company or another Restricted Subsidiary as a dividend (subject, in the case of
a dividend that could have been made to another Restricted Subsidiary, to the
limitation contained in this clause) and (B) the Company's equity in a net loss
of any such Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income, (iv) any gain or loss realized upon
the sale or other disposition of any asset of the Company or its consolidated
Subsidiaries (including pursuant to any Sale/Leaseback Transaction) which is not
sold or otherwise disposed of in the ordinary course of business and any gain or
loss realized upon the sale or other disposition of any Capital Stock of any
Person, (v) any extraordinary gain or loss, and (vi) the cumulative effect of a
change in accounting principles. Notwithstanding the foregoing, for the purpose
of the covenant described under "Certain Covenants--Limitation on Restricted
Payments" only, there shall be excluded from Consolidated Net Income any
dividends, repayments of loans or advances or other transfers of assets from
Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the
extent such dividends, repayments or transfers increase the amount of Restricted
Payments permitted under such covenant pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and the Restricted Subsidiaries, determined on a
Consolidated basis, as of the end of the most recent fiscal quarter of the
Company ending prior to the taking of any action for the purpose of which the
determination is being made and as to which financial results have been made
publicly available (but in no event ending more than 135 days prior to such date
of determination), as (i) the par or stated value of all outstanding Capital
Stock of the Company plus (ii) paid-in capital or capital surplus relating to
such Capital Stock plus (iii) any retained earnings or earned surplus less (A)
any accumulated deficit and (B) any amounts attributable to Disqualified Stock.
"Consolidated Non-Cash Charges" of any Person means, for any period, the
aggregate depreciation, amortization and other non-cash charges of such person
and its Consolidated Subsidiaries for such period, on a consolidated basis, as
determined in accordance with GAAP (excluding any such other non-cash charge to
the extent it requires an accrual or reserve for cash charges for any future
period).
"Consolidation" means the consolidation of the amounts of each of the
Restricted Subsidiaries with those of the Company in accordance with GAAP
consistently applied; PROVIDED, HOWEVER, that "Consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of the Company or any Restricted Subsidiary in a Unrestricted Subsidiary will be
accounted for as an investment. The term "Consolidated" has a correlative
meaning.
"Credit Agreement" means the Credit Agreement dated as of August 7, 1996,
among Core-Mark International, Inc., the several lenders from time to time
parties thereto and The Chase Manhattan Bank, as Administrative Agent, as in
effect on the Issue Date.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
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"Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness which, at the date of determination, has an
aggregate principal amount outstanding of, or under which, at the date of
determination, the holders thereof, are committed to lend, at least $10 million
and is specifically designated by the Company in the instrument evidencing or
governing such Senior Indebtedness as "Designated Senior Indebtedness" for
purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable or exercisable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to 180 days after the Stated
Maturity of the Notes; PROVIDED, HOWEVER, that any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require the Company to purchase or redeem such Capital Stock upon
the occurrence of a change of control occurring prior to the Stated Maturity of
the Notes shall not constitute Disqualified Stock if the change of control
provisions applicable to such Capital Stock are no more favorable to the holders
of such Capital Stock than the provisions of the covenant described under
"--Change of Control" are to the holders of the Notes and such Capital Stock
specifically provides that the Company will not purchase or redeem any such
Capital Stock pursuant to such provisions prior to the Company's purchase of the
Notes as are required to be purchased pursuant to the covenant described under
"--Change of Control."
"Domestic Subsidiary" means any Restricted Subsidiary of the Company other
than a Foreign Subsidiary.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Financing Disposition" means any sale of Receivables, or interests therein,
by the Company or any Subsidiary to the Receivables Subsidiary, or by the
Receivables Subsidiary.
"Foreign Subsidiary" means any Restricted Subsidiary of the Company which is
not organized under the laws of the United States of America or any State
thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession.
All ratios and computations based on GAAP contained in the Indenture shall be
computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
PROVIDED, HOWEVER, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Guarantor Subsidiary" means any Person that has issued a Note Guarantee.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
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"Holder" or "Noteholder" means the Person in whose name a Note is registered
on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
person at the time it becomes a Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money; (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto) (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in (i), (ii) and (v)) entered into in the ordinary course
of business of such Person to the extent that such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no
later than the third Business Day following receipt by such person of a demand
for reimbursement following payment on the letter of credit); (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services (except Trade Payables), which purchase price is due more
than six months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services; (v) all
Capitalized Lease Obligations of such Person; (vi) the amount of all obligations
of such Person with respect to the redemption, repayment or other repurchase of
any Disqualified Stock or, with respect to any Subsidiary of the Company, any
Preferred Stock (but excluding, in each case, any accrued dividends); (vii) all
Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person; PROVIDED, HOWEVER,
that the amount of Indebtedness of such Person shall be the lesser of (A) the
fair market value of such asset at such date of determination and (B) the amount
of such Indebtedness of such other Persons; (viii) all Indebtedness of other
Persons to the extent Guaranteed by such Person; and (ix) to the extent not
otherwise included in this definition, Hedging Obligations of such Person.
Notwithstanding the foregoing, Indebtedness shall not include any liability for
Federal, state, local or other taxes owed or owing by the Company to any
governmental entity. The amount of Indebtedness of any Person at any date shall
be the outstanding balance at such date of all unconditional obligations as
described above and the maximum liability, upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations at such
date.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of the Person making such loan or
advance) or other extension of credit (including by way of Guarantee or similar
arrangement) or capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or services for the account
or use of others), or any purchase or acquisition of Capital Stock, Indebtedness
or other similar instruments issued by such Person. For purposes of the
definition of "Unrestricted Subsidiary" and the covenant described under
"--Certain Covenants--Limitation on Restricted Payments," (i) "Investment" shall
include the portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of any Subsidiary of the
Company at the time that such Subsidiary is designated an Unrestricted
Subsidiary; PROVIDED, HOWEVER, that upon a redesignation of such Subsidiary as a
Restricted Subsidiary, the Company shall be deemed to continue to have a
permanent "Investment" in an Unrestricted
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Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in
such Subsidiary at the time of such redesignation less (y) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Investors" means Gary L. Walsh, Robert A. Allen, Leo F. Korman,
Leo Granucci, J. Michael Walsh and Basil P. Prokop.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment pursuant to, or
monetization (but not for less than fair market value) of, a note or installment
receivable or otherwise (other than amounts constituting interest thereon), but
only as and when received, but excluding any other consideration received in the
form of assumption by the acquiring person of Indebtedness or other obligations
relating to the properties or assets that are the subject of such Asset
Disposition or received in any other noncash form) therefrom, in each case net
of (i) all legal, title and recording tax expenses, commissions and other fees
and expenses incurred, and all Federal, state, provincial, foreign and local
taxes required or estimated in good faith to be required to be paid or accrued
as a liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any Indebtedness which is secured by any assets subject to such
Asset Disposition, in accordance with the terms of any Lien upon such assets, or
which must by its terms or the terms of any related instrument or agreement, or
in order to obtain a necessary consent to such Asset Disposition, or by
applicable law be repaid out of the proceeds from such Asset Disposition, (iii)
all distributions and other payments required to be made to minority interest
holders in Subsidiaries or joint ventures as a result of such Asset Disposition
and (iv) appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the assets
disposed of in such Asset Disposition and retained by the Company or any
Restricted Subsidiary after such Asset Disposition (including without limitation
amounts reserved for the cost of any indemnification payments (fixed or
contingent) attributable to the seller's indemnities to the purchaser in respect
of such Asset Disposition).
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Note Guarantee" means any guarantee that may from time to time be executed
and delivered by a Subsidiary of the Company pursuant to which such Subsidiary
will Guarantee payment of the Notes. Each Note Guarantee will be limited in
amount to an amount not to exceed the maximum amount that can be Guaranteed by
that Subsidiary without rendering the Note Guarantee, as it relates to such
Subsidiary, voidable under applicable law relating to fraudulent conveyance or
fraudulent transfer or similar laws affecting the rights of creditors generally.
Each such Note Guarantee will be in the form prescribed in the Indenture.
"Officer" means the Chairman of the Board, Chief Executive Officer, Chief
Financial Officer, the President, any Vice President, the Controller, the
Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
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"Operating Income" means, with respect to the Company and its Restricted
Subsidiaries for any period, operating income determined in accordance with GAAP
and Rule 5-03 under Regulation S-X promulgated by the Commission (as interpreted
in good faith by the Company and its independent public accountants and in a
manner consistent with the Company's historical audited financial statements as
of the Issue Date); PROVIDED, HOWEVER, that there shall not be included in
Operating Income: (i) any operating income (loss) of any Restricted Subsidiary
if such Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that (A) subject to
the limitations contained in (ii) below, the Company's proportionate share of
the operating income of any such Restricted Subsidiary for such period shall be
included in such Operating Income up to the amount that is proportionate to the
net income that could have been distributed by such Restricted Subsidiary during
such period to the Company or another Restricted Subsidiary in cash as a
dividend (subject, in the case of a dividend that could have been made to
another Restricted Subsidiary, to the limitation contained in this clause) and
(B) the Company's proportionate share of an operating loss of any such
Restricted Subsidiary for such period shall be included in determining such
Operating Income, (ii) any gain or loss realized upon the sale or other
disposition of any asset of the Company or its consolidated Subsidiaries
(including pursuant to any Sale/Leaseback Transaction) which is not sold or
otherwise disposed of in the ordinary course of business and any gain or loss
realized upon the sale or other disposition of any Capital Stock of any Person,
and (iii) the cumulative effect of a change in accounting principles.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Permitted Holders" means (i) each of the Management Investors, (ii) Jupiter
Partners L.P. and (iii) (a) any spouse or lineal descendant (including by
adoption) of any Person described in clause (i) or any spouse of any such lineal
descendant; (b) in the event of the incompetence or death of any Person
described in clause (i) or in subclause (a) of this clause (iii), such Person's
estate, executor, administrator or other legal representative; (c) any trust
100% in interest of the beneficiaries of which consists of Persons described in
clause (i) or in subclause (a) of this clause (iii); or (d) any limited
liability company, corporation or partnership 100% of the members, stockholders
or partners of which are Persons described in clause (i) or in subclause (a) of
this clause (iii); PROVIDED, HOWEVER, that no Person described in this clause
(iii) shall be a Permitted Holder if such Person is the beneficial owner (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act) directly or indirectly
of more than 10% of the voting power of the Voting Stock of the applicable
company.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) a Restricted Subsidiary or a Person which will, upon the
making of such Investment, become a Restricted Subsidiary; PROVIDED, HOWEVER,
that the primary business of such Restricted Subsidiary is a Related Business;
(ii) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
PROVIDED, HOWEVER, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary, if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; PROVIDED,
HOWEVER, that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(vi) loans or advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted Subsidiary;
(vii) loans to employees for the payment of the exercise price of options to
purchase Capital Stock of the Company or loans to satisfy federal or state
income tax withholding requirements relating to the issuance of Capital Stock of
the Company pursuant
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to the Company's employee stock plans, in an aggregate amount with respect to
all loans described in this clause (vii) not to exceed $500,000 outstanding at
any one time; (viii) stock, obligations or securities received in settlement of
debts (including payment obligations of customers) created in the ordinary
course of business and owing to the Company or any Restricted Subsidiary or in
satisfaction of judgments; (ix) a Person to the extent such Investment
represents the non-cash consideration otherwise permitted to be received by the
Company or its Restricted Subsidiaries in connection with an Asset Disposition;
(x) prepayments and other credits to suppliers made in the ordinary course of
business consistent with the past practices of the Company and its Restricted
Subsidiaries; (xi) payments to customers in consideration for such customers'
agreements with the Company to purchase goods and inventory made in the ordinary
course of business consistent with past practices of the Company and its
Restricted Subsidiaries and (xii) performance bonds or similar Investments in
connection with pledges, deposits or payments made or given in the ordinary
course of business in connection with or to secure statutory, regulatory or
similar obligations, including obligations under health, safety or environmental
obligations.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Public Market" means any time after (x) a Public Equity Offering has been
consummated and (y) at least 15% of the total issued and outstanding common
stock of the Company has been distributed by means of an effective registration
statement under the Securities Act.
"Receivable" means a right to receive payment arising from a sale or lease
of goods or services by a Person pursuant to an arrangement with another Person
pursuant to which such other Person is obligated to pay for goods or services
under terms that permit the purchase of such goods and services on credit, as
determined in accordance with GAAP.
"Receivables Financing" means any financing by the Receivables Subsidiary
secured substantially by Receivables of the Company and its Subsidiaries that
have been transferred to the Receivables Subsidiary in a Financing Disposition,
provided that (i) all sales of Receivables to or by the Receivables Subsidiary
are made at fair market value (as determined in good faith by the Board of
Directors), (ii) the interest rate applicable to such Receivables Financing
shall be a market interest rate (as determined in good faith by the Board of
Directors) as of the time such financing is entered into and (iii) such
financing is non-recourse to the Company and its Subsidiaries (other than the
Receivables Subsidiary) except to a limited extent customary for such
financings.
"Receivables Subsidiary" means a bankruptcy-remote, special purpose Wholly
Owned Subsidiary formed for the purposes of a Receivables Financing that (a) is
engaged solely in the business of acquiring, selling, collecting, financing or
refinancing Receivables, accounts (as defined in the Uniform Commercial Code)
and other accounts and receivables (including any thereof constituting or
evidenced
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by chattel paper, instruments or general intangibles), all proceeds thereof and
all rights (contractual and other), collateral and other assets relating
thereto, and any business or activities incidental or related to such business,
and (b) is designated as a "Receivables Subsidiary" by the Board of Directors.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) (collectively, "refinances," and "refinanced" shall have
a correlative meaning) any Indebtedness existing on the date of the Indenture or
Incurred in compliance with the Indenture (including Indebtedness of the Company
that refinances Indebtedness of any Restricted Subsidiary (to the extent
permitted in the Indenture) and Indebtedness of any Restricted Subsidiary that
refinances Indebtedness of another Restricted Subsidiary) including Indebtedness
that refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that (i) the
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being refinanced, (ii) the Refinancing Indebtedness
has an Average Life at the time such Refinancing Indebtedness is Incurred that
is equal to or greater than the Average Life of the Indebtedness being
refinanced and (iii) the Refinancing Indebtedness is Incurred in an aggregate
principal amount (or if issued with original issue discount, an aggregate issue
price) that is equal to or less than the aggregate principal amount (or if
issued with original issue discount, the aggregate accreted value) then
outstanding of the Indebtedness being refinanced; PROVIDED FURTHER, HOWEVER,
that Refinancing Indebtedness shall not include (x) Indebtedness of a Restricted
Subsidiary that refinances Indebtedness of the Company or (y) Indebtedness of
the Company or a Restricted Subsidiary that refinances Indebtedness of an
Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary to
the businesses of the Company and the Restricted Subsidiaries on the Issue Date.
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired by the Company or a Restricted Subsidiary whereby
the Company or such Restricted Subsidiary transfers such property to a Person
and the Company or such Restricted Subsidiary leases it from such Person, other
than leases between the Company and a Wholly Owned Subsidiary or between Wholly
Owned Subsidiaries.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank PARI PASSU with the Notes and is not subordinated by its terms to any
Indebtedness or other obligation of the Company which is not Senior
Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
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security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person or (ii) one or more
Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following: (i) any investment
in securities maturing within one year from the date of acquisition thereof
issued or Guaranteed or insured by the United States of America or any agency
thereof, (ii) investments in certificates of deposit and eurodollar time
deposits maturing within one year of the date of acquisition thereof issued by
any commercial bank having capital surplus in excess of $500,000,000, (iii)
repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clause (i) above entered into with a bank
meeting the qualifications described in clause (ii) above, (iv) investments in
commercial paper issued by a corporation organized and in existence under the
laws of the United States of America with a rating at the time as of which any
investment therein is made of "P-2" (or higher) according to Moody's Investors
Service, Inc. or "A-2" (or higher) according to Standard and Poor's Corporation,
(v) investments in securities with maturities of one year or less from the date
of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof or by any foreign government and rated at least "A" by
Standard & Poor's Corporation or "A" by Moody's Investors Service, Inc., (vi)
investments in securities maturing within one year from the date of acquisition
thereof backed by standby letters of credit issued by a bank meeting the
qualifications described in clause (ii) above, (vii) shares of money market
mutual or similar funds which invest primarily in assets satisfying the
requirements of clauses (i) through (vi) above, (vii) investments in any term
deposit receipts of the Bank of Montreal maturing within 90 days from the date
of acquisition thereof, (ix) investments in cash owned by the Company or any of
its Subsidiaries and denominated in Canadian dollars, (x) investments in readily
marketable direct obligations of the Government of Canada or any province
thereof or obligations unconditionally guaranteed by the full faith and credit
of the Government of Canada maturing within 90 days from the date of acquisition
thereof, (xi) investments in insured certificates of deposit, deposit notes or
term deposit receipts, maturing within 90 days from the date of acquisition
thereof, of any commercial bank listed on Schedule 1 of the Bank Act (Canada),
and (xii) investments in commercial paper maturing within 90 days from the date
of acquisition thereof in an aggregate amount of no more than $1,000,000 per
issuer outstanding at any time, issued by any corporation organized under the
laws of Canada or any province thereof and rated at least A-1 or better (or the
then equivalent grade) by Canada Bond Rating Service or R-2 (middle) or better
(or the then equivalent grade) by Dominion Bond Rating Service.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. SectionSection
77aaa-77bbbb) as in effect on the date of the Indenture.
"Total Receivables" means all receivables of a Person as determined in
accordance with GAAP, other than Receivables that are the subject of a
Receivables Financing.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
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"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) which
has become publicly available at least two Business Days prior to the Redemption
Date (or, if such Statistical Release is no longer published, any publicly
available source of similar market data)) most nearly equal to the period from
the Redemption Date to September 15, 2000; PROVIDED, HOWEVER, that if the period
from the Redemption Date to September 15, 2000, is not equal to the constant
maturity of a United States Treasury security for which a weekly average yield
is given, the Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of a year) from the weekly average yields
of United States Treasury Securities for which such yields are given, except
that if the period from the Redemption Date to September 15, 2000 is less than
one year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
"Trustee" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Company or any other Subsidiary of the Company that
is not a Subsidiary of the Subsidiary to be so designated; PROVIDED, HOWEVER,
that either (A) the Subsidiary to be so designated has total consolidated assets
of $1,000 or less or (B) if such Subsidiary has consolidated assets greater than
$1,000, then such designation would be permitted under the covenant entitled
"--Limitation on Restricted Payments." The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED, HOWEVER, that
immediately after giving effect to such designation (x) the Company could Incur
$1.00 of additional Indebtedness under paragraph (a) of the covenant described
under "--Limitation on Indebtedness" and (y) no Default shall have occurred and
be continuing. Any such designation by the Board of Directors shall be evidenced
to the Trustee by promptly filing with the Trustee a copy of the resolution of
the Board of Directors giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company all
the Capital Stock of which (other than directors' qualifying shares) is owned by
the Company or another Wholly Owned Subsidiary.
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BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the New Notes will be issued in the form of one
or more registered notes in global form without coupons (each a "Global Note").
Each Global Note will be deposited with, or on behalf of, The Depository Trust
Company (the "Depository") and registered in the name of Cede & Co., as nominee
of the Depository, or will remain in the custody of the Trustee pursuant to the
FAST Balance Certificate Agreement between the Depository and the Trustee.
The Depository has advised the Company that it is (i) a limited purpose
trust company organized under the laws of the State of New York, (ii) a member
of the Federal Reserve System, (iii) a "clearing corporation" within the meaning
of the Uniform Commercial Code, as amended, and (iv) a "Clearing Agency"
registered pursuant to Section 17A of the Exchange Act. The Depository was
created to hold securities for its participants (collectively, the
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to the
accounts of its Participants, thereby eliminating the need for physical transfer
and delivery of certificates. The Depository's Participants include securities
brokers and dealers (including the Initial Purchaser), banks and trust
companies, clearing corporations and certain other organizations. Access to the
Depository's system is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, the "Indirect Participants") that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Notes, the Depository will credit the
accounts of Participants with an interest in the Global Note and (ii) ownership
of the New Notes will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by the Depository (with respect to the
Interest of Participants), the Participants and the Indirect Participants. The
laws of some states require that certain persons take physical delivery in
definitive form of securities that they own and that security interests in
negotiable instruments can only be perfected by delivery of certificates
representing the instruments. Consequently, the ability to transfer New Notes or
to pledge the New Notes as collateral will be limited to such extent.
So long as the Depository or its nominee is the registered owner of a Global
Note, the Depository or such nominee, as the case may be, will be considered the
sole owner or Holder of the New Notes represented by the Global Note for all
purposes under the Indenture. Except as provided below, owners of beneficial
interests in a Global Note will not be entitled to have New Notes represented by
such Global Note registered in their names, will not receive or be entitled to
receive physical delivery of Certificated Securities, and will not be considered
the owners or Holders thereof under the Indenture for any purpose, including
with respect to the giving of any directions, instruction or approval to the
Trustee thereunder. As a result, the ability of a person having a beneficial
interest in New Notes represented by a Global Note to pledge such interest to
persons or entities that do not participate in the Depository's system or to
otherwise take action with respect to such interest, may be affected by the lack
of a physical certificate evidencing such interest.
Accordingly, each Person owning a beneficial interest in a Global Note must
rely on the procedures of the Depository and, if such Person is not a
Participant or an Indirect Participant, on the procedures of the Participant
through which such Person owns its interest, to exercise any rights of a Holder
under the Indenture or such Global Note. The Company understands that under
existing industry practice, in the event the Company requests any action of
Holders or a Person that is an owner of a beneficial interest in a Global Note
desires to take any action that the Depository, as the Holder of such Global
Note, is entitled to take, the Depository would authorize the Participants to
take such action and the Participant would authorize Persons owning through such
Participants to take such action or would otherwise act upon the instruction of
such Persons. Neither the Company nor the Trustee will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of Notes by the
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Depository, or for maintaining, supervising or reviewing any records of the
Depository relating to such Notes.
Payments with respect to the principal of, premium, if any, and interest on
any New Notes represented by a Global Note registered in the name of the
Depository or its nominee on the applicable record date will be payable by the
Trustee to or at the direction of the Depository or its nominee in its capacity
as the registered Holder of the Global Note representing such New Notes under
the Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names the New Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payment and
for any and all other purposes whatsoever. Consequently, neither the Company nor
the Trustee has or will have any responsibility or liability for the payment of
such amounts to beneficial owners of New Notes (including principal, premium, if
any, and interest), or to immediately credit the accounts of the relevant
Participants with such payment, in amounts proportionate to their respective
holdings in principal amount of beneficial interest in the Global Note as shown
on the records of the Depository. Payments by the Participants and the Indirect
Participants to the beneficial owners of Notes will be governed by standing
instructions and customary practice and will be the responsibility of the
Participants or the Indirect Participants.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that the Depository is no
longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of New
Notes in definitive form under the Indenture, then, upon surrender by the
Depository of its Global Notes, Certificated Securities will be issued to each
person that the Depository identifies as the beneficial owner of the New Notes
represented by the Global Note.
Neither the Company nor the Trustee shall be liable for any delay by the
Depository or any Participant or Indirect Participant in identifying the
beneficial owners of the related New Notes and each such person may conclusively
rely on, and shall be protected in relying on, instructions from the Depository
for all purposes (including with respect to the registration and delivery, and
the respective principal amounts, of the Notes to be issued).
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain copies of the Indenture
without charge by writing to: Core-Mark International, Inc., 395 Oyster Point
Boulevard, Suite 415, South San Francisco, California 94080.
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DESCRIPTION OF THE EXISTING NOTES
On September 27, 1996, the Company issued and sold $75,000,000 aggregate
principal amount of the Existing Notes. The form and terms of the Existing Notes
are the same as the form and terms of the New Notes except that the Existing
Notes are not registered under the Securities Act and bear legends restricting
the transfer thereof. See "Description of the New Notes."
In connection with the issuance of the Existing Notes, the Company and Chase
Securities Inc. and Donaldson Lufkin & Jenrette Securities Corporation, the
initial purchasers of the Existing Notes (the "Initial Purchasers"), entered
into an Exchange and Registration Rights Agreement (the "Registration Rights
Agreement") to provide for the Exchange Offer. The Registration Rights Agreement
also obligates the Company under certain circumstances to file with the
Commission a so-called "shelf" Registration Statement to register the resale of
the Notes under the Securities Act (a "Shelf Registration Statement"). The
Registration Rights Agreement further provides that if the Company fails to
complete the Exchange Offer, and/or to have the Shelf Registration Statement
become effective under the Securities Act, within and for certain specified time
periods, the Company would become obligated to pay to the Holders of affected
Notes liquidated damages at a rate of 1% per annum of the principal amount of
the affected Notes. Except as described under "Plan of Distribution," completion
of the Exchange Offer by the Company on or before February 9, 1999 will satisfy
the Company's obligations under the Registration Rights Agreement with respect
to the Exchange Offer. Following completion of the Exchange Offer, the Company
will be obligated to file and cause to become effective under the Securities Act
a Shelf Registration Statement only if (i) any Holder of Existing Notes (other
than exchanging dealer) is not permitted by applicable law to participate in the
Exchange Offer (such Holder being an "Ineligible Holder") or (ii) a participant
in the Exchange Offer (other than an exchanging dealer) does not receive a
freely tradable New Note in exchange for such Holder's Existing Note (an
"Affected Holder"). If a Shelf Registration Statement is required to be filed
under the Registration Rights Agreement, only those Notes held by an Ineligible
Holder or an Affected Holder will be required to be included therein. Liquidated
damages under the Registration Rights Agreement for failure to cause any such
Shelf Registration Statement to become and remain effective under the Securities
Act will only be payable in respect of Notes held by an Ineligible Holder on an
Affected Holder. HOLDERS OF EXISTING NOTES WHO DO NOT PARTICIPATE IN THE
EXCHANGE OFFER BUT WHO ARE NOT PROHIBITED BY APPLICABLE LAW OR INTERPRETATION
FROM PARTICIPATING IN THE EXCHANGE OFFER WILL NOT HAVE ANY RIGHT TO HAVE THEIR
EXISTING NOTES INCLUDED IN A SHELF REGISTRATION STATEMENT, NOR WILL ANY SUCH
HOLDER BE ENTITLED TO RECEIVE LIQUIDATED DAMAGES FOR FAILURE BY THE COMPANY TO
INCLUDE THEIR NOTES IN ANY SHELF REGISTRATION STATEMENT OR FOR FAILURE TO HAVE A
SHELF REGISTRATION STATEMENT BECOME AND REMAIN EFFECTIVE UNDER THE SECURITIES
ACT WITHIN THE TIME PERIOD SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT.
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CERTAIN UNITED STATES TAX CONSIDERATIONS
The following discussion of the principal federal income tax consequences to
United States Holders (as defined below) set forth below is intended only as a
summary and does not purport to be a complete analysis or listing of all
potential tax considerations that may be relevant to holders of the Notes. The
discussion deals only with Notes held as capital assets by United States
citizens and residents ("United States Holders") and does not include special
rules that may apply to certain holders (including insurance companies,
tax-exempt organizations, financial institutions or broker-dealers and foreign
corporations), and does not address the tax consequences of the laws of any
state, locality or foreign jurisdiction. The discussion is based upon currently
existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed Treasury regulations promulgated thereunder and
current administrative rulings and court decisions. All of the foregoing are
subject to change and any such change could affect the continuing validity of
this discussion.
EXCHANGE PURSUANT TO EXCHANGE OFFER
Although the matter is not free from doubt, an exchange of Existing Notes
for New Notes of the Company with terms identical to those of the Existing Notes
should not be a taxable event to holders of Notes, and holders should not
recognize any taxable gain or loss or any interest income as a result of such an
exchange. The Company is obligated to pay liquidated damages to the holder under
certain circumstances described under "Description of the Existing Notes" above.
Such payments should be treated for tax purposes as additional interest, taxable
to holders as such payments become fixed and determinable.
MARKET DISCOUNT
If a United States Holder purchases a Note for an amount that is less than
its principal amount, the amount of the difference will be treated as "market
discount" for federal income tax purposes, unless such difference is less than a
specified de minimis amount. Under the market discount rules, a United States
Holder will be required to treat any principal payment on, or any gain on the
sale, exchange, retirement or other disposition of, a Note as ordinary income to
the extent of the market discount which has not previously been included in
income and is treated as having accrued on such a Note at the time of such
payment or disposition. In addition, the United States Holder may be required to
defer, until the maturity of the Note or its earlier disposition in a taxable
transaction, the deduction of all or a portion of the interest expense on any
indebtedness incurred or continued to purchase or carry such Note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Note, unless the United
States Holder elects to accrue on a constant interest method. A United States
Holder of a Note may elect to include market discount in income currently as it
accrues (on either a ratable or constant interest method), in which case the
rule described above regarding deferral of interest deductions will not apply.
This election to include market discount in income currently, once made, applies
to all market discount obligations acquired on or after the first taxable year
to which the election applies and may not be revoked without the consent of the
Internal Revenue Service (the "IRS").
AMORTIZABLE BOND PREMIUM
A United States Holder that purchases a Note for an amount in excess of the
sum of its principal amount will be considered to have purchased the Note at a
"premium." A United States Holder generally may elect to amortize the premium
over the remaining term of the Note on a constant yield method. The amount
amortized in any year will be treated as a reduction of the United States
Holder's interest income from the Note. Bond premium on a Note held by a United
States Holder that does not make such an election will decrease the gain or
increase the loss otherwise recognized on disposition of the Note. The
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election to amortize premium on a constant yield method once made applies to all
debt obligations held or subsequently acquired by the electing United States
Holder on or after the first day of the first taxable year to which the election
applies and may not be revoked without the consent of the IRS.
SALE, EXCHANGE AND RETIREMENT OF NOTES
A United States Holder's tax basis in a Note will, in general, be the United
States Holder's cost therefor, increased by market discount previously included
in income by the United States Holder and reduced by any amortized premium. Upon
the sale, exchange or retirement of a Note, a United States Holder will
recognize gain or loss equal to the difference between the amount realized upon
the sale, exchange or retirement (less any accrued interest, which will be
taxable as such) and the adjusted tax basis of the Note. Except as described
above with respect to market discount, such gain or loss will be capital gain or
loss and will be long-term capital gain or loss if at the time of sale, exchange
or retirement the Note has been held for more than one year. Under current law,
long-term capital gains of individuals are, under certain circumstances, taxed
at lower rates than items of ordinary income. The deductibility of capital
losses is subject to limitations.
BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of principal, interest and premium paid on Notes and to the proceeds of
sale of a Note made to United States Holders other than certain exempt
recipients (such as corporations). A 31% backup withholding tax will apply to
such payments if the United States Holder fails to provide a taxpayer
identification number or certification of foreign or other exempt status or
fails to report in full dividend and interest income.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
THE FOREGOING SUMMARY OF THE PRINCIPAL FEDERAL INCOME TAX CONSEQUENCES TO
UNITED STATES HOLDERS DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION
THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF NOTES IN LIGHT OF HIS PARTICULAR
CIRCUMSTANCES AND INCOME TAX SITUATION. EACH HOLDER OF NOTES SHOULD CONSULT SUCH
HOLDER'S TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE
OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, OR SUBSEQUENT VERSIONS THEREOF.
ERISA CONSIDERATIONS
Sections 406 and 407 of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and Section 4975 of the Code prohibit certain employee
benefit plans, individual retirement accounts, individual retirement annuities,
and employee annuity plans ("Plans") from engaging in certain transactions with
persons who, with respect to such Plan, are "parties in interest" under ERISA or
"disqualified persons" under the Code. A violation of these "prohibited
transactions" rules may generate excise taxes under the Code and other
liabilities under ERISA for such persons. Possible violations of the prohibited
transaction rules could occur if the Notes are purchased with the assets of any
Plan if the Company or any of its affiliates is a party in interest or
disqualified person with respect to such Plan, unless such acquisition is
subject to a statutory or administrative exemption.
The foregoing discussion is general in nature and is not intended to be
all-inclusive. Any fiduciary of a Plan considering the purchase of the Notes
should consult its legal advisors regarding the consequences of such purchases
under ERISA and the Code. If the Plan is not subject to ERISA, the fiduciary
should consult its legal advisors regarding the consequences of any state law or
Code considerations.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Existing Notes
where such Existing Notes were acquired as a result of market-making activities
or other trading activities. The Company has agreed that, for a period of 180
days after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until , 1997, all dealers effecting
transactions in the New Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any commission
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 180 days after the close of the Exchange Offer the Company
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Existing Notes) other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the Existing Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the
Company by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York.
INDEPENDENT AUDITORS
The financial statements of the Company as of December 31, 1995 and 1994 and
for each of the years ended in the three-year period ended December 31, 1995
have been included herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants included elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995............................................... F-3
Consolidated Statements of Income for the years ended December 31, 1993, 1994 and 1995..................... F-4
Consolidated Statements of Common Shareholders' Equity for the years ended December 31, 1993, 1994 and
1995..................................................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets as of December 31, 1995 and
September 30, 1996....................................................................................... F-18
Condensed Consolidated Statements of Income for the nine months ended
September 30, 1995 and 1996.............................................................................. F-19
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 1995 and 1996.............................................................................. F-20
Notes to Condensed Consolidated Financial Statements....................................................... F-21
</TABLE>
F-1
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INDEPENDENT AUDITORS' REPORT
The Board of Directors
Core-Mark International, Inc.:
We have audited the accompanying consolidated balance sheets of Core-Mark
International, Inc. and subsidiaries (the "Company") as of December 31, 1995 and
1994, and the related consolidated statements of income, common shareholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Core-Mark
International, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
San Francisco, California
February 23, 1996
F-2
<PAGE>
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................................................... $ 17,080 $ 24,447
Receivables:
Trade accounts, less allowance for doubtful accounts of $2,692 and $3,600,
respectively........................................................................ 84,647 91,858
Other................................................................................. 10,432 13,332
Inventories, net of LIFO allowance of $7,661 and $11,076, respectively.................. 92,732 96,703
Prepaid expenses and other.............................................................. 3,248 4,542
---------- ----------
Total current assets................................................................ 208,139 230,882
---------- ----------
Property and equipment:
Equipment............................................................................... 26,530 33,000
Leasehold improvements.................................................................. 6,833 7,746
---------- ----------
33,363 40,746
Less accumulated depreciation and amortization.......................................... (16,508) (20,217)
---------- ----------
Net property and equipment.............................................................. 16,855 20,529
Other assets.............................................................................. 346 6,700
Goodwill, net of accumulated amortization of $11,264 and $13,242, respectively............ 68,403 66,425
---------- ----------
$ 293,743 $ 324,536
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................................................. $ 50,026 $ 47,205
Cigarette and tobacco taxes payable..................................................... 37,205 40,613
Income taxes payable.................................................................... 3,605 3,057
Deferred income taxes................................................................... 8,029 7,274
Other accrued liabilities............................................................... 20,228 28,503
---------- ----------
Total current liabilities........................................................... 119,093 126,652
---------- ----------
Long-term debt............................................................................ 84,627 101,598
Other accrued liabilities and deferred income taxes....................................... 8,910 8,617
---------- ----------
Total liabilities....................................................................... 212,630 236,867
---------- ----------
Commitments and contingencies:
Preferred shareholders' equity:
Mandatorily redeemable preferred stock; 50,000,000 shares authorized, issued and
outstanding; $50,000 redemption value................................................. 41,767 --
---------- ----------
Common shareholder's equity:
Common stock; $.001 par value; 100,000,000 shares authorized; 5,297 shares issued and
outstanding in 1994................................................................... -- --
Common stock; $.01 par value; 3,000 shares authorized; 100 shares issued and outstanding
in 1995............................................................................... -- --
Additional paid-in capital................................................................ 87,579 128,351
Accumulated deficit....................................................................... (42,513) (35,790)
Cumulative currency translation adjustments............................................... (1,954) (1,313)
Additional minimum pension liability...................................................... (3,766) (3,579)
---------- ----------
Total common shareholder's equity................................................... 39,346 87,669
---------- ----------
$ 293,743 $ 324,536
---------- ----------
---------- ----------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-3
<PAGE>
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1993 1994 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net sales........................................................... $ 1,868,932 $ 1,855,356 $ 2,047,187
Cost of goods sold.................................................. 1,704,982 1,719,999 1,901,604
------------- ------------- -------------
Gross profit...................................................... 163,950 135,357 145,583
Operating and administrative expenses............................... 117,411 116,080 125,245
------------- ------------- -------------
Operating income.................................................. 46,539 19,277 20,338
Interest expense, net............................................... 4,887 5,773 6,987
Debt refinancing costs.............................................. -- 1,600 1,065
------------- ------------- -------------
Income before income taxes and cumulative effects of changes in
accounting principles........................................... 41,652 11,904 12,286
Income tax expense.................................................. 2,472 2,816 5,563
------------- ------------- -------------
Income before cumulative effects of changes in accounting
principles...................................................... 39,180 9,088 6,723
Cumulative effects on prior years of changes in accounting
principles for:
Income taxes........................................................ 492 -- --
Postretirement benefits other than pensions......................... (988) -- --
------------- ------------- -------------
Net income.......................................................... $ 38,684 $ 9,088 $ 6,723
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-4
<PAGE>
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE ADDITIONAL TOTAL
------------------------- ADDITIONAL CURRENCY MINIMUM COMMON
SHARES PAID-IN ACCUMULATED TRANSLATION PENSION SHAREHOLDERS'
OUTSTANDING AMOUNT CAPITAL DEFICIT ADJUSTMENTS LIABILITY EQUITY
------------ ----------- ----------- ------------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992....... 670,000 $ 1 $ 103,567 $ (90,285) $ (714) $ (2,864) $ 9,705
Net income....................... -- -- -- 38,684 -- -- 38,684
Additional minimum pension
liability...................... -- -- -- -- -- (1,056) (1,056)
Capital contribution for
compensation................... -- -- 94 -- -- -- 94
Foreign currency translation
adjustment..................... -- -- -- -- (546) -- (546)
Increase in carrying value of
preferred stock................ -- -- (5,744) -- -- -- (5,744)
------------ ----------- ----------- ------------- ------------- ----------- --------------
Balance, December 31, 1993....... 670,000 1 97,917 (51,601) (1,260) (3,920) 41,137
Net income....................... -- -- -- 9,088 -- -- 9,088
Additional minimum pension
liability...................... -- -- -- -- -- 154 154
Capital contribution for
compensation................... -- -- 38 -- -- -- 38
Foreign currency translation
adjustment..................... -- -- -- -- (694) -- (694)
Increase in carrying value of
preferred stock................ -- -- (6,877) -- -- -- (6,877)
Purchases of common shares....... (664,703) (1) (3,499) -- -- -- (3,500)
------------ ----------- ----------- ------------- ------------- ----------- --------------
Balance, December 31, 1994....... 5,297 -- 87,579 (42,513) (1,954) (3,766) 39,346
Net income....................... -- -- -- 6,723 -- -- 6,723
Reduction in additional minimum
pension liability.............. -- -- -- -- -- 187 187
Increase in carrying value of
preferred stock................ -- -- (1,271) -- -- -- (1,271)
Recapitalization................. (5,197) -- 42,043 -- -- -- 42,043
Foreign currency translation
adjustment..................... -- -- -- -- 641 -- 641
------------ ----------- ----------- ------------- ------------- ----------- --------------
Balance, December 31, 1995....... 100 $ -- $ 128,351 $ (35,790) $ (1,313) $ (3,579) $ 87,669
------------ ----------- ----------- ------------- ------------- ----------- --------------
------------ ----------- ----------- ------------- ------------- ----------- --------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-5
<PAGE>
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS OF DOLLARS)
CASH PROVIDED BY
OPERATING ACTIVITIES:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Net income....................................................................... $ 38,684 $ 9,088 $ 6,723
Adjustments to reconcile net income to net cash provided by operating
activities:
LIFO (income) expense........................................................ (22,967) (547) 3,415
Amortization of goodwill..................................................... 1,978 1,978 1,978
Depreciation and amortization................................................ 3,759 3,563 3,965
Amortization of debt refinancing fees........................................ -- -- 1,065
Amortization of debt premium................................................. (3,454) (1,972) --
Deferred income taxes........................................................ 1,081 (72) (769)
Provision for postretirement benefits........................................ 861 63 64
Other adjustments for non-cash and non-operating activities.................. (361) (403) 805
Changes in operating assets and liabilities, net of acquisitions:
(Increase) decrease in trade accounts receivable............................. (3,329) 6,731 (3,789)
(Increase) decrease in other receivables..................................... (7,317) 2,649 (2,699)
(Increase) decrease in inventories........................................... 28,476 24,181 (3,285)
(Increase) decrease in prepaid expenses and other............................ (1,047) 96 (2,122)
Increase (decrease) in trade accounts payable................................ (25,428) 9,396 (3,303)
Increase in accrued liabilities and income taxes payable..................... 749 3,502 7,506
Increase (decrease) in cigarette and tobacco taxes payable................... 9,491 (3,545) 2,975
--------- --------- ---------
Net cash provided by operating activities........................................ 21,176 54,708 12,529
--------- --------- ---------
INVESTING ACTIVITIES:
Additions to property and equipment............................................ (5,501) (5,376) (7,286)
Net assets of acquired businesses.............................................. -- -- (9,610)
Other.......................................................................... (1,305) (598) --
--------- --------- ---------
Net cash used in investing activities............................................ (6,806) (5,974) (16,896)
--------- --------- ---------
FINANCING ACTIVITIES:
Net (payments) borrowings under revolving credit agreement..................... (7,896) (37,783) 16,971
Principal payments under term loan agreements.................................. (3,510) (2,303) --
Debt refinancing fees.......................................................... -- -- (5,379)
Purchases of common shares..................................................... -- (3,500) (195)
--------- --------- ---------
Net cash (used in) provided by financing activities.............................. (11,406) (43,586) 11,397
--------- --------- ---------
Effects of changes in foreign exchange rates..................................... (510) (519) 337
--------- --------- ---------
Increase in cash................................................................. 2,454 4,629 7,367
Cash, beginning of year.......................................................... 9,997 12,451 17,080
--------- --------- ---------
CASH, END OF YEAR................................................................ $ 12,451 $ 17,080 $ 24,447
--------- --------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments during the year for:
Interest....................................................................... $ 8,393 $ 7,384 $ 6,739
Income taxes................................................................... 528 920 6,903
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-6
<PAGE>
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
1. ORGANIZATION AND FORM OF BUSINESS
Core-Mark International, Inc. and subsidiaries (the "Company") is a
full-service wholesale distributor of tobacco, food and other consumer products
to convenience stores, grocery stores, mass merchandisers and liquor and drug
stores in western North America.
On December 16, 1994, the Company purchased all of the common stock owned by
its previous majority shareholder, leaving management as the sole common
shareholder as of December 31, 1994.
On March 2, 1995, the Company's capital structure was modified as described
in Note 4. As a result, management and the former preferred shareholders
beneficially own all of the outstanding common stock of the Company through a
newly formed limited liability company, Core-Mark L.L.C. ("LLC").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles. This
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Management believes any differences resulting from
estimates will not have a material effect on the Company's consolidated
financial position.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the Company and its wholly
owned subsidiaries. All significant intercompany balances and transactions are
eliminated.
FOREIGN CURRENCY
Assets and liabilities of the Company's Canadian operations are translated
at exchange rates in effect at year-end. Income and expenses have been
translated at average rates for the year. Adjustments resulting from such
translation are included in cumulative currency translation adjustments, a
separate component of common shareholder's equity.
EXCISE TAXES
State and provincial excise taxes paid by the Company on cigarettes were
$404,890,000, $435,018,000, and $466,533,000, for the years ended December 31,
1993, 1994, and 1995, respectively, and are included in net sales and cost of
goods sold.
INVENTORIES
Inventories are valued at the lower of cost or market. In the U.S., cost is
determined on a last-in, first-out (LIFO) basis (using Producer Price Indices as
determined by the Department of Labor and Statistics). Under LIFO, current costs
of goods sold are matched against current sales. Inventories in Canada amount to
$19,634,000 and $20,227,000 at December 31, 1994 and 1995, respectively, and are
valued on a first-in, first-out (FIFO) basis.
F-7
<PAGE>
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
During periods of rising prices, the LIFO method of costing inventories
generally results in higher current costs being charged against income while
lower costs are retained in inventories. An increase in cost of goods sold and a
decrease in inventories of $3,415,000 resulted from using the LIFO method for
the year ended December 31, 1995.
Conversely, in periods of decreasing prices, the LIFO method generally
results in a reduction of current costs charged against income while higher
costs are retained in inventories. In 1993, cigarette prices decreased
significantly, contributing to a net decrease in cost of goods sold and an
increase in inventories using the LIFO method of $22,967,000 for the year ended
December 31, 1993. In 1994, although cigarette prices remained flat, a reduction
in cigarette inventories contributed to a net decrease in cost of goods sold and
an increase in inventories using the LIFO method of $547,000 for the year ended
December 31, 1994.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, net of accumulated depreciation
and amortization. Depreciation and amortization are provided on the
straight-line method over the estimated useful lives of owned assets. The
estimated useful lives for equipment are principally 4 to 10 years. Leasehold
improvements are amortized over the estimated useful life of the property or
over the term of the lease, whichever is shorter.
GOODWILL
Goodwill, which is the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over a forty-year period.
Amortization expense for each of the years ended December 31, 1993, 1994 and
1995 was $1,978,000. The Company annually evaluates its carrying value and
expected period of benefit of goodwill in relation to results of operations. The
Company's review of goodwill includes an analysis of past operating results and
future projections related to the specific operations acquired.
REVENUE RECOGNITION
The Company recognizes revenue at the time the product is shipped to the
customer.
INCOME TAXES
On January 1, 1993 the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes". Under the asset and
liability method of SFAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Under
SFAS No. 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date. The cumulative effect of the change in accounting principle on the
Company's consolidated statement of income for the year ended
F-8
<PAGE>
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
December 31, 1993 was a benefit of $492,000. The Company previously provided for
income taxes in accordance with SFAS No. 96. See Note 7.
PENSION COSTS
Pension costs charged to earnings are determined on the basis of annual
valuations by an independent actuary. Adjustments arising from plan amendments,
changes in assumptions and experience gains and losses are amortized over the
expected average remaining service life of the employee group. See Note 6.
POSTRETIREMENT BENEFITS OTHER THAN PENSION
In December 1990, the Financial Accounting Standards Board issued SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions",
which establishes accounting and reporting standards for such benefits. SFAS No.
106 requires accrual of the expected cost of these benefits during the
employees' years of service. The assumptions and calculations involved in
determining the accrual closely parallel pension plan accounting requirements.
The Company adopted SFAS No. 106 effective January 1, 1993. The cumulative
effect of the change in accounting principal on the Company's consolidated
statement of income for the year ended December 31, 1993 was a charge of
$988,000. The Company previously recognized these costs on a cash basis. See
Note 6.
RECLASSIFICATIONS
Prior years' amounts in the consolidated financial statements have been
reclassified where necessary to conform to the current year's presentation.
3. FINANCING
Long-term debt consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- -----------
<S> <C> <C>
U.S. credit facility:
Term loan.......................................................... $ 37,127 $ --
Revolving credit facility.......................................... 47,500 101,598
--------- -----------
Long-term debt....................................................... $ 84,627 $ 101,598
--------- -----------
--------- -----------
</TABLE>
EXISTING CREDIT FACILITY
On March 2, 1995, the Company entered into the existing credit facility
which replaced the previously existing credit facility. The existing credit
facility provides for aggregate borrowings up to $175,000,000 until December 31,
1998 subject to borrowing base limitations based upon levels of eligible
inventories and accounts receivable. Included in this facility are letters of
credit up to a maximum of $40,000,000.
F-9
<PAGE>
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
3. FINANCING (CONTINUED)
Under the existing credit facility, Base Rate Advances bear interest at
1.25% above the bank's Base Rate. The Company has the option to borrow under
Eurodollar Rate Advances which bear interest at 2.5% above the bank's Eurodollar
Rate. The bank's Base Rate and Eurodollar Rate was 8.5% and 5.72%, respectively,
at December 31, 1995. There is a commitment fee of 0.5% on the unused portion of
the working capital revolving credit facility. The obligations are secured by
all assets of the Company, including inventories, trade accounts receivable and
property and equipment.
Under the existing credit facility, the Company must maintain certain
financial covenants, including, but not limited to, working capital, tangible
net worth, leverage and fixed charge coverage. The existing credit facility
limits certain activities of the Company, including, but not limited to,
indebtedness, creation of liens, acquisitions and dispositions, capital
expenditures, investments and dividends.
The Canadian credit facility allows for borrowings up to $16,000,000 for
general corporate use subject to and secured by letters of credit under the
existing credit facility. The Canadian dollar advances bear interest at the
Canadian bank's prime rate which was 7.5% at December 31, 1995. There were no
borrowings under this facility at December 31, 1994 and 1995.
The Company had letters of credit of $30,861,000 and $18,719,000 outstanding
at December 31, 1994 and 1995, respectively, of which $5,000,000 and $1,000,000,
respectively, were issued as security for the Canadian credit facility. The
remaining letters of credit are issued primarily to secure the Company's bond
and insurance programs. The Company pays fees of 2.25% per annum on the
outstanding portion of letters of credit.
The Company incurred approximately $4,900,000 for legal, professional, and
other costs related to the structuring of the existing credit facility. These
costs were capitalized and classified as other assets and are being amortized on
a straight-line basis over the term of the existing credit facility.
Amortization for the year ended December 31, 1995 was approximately $1,065,000.
PREVIOUSLY EXISTING CREDIT FACILITY
Under the terms of the facility which was in place through March 2, 1995,
total credit available at December 31, 1994 was approximately $132,337,000,
comprised of a $37,127,000 term loan and $95,210,000 under a revolving credit
facility. Included in this credit facility were letters of credit up to a
maximum of $55,000,000. Borrowings under this facility bore interest at the
bank's base rate plus 1.5%. Additionally, a commitment fee of 0.5% per annum was
charged on the unused portion. The obligations were collateralized by all asset
of the Company, including inventories, trade accounts receivable, and property
and equipment.
1991 DEBT AND CAPITAL RESTRUCTURING
In April 1991, the Company's U.S. credit facility was restructured,
resulting in the previously existing credit facility described above. Pursuant
to this restructuring, debt was converted into mandatorily redeemable preferred
stock and warrants to purchase common stock of the Company. The difference
between the face value of the debt converted and the fair value assigned to the
preferred stock and warrants was amortized as a reduction of interest expense on
an effective yield basis and amounted to $3,454,000 and $1,972,000 for the years
ended December 31, 1993 and 1994, respectively.
F-10
<PAGE>
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
3. FINANCING (CONTINUED)
The preferred stock was initially recorded at its 1991 estimated fair value
and has been increased to its redemption value by charges to additional paid-in
capital which amounted to $5,744,000, $6,877,000 and $1,271,000 for the years
ended December 31, 1993, 1994 and 1995, respectively. On March 2, 1995, the
preferred shareholders' stock and warrants were replaced pursuant to the
recapitalization described in Note 4.
4. RECAPITALIZATION
The Company changed its capital structure on March 2, 1995, simultaneously
with the execution of the existing credit facility described in Note 3. The
Company's common and preferred shareholders contributed their equity interest in
the Company in exchange for the equity interest in the LLC. Accordingly, the LLC
became the Company's sole common shareholder. Additionally, the Company
reincorporated in the State of Delaware and issued 100 shares of new $.01 par
value common stock to the LLC, in exchange for the old $.001 par value common
stock, preferred stock and warrants. As a result of this recapitalization, the
carrying value of the preferred stock was reclassified to additional paid-in
capital, increasing total common shareholder's equity. Approximately $800,000 of
legal, professional and other costs related to this recapitalization were
charged to additional paid-in capital.
In December 1995 the Company loaned a shareholder of the LLC $635,000 to
acquire another shareholder's equity interest in the LLC. This note bears
interest at the Company's average cost of funds and is due on or before December
2005.
5. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases the majority of its sales and warehouse distribution
facilities, automobiles and trucks under lease agreements expiring at various
dates through 2005, excluding renewal options. The leases generally require the
Company to pay taxes, maintenance and insurance. Management expects that in the
normal course of business, leases that expire will be renewed or replaced by
other leases.
Future minimum rental payments under non-cancelable operating leases (with
initial or remaining lease terms in excess of one year) were as follows as of
December 31, 1995 (in thousands):
<TABLE>
<S> <C>
1996.............................................................. $ 9,436
1997.............................................................. 7,639
1998.............................................................. 5,515
1999.............................................................. 3,957
2000.............................................................. 3,261
Thereafter........................................................ 8,010
---------
Total minimum lease payments.................................. 37,818
Less minimum sublease rental income........................... (2,730)
---------
$ 35,088
---------
---------
</TABLE>
F-11
<PAGE>
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Rental expense for operating leases was $11,118,000, $11,247,000 and
$11,308,000 for the years ended December 31, 1993, 1994 and 1995, respectively.
CLAIMS AND ASSESSMENTS
The Company and its subsidiaries are defendants to claims arising in the
ordinary course of business. Management has provided reserves it believes are
adequate and is of the view that the disposition of these matters will not have
a material adverse effect on the Company's consolidated financial position.
6. EMPLOYEE BENEFIT PLANS
PENSION PLAN
The Company sponsors a defined benefit pension plan for qualified employees.
As of September 30, 1986, the plan was frozen and plan participants ceased
accruing benefits as of that date. The most recent actuarial valuation of the
plan was performed as of January 1, 1995.
The following table sets forth the funded status of the plan and amounts
recognized in the Company's consolidated balance sheets as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Interest cost.......................................................... $ 1,086 $ 1,100
Return on assets....................................................... 155 (2,178)
Net other components................................................... (757) 1,413
--------- ---------
Net periodic pension cost.......................................... 484 335
--------- ---------
--------- ---------
Accumulated benefit obligation......................................... 13,372 14,972
Plan assets at estimated fair value.................................... 10,018 12,864
--------- ---------
3,354 2,108
Prepaid pension cost................................................... 412 1,471
--------- ---------
Additional minimum pension liability (a reduction of common
shareholder's equity)............................................ $ 3,766 $ 3,579
--------- ---------
--------- ---------
Weighted average discount rate......................................... 8.50% 7.50%
Expected long-term rate of return on assets............................ 7.50% 7.50%
</TABLE>
The additional minimum pension liability is equal to the accumulated benefit
obligation in excess of plan assets at estimated fair value, plus prepaid
pension costs.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors a defined benefit postretirement health care plan for
qualified employees. As of September 30, 1986, the plan was frozen and is only
available to those who qualify for the pension plan as described previously in
this note. The plan pays stated percentages of most necessary medical expenses
incurred by retirees, after subtracting payments by Medicare or other providers
and after a
F-12
<PAGE>
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
6. EMPLOYEE BENEFIT PLANS (CONTINUED)
stated deductible has been met. Participants become eligible for the benefit if
they retire from the Company after reaching age 55 with 5 or more years of
service and qualify under the Company defined benefit pension plan. The plan is
contributory, with retiree contributions adjusted annually. The Company does not
fund this plan.
The components of the expense under SFAS No. 106 are summarized in the
following table for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Service cost--benefits attributed to service during the period................ $ 29 $ 28
Interest cost on accumulated postretirement benefit obligation................ 135 154
Other components.............................................................. 53 54
--------- ---------
Net postretirement health care cost....................................... $ 217 $ 236
--------- ---------
--------- ---------
</TABLE>
The accumulated postretirement benefit obligation is summarized in the
following table at December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Retirees................................................................. $ 1,106 $ 1,379
Other fully eligible participants........................................ 244 268
Other active participants................................................ 342 513
--------- ---------
Total................................................................ 1,692 2,160
Prior service cost....................................................... -- 219
Unrecognized net loss.................................................... (768) (1,455)
--------- ---------
Accrued postretirement benefit liability............................. $ 924 $ 924
--------- ---------
--------- ---------
</TABLE>
For measurement purposes, a 13% annual rate of increase in the per capita
cost of covered health care claims was assumed for 1995; the rate was assumed to
decrease gradually to 6% for 2002, and remain at that level thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported. Increasing the assumed health care cost trend rates by 1% in each year
would increase the accumulated postretirement benefit obligation as of December
31, 1995 by $393,000 and the aggregate of the service and interest cost
components of net postretirement health care cost for the year ended December
31, 1995 by $34,000. The weighted-averaged discount rate used in determining the
accumulated postretirement benefit obligation was 7.5%.
7. INCOME TAXES
On January 1, 1993, the Company adopted SFAS No. 109 and has reported the
cumulative benefit of $492,000 of this change in accounting principle in the
year ended December 31, 1993 consolidated statement of income.
F-13
<PAGE>
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
7. INCOME TAXES (CONTINUED)
The Company's income tax expense consists of the following for the years
ended December 31 (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.......................................................................... $ 634 $ 675 $ 4,625
State............................................................................ 215 1,102 1,218
Foreign.......................................................................... 50 1,111 489
--------- --------- ---------
899 2,888 6,332
Deferred:
Federal.......................................................................... (271) 59 (990)
State............................................................................ 1,844 (353) 53
Foreign.......................................................................... -- 222 168
--------- --------- ---------
1,573 (72) (769)
--------- --------- ---------
Income tax expense................................................................. $ 2,472 $ 2,816 $ 5,563
--------- --------- ---------
--------- --------- ---------
</TABLE>
A reconciliation between the Company's income tax expense and income taxes
computed by applying the statutory federal income tax rate to income before
income taxes and cumulative effects of changes in accounting principles is as
follows for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Expected federal income tax expense at the statutory rate........................ $ 14,578 $ 4,166 $ 4,300
Increase (decrease) in taxes resulting from:
Goodwill amortization.......................................................... 692 692 692
State income tax expense, net of federal taxes................................. 1,339 487 684
Alternative minimum tax........................................................ 1,030 707 --
Utilization of loss carryforwards.............................................. (11,610) (8,432) (980)
Net operating loss and timing differences not tax effected..................... (3,639) 4,206 946
Other, net..................................................................... 82 990 (79)
--------- --------- ---------
Income tax expense............................................................... $ 2,472 $ 2,816 $ 5,563
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-14
<PAGE>
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
7. INCOME TAXES (CONTINUED)
The tax effects of significant temporary differences which comprise deferred
tax assets and liabilities are as follows at December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1995
---------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................................... $ 11,990 $ 10,822
Employee benefits, including postretirement benefits................ 4,508 4,768
Other............................................................... 4,269 5,196
---------- ---------
Total deferred tax assets......................................... 20,767 20,786
Less valuation allowance............................................ (11,842) (10,824)
---------- ---------
Net deferred tax assets........................................... 8,925 9,962
---------- ---------
Deferred tax liabilities:
Inventories......................................................... 9,420 9,001
Other............................................................... 7,681 8,374
---------- ---------
Total deferred tax liabilities.................................... 17,101 17,375
---------- ---------
Net deferred tax liability........................................ $ 8,176 $ 7,413
---------- ---------
---------- ---------
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. At each balance sheet date, a valuation allowance
has been established against the deferred tax assets based on management's
assessment of whether it is more likely than not that such deferred tax assets
will be realized. During 1994 and 1995, the Company recorded a reduction of
$4,015,000 and $1,018,000, respectively in the valuation allowance due to
changes in factors affecting the realizability of the Company's deferred tax
assets including generation of taxable income and changes in limitations on
utilization of net operating loss carryforwards.
At December 31, 1995, the Company has available for U.S. federal income tax
return purposes net operating losses totaling approximately $32,000,000, subject
to certain limitations, which will expire between the years 2005 and 2007. The
Company also has available for U.S. income tax return purposes investment tax
credits and alternative minimum credits totaling $500,000 and $1,100,000
respectively. The investment tax credits expire by the year 2000 while the
alternative minimum tax credits have an indefinite utilization period.
8. FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
The carrying amount for the Company's cash, trade accounts receivable, other
receivables, trade accounts payable, cigarette and tobacco taxes payable and
other accrued liabilities approximates fair market value because of the short
maturity of these financial instruments.
The carrying amount of the Company's long-term debt approximates fair market
value as the debt is a variable rate instrument. The rate of interest, which is
tied to either the bank's Base Rate or Eurodollar Rate, fluctuates with market
changes.
F-15
<PAGE>
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
9. SEGMENT INFORMATION
The Company has substantially all of its operations in the distribution
business. Its revenues are generated from the distribution of cigarettes,
tobacco products, candy, food, health and beauty aids, and general merchandise.
The Company operates principally in the United States and Canada. Foreign and
domestic net sales, operating income, and identifiable assets are as follows (in
thousands):
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
1993 1994 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net Sales:
United States..................................................... $ 1,297,494 $ 1,343,911 $ 1,538,816
Canada............................................................ 571,438 511,445 508,371
------------- ------------- -------------
Total............................................................. $ 1,868,932 $ 1,855,356 $ 2,047,187
------------- ------------- -------------
------------- ------------- -------------
Operating Income:
United States..................................................... $ 43,736 $ 16,590 $ 19,411
Canada............................................................ 2,803 2,687 927
------------- ------------- -------------
Total............................................................. $ 46,539 $ 19,277 $ 20,338
------------- ------------- -------------
------------- ------------- -------------
Identifiable Assets:
United States..................................................... $ 272,282 $ 237,558 $ 257,755
Canada............................................................ 50,958 48,898 49,284
Corporate......................................................... 6,615 7,287 17,497
------------- ------------- -------------
Total............................................................. $ 329,855 $ 293,743 $ 324,536
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-16
<PAGE>
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER SEPTEMBER
31, 30,
1995 1996
----------- -----------
ASSETS (UNAUDITED)
<S> <C> <C>
Current Assets:
Cash............................................................... $ 24,447 $ 16,394
Receivables:
Trade accounts, less allowance for doubtful accounts of $3,600
and $3,823, respectively....................................... 91,858 83,672
Other............................................................ 13,332 9,310
Inventories, net of LIFO allowance of $11,076 and $12,436,
respectively..................................................... 96,703 73,296
Prepaid expenses and other......................................... 4,542 5,713
----------- -----------
Total current assets............................................. 230,882 188,385
----------- -----------
Property and equipment............................................. 40,746 44,478
Less accumulated depreciation and amortization................... (20,217) (23,140)
----------- -----------
Net property and equipment....................................... 20,529 21,338
Other assets....................................................... 6,700 9,245
Goodwill, net of accumulated amortization of $13,242 and $14,726,
respectively..................................................... 66,425 64,941
----------- -----------
$ 324,536 $ 283,909
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Trade accounts payable........................................... $ 47,205 $ 43,880
Cigarette and tobacco taxes payable.............................. 40,613 38,861
Income taxes payable............................................. 3,057 2,915
Deferred income taxes............................................ 7,274 6,798
Other accrued liabilities........................................ 28,503 27,626
----------- -----------
Total current liabilities.................................... 126,652 120,080
----------- -----------
Long-term debt..................................................... 101,598 163,339
Other accrued liabilities and deferred income taxes................ 8,617 8,563
----------- -----------
Total liabilities................................................ 236,867 291,982
----------- -----------
Commitments and contingencies
Common shareholder's equity:
Common stock; $.01 par value; 3,000 shares authorized; 100 shares
issued and outstanding in 1995................................. -- --
Common stock; $.01 par value; 10,000,000 shares authorized;
5,500,000 shares issued and outstanding in 1996................ -- 55
Additional paid-in capital......................................... 128,351 26,121
Accumulated deficit................................................ (35,790) (29,569)
Cumulative currency translation adjustments........................ (1,313) (1,101)
Additional minimum pension liability............................... (3,579) (3,579)
----------- -----------
Total common shareholder's equity............................ 87,669 (8,073)
----------- -----------
$ 324,536 $ 283,909
----------- -----------
----------- -----------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-17
<PAGE>
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1995 1996
------- ----------
<S> <C> <C>
Net sales......................................... $1,528,710 $1,637,266
Cost of good sold................................. 1,420,099 1,518,946
------- ----------
Gross profit.................................... 108,611 118,320
Operating and administrative expenses............. 92,583 97,402
------- ----------
Operating income................................ 16,028 20,918
Interest expense, net............................. 5,408 5,665
Debt refinancing and issuance costs............... 746 928
------- ----------
Income before income taxes and extraordinary
item.......................................... 9,874 14,325
Income tax expense................................ 4,456 6,274
------- ----------
Income before extraordinary item................ 5,418 8,051
Extraordinary item, net of tax (Note 2)........... -- (1,830)
------- ----------
Net income...................................... $ 5,418 $ 6,221
------- ----------
------- ----------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-18
<PAGE>
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
------- -------
NINE MONTHS
ENDED SEPTEMBER
30,
----------------
<S> <C> <C>
NET CASH PROVIDED BY
OPERATING ACTIVITIES............................ $34,223 $43,668
INVESTING ACTIVITIES:
Additions to property and equipment............. (4,763) (3,983)
Net assets of acquired businesses............... (9,610) --
Other........................................... (2) (64)
------- -------
Net cash used in investing activities............. (14,375) (4,047)
FINANCING ACTIVITIES:
Issuance of senior subordinated notes........... -- 75,000
Net payments under revolving credit agreement... (15,956) (13,259)
Debt refinancing and issuance costs............. (5,380) (7,474)
Net proceeds from sale of common stock.......... -- 39,075
Purchase of common shares....................... (195) (141,250)
------- -------
Net cash used in financing activities............. (21,531) (47,908)
------- -------
Effects of changes in foreign exchange rates...... 476 234
------- -------
Decrease in cash.................................. (1,207) (8,053)
Cash, beginning of period......................... 17,080 24,447
------- -------
CASH, END OF PERIOD............................... $15,873 $16,394
------- -------
------- -------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments during the period for:
Interest........................................ $ 5,162 $ 5,270
Income taxes.................................... 4,847 5,565
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-19
<PAGE>
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of September 30, 1996, the
condensed consolidated statements of income for the nine-month periods ended
September 30, 1995 and 1996, and the condensed consolidated statements of cash
flows for the nine-month periods ended September 30, 1995 and 1996, have been
prepared by the Company. In the opinion of management, all adjustments
consisting only of normal recurring adjustments, necessary to present fairly the
financial position of the Company (subject to year-end adjustments) with respect
to the interim financial statements, and of the results of its operations and
cash flows for the interim periods then ended, have been included. The results
of operations for the interim periods are not necessarily indicative of the
operating results for the full year.
The condensed consolidated balance sheet as of December 31, 1995, is derived
from the audited financial statements but does not include all disclosures
required by generally accepted accounting principles. The notes accompanying the
consolidated financial statements in the Prospectus include accounting policies
and additional information pertinent to an understanding of both the
December 31, 1995 balance sheet and the interim financial statements.
2. RECAPITALIZATION
On August 7, 1996, the Company completed a recapitalization (the
"Recapitalization") which resulted in the purchase of newly issued common stock
of the Company by Jupiter Partners L.P. ("Jupiter") for $41.3 million in cash,
the redemption of all of the common stock held by three financial institutions
and a portion of the common stock held by six members of senior management
("Senior Management") for $135.0 million in cash and $6.3 million initial value
of subordinated notes due 2004. In connection with the Recapitalization and new
credit facility described below, the Company paid an affiliate of Jupiter an
advisory fee of $2.2 million on August 7, 1996. Upon completion of the
Recapitalization, Jupiter and Senior Management owned 75% and 25%, respectively,
of the outstanding common stock of the Company. Jupiter also purchased from the
Company an $18.6 million subordinated note due 2004. Both of these subordinated
notes were repaid prior to September 30, 1996, as discussed in Note 3.
In connection with the Recapitalization, the Company entered into a credit
facility with a group of banks, which provides for aggregate borrowings of up to
$210.0 million, consisting of: (i) a $35.0 million term loan (the "Term Loan"),
which was repaid as discussed in Note 3, and (ii) a revolving credit facility
(the "Revolving Credit Facility"), under which borrowings in the amount of up to
$175.0 million are available (subject to compliance with a borrowing base) for
working capital and general corporate purposes. Under the Revolving Credit
Facility the Company has the option to borrow under Eurodollar Rate Advances,
which bear interest at 2.5% above the bank's Eurodollar Rate, or Base Rate
Advances which bear interest at 1.5% above the bank's Base Rate. The bank's Base
Rate and Eurodollar Rate was 8.25% and 5.41%, respectively, at September 30,
1996. There is a commitment fee of 0.5% on the unused portion of the Revolving
Credit Facility.
Simultaneously with the closing of the stock purchase and the redemptions,
the Company fully repaid the outstanding debt under a previous credit facility.
The early extinguishment of the previously
F-20
<PAGE>
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
2. RECAPITALIZATION (CONTINUED)
existing debt resulted in a one-time extraordinary charge to income to write-off
unamortized debt refinancing costs of $1.8 million which is net of a $1.2 milion
income tax benefit.
3. NOTE OFFERING
On September 27, 1996, the Company issued $75.0 million of 11 3/8% Senior
Subordinated Notes (the "Notes") which mature on September 15, 2003, the
proceeds of which were used to repay in full the subordinated notes and Term
Loan discussed in Note 2. Interest on the Notes is payable semi-annually on
March 15 and September 15 of each year commencing on March 15, 1997.
4. INVENTORIES
The condensed consolidated financial statements have been prepared using the
LIFO method of accounting for inventories. An increase in cost of goods sold and
a decrease in inventories resulted using the LIFO method of $1,848,000 and
$1,360,000 for the nine months ended September 30, 1995 and 1996, respectively.
Interim LIFO calculations are based on management's estimates of year-end
inventory levels and inflation rates for the year.
5. EXCISE TAXES
State and provincial excise taxes paid by the Company on cigarettes were
$346,208,000 and $361,118,000 for the nine months ended September 30, 1995 and
1996, respectively. These amounts are included in net sales and cost of goods
sold for the periods indicated.
F-21
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
- ------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information..................... 3
Prospectus Summary........................ 4
Summary Financial and Other Data.......... 12
Risk Factors.............................. 14
The Company...............................
Use of Proceeds........................... 21
Capitalization............................ 22
Selected Historical and Pro Forma
Consolidated Financial and Other Data.... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 26
The Exchange Offer........................
Business.................................. 44
Management................................ 59
Recapitalization and Related
Transactions.............................
Certain Relationships and Related
Transactions.............................
Ownership of Voting Securities............ 63
Certain Transactions...................... 64
Description of Senior Credit Facility..... 65
Description of Capital Stock.............. 66
Description of the New Notes.............. 67
Description of the Existing Notes......... 98
Certain United States Tax
Considerations........................... 99
ERISA Considerations...................... 100
Plan of Distribution...................... 101
Legal Matters............................. 101
Independent Auditors...................... 101
Index to Consolidated Financial
Statements............................... F-1
</TABLE>
------------------------
UNTIL (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
PROSPECTUS
$75,000,000
CORE-MARK
INTERNATIONAL, INC.
OFFER TO EXCHANGE $75,000,000 OF ITS 11 3/8% SENIOR SUBORDINATED NOTES DUE 2003
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR $75,000,000 OF ITS
OUTSTANDING 11 3/8% SENIOR SUBORDINATED NOTES DUE 2003.
[LOGO]
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by the Company
in connection with the offering of New Notes. All amounts are estimates except
the registration fees.
<TABLE>
<S> <C>
Registration fees................................................ $ 23,239
Printing......................................................... 75,000
Legal expenses................................................... 75,000
Trustee's and Exchange Agent's fees.............................. 3,000
Accounting fees.................................................. 50,000
Miscellaneous.................................................... 10,000
---------
Total........................................................ $ 236,239
---------
---------
</TABLE>
- ------------------------
* To be supplied by amendment.
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Delaware corporation. Subsection (b)(7) of Section 102 of
the Delaware General Corporation Law (the "DGCL"), enables a corporation in its
original certificate of incorporation or an amendment thereto to eliminate or
limit the personal liability of a director to the corporation or its
stockholders for monetary damages for violations of the director's fiduciary
duty, except (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the DGCL (providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions) or
(iv) for any transaction from which a director derived an improper personal
benefit. Article Seventh of the Company's Certificate of Incorporation has
eliminated the personal liability of directors to the fullest extent permitted
by Subsection (b)(7) of Section 102 of the DGCL.
Subsection (a) of Section 145 of the DGCL empowers a corporation to
indemnify any director or officer, or former director or officer, who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding
provided that such director or officer acted in good faith in a manner
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, provided
further that such director or officer had no reasonable cause to believe his
conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any director or officer, or former director or officer, who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit provided that such director or officer
acted in
II-1
<PAGE>
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation, except that no indemnification may be
made in respect of any claim, issue or matter as to which such director or
officer shall have been adjudged to be liable to the corporation unless and only
to the extent that the Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all of the circumstances of the case, such director
or officer is fairly and reasonably entitled to indemnification for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to in subsections (a) and (b) of Section 145 or in the defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonable incurred by such
person in connection therewith; that indemnification and advancement of expenses
provided for, by, or granted pursuant to, Section 145 shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and empowers the corporation to purchase and maintain insurance on behalf of any
person who is or was a director of officer of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or incurred by him in any
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.
Article SEVENTH of the Company's Certificate of Incorporation provides, in
relevant part, as follows:
"(a) A director of the Corporation shall not be personally liable either to
the Corporation or to any stockholder for monetary damages for breach of
fiduciary duty as a director, except (i) for any breach of the director's duty
of loyalty to the Corporation or its stockholders, or (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, or (iii) under Section 174 of the DGCL or any successor provision
thereto or (iv) for any transaction from which the director shall have derived
an improper personal benefit. Neither amendment nor repeal of this paragraph (a)
nor the adoption of any provision of the Certificate of Incorporation
inconsistent with this paragraph (a) shall eliminate or reduce the effect of
this paragraph (a) in respect of any matter occurring, or any cause of action,
suit or claim that, but for this paragraph (a) of this Article SEVENTH, would
accrue or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
(b) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to, or testifies in, any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative in nature, by reason of the fact that such person is or was a
director, officer, employee, agent, stockholder or a holder of any ownership
interest in any stockholder of the Corporation (each, an "Indemnitee"), or is or
was serving at the request of the Corporation as a director or officer of
another corporation, partnership, joint venture, employee benefit plan, trust or
other enterprise (an "Other Entity"), against expenses (including attorneys'
fees and disbursements), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding to the full extent permitted by law. Persons who are not
Indemnitees of the Corporation may be similarly indemnified in respect of
service to the Corporation or to an Other Entity at the request of the
Corporation to the extent the Board of Directors at any time specifies that such
persons are entitled to the benefits of this Article SEVENTH, and the
Corporation may adopt By-Laws or enter into agreements with any such person for
the purpose of providing for such indemnification."
In addition, each of the Company's directors and Mr. Leo F. Korman, the
Company's Chief Financial Officer, and Ms. Debra L. Varian, the Company's
Controller (collectively, the "Indemnitees"), is party to an identical
indemnification agreement with the Company. Pursuant to such agreements, the
Company has agreed generally to indemnify and hold harmless each Indemnitee
against any losses incurred in connection with any suit, arbitration or
proceeding resulting from such Indemnitee's service as an officer,
II-2
<PAGE>
agent, employee or director of the Company, provided that the Company will
generally not be required to indemnify an Indemnitee in connection with losses
arising out of the Indemnitee's own fraudulent or willful misconduct. Each
indemnification agreement terminates upon the occurrence of a Change of Control
(as defined in the agreements) of the Company, however that the Company's
obligations to indemnify for events occurring prior to such Change of Control
continue.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described under Item 14 or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer nor controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of Form S-4, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it becomes effective.
II-3
<PAGE>
ITEM 21. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
**2.1 Stock Subscription Agreement, dated June 17, 1996, by and among Jupiter Partners, L.P., as amended
**2.2 Stock Purchase Agreement, dated June 17, 1996, by and between
Core-Mark L.L.C. and the Company, as amended
**3.1 Articles of Incorporation of the Company
**3.2 By-laws of the Company
**4.1 Indenture, dated as of September 27, 1996, between the Company and Bankers Trust Company as Trustee
**4.2 Exchange and Registration Rights Agreement, dated September 27, 1996, among the Company, Chase
Securities Inc. and Donaldson, Lufkin & Jenrette Securities Corporation
**4.3 Form of Face of Initial Security
**4.4 Form of Face of Exchange Security
*4.5 Form of Letter of Transmittal
**4.6 Form of Notice of Guaranteed Delivery
**4.7 Guidelines for Certification of Taxpayer Identification Number or Substitute Form W-9
**5 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison re the legality of the Notes being registered
**10.1 Manufacturing Rights Agreement by and among Famous Value Brands, the Company, Core-Mark Interrelated
Companies, Inc. and C/M Products, Inc.+
**10.2 Manufacturing Agreement for "Best Buy" Cigarettes by and between Famous Value Brands and C/M
Products, Inc.+
**10.3 Trademark License Agreement by and between Famous Value Brands and Core-Mark Interrelated Companies,
Inc.+
**10.4 The Credit Agreement, dated August 7, 1996, among the Company, several lenders parties thereto and
The Chase Manhattan Bank
**10.5 Stockholders Agreement dated as of August 7, 1996, by and among the Company and all of the holders of
its Common Stock
**10.6.1 Severance and Noncompetition Agreement, dated August 7, 1996, between the Company and Gary L. Walsh
**10.6.2 Schedule of Severance and Noncompetition Agreements omitted pursuant to Instruction no. 2 to Item 601
of Regulation S-K
**10.7 Letter, dated August 7, 1996, from Jupiter Partners LP to Gary L. Walsh
**10.8 Purchase Agreement, dated September 24, 1996, between the Company, Chase Securities Inc. and
Donaldson, Lufkin & Jenrette Securities Corporation
*10.9.1 Indemnification Agreement, dated November 12, 1996, between the Company and John F. Klein
*10.9.2 Schedule of Indemnification Agreements omitted pursuant to Instruction no. 2 to Item 601 of
Regulation S-K
*12 Statements re computation of ratios
**21 List of Subsidiaries of the Company
*23.1 Consent of KPMG Peat Marwick LLP
**23.2 Consent of Paul, Weiss, Rifkind, Wharton & Garrison
(included in Exhibit 5)
**24 Power of attorney (included on signature pages)
**25 Statement of eligibility of Trustee
*27 Financial Data Schedule
</TABLE>
- ------------------------
* Filed herewith.
** Previously Filed.
+ The Company has requested confidential treatment with respect to portions of
these Exhibits
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of South San Francisco,
State of California, on December 4, 1996.
CORE-MARK INTERNATIONAL, INC.
By /s/ LEO F. KORMAN
-----------------------------------------
Leo F. Korman, Senior Vice President and
Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ -------------------------------- -----------------------
<C> <S> <C>
*
------------------------------------------- Chairman, Chief Executive December 4, 1996
Gary L. Walsh Officer and Director
*
------------------------------------------- President, Chief Operating December 4, 1996
Robert A. Allen Officer and Director
/s/ LEO F. KORMAN Senior Vice President, Chief
------------------------------------------- Financial Officer and Principal December 4, 1996
Leo F. Korman Accounting Officer
*
------------------------------------------- Director December 4, 1996
Thomas A. Berglund
*
------------------------------------------- Director December 4, 1996
Terry J. Blumer
*
------------------------------------------- Director December 4, 1996
John F. Klein
*
------------------------------------------- Director December 4, 1996
John A. Sprague
</TABLE>
*By: /s/ LEO F. KORMAN
-------------------------
Leo F. Korman
ATTORNEY-IN-FACT
II-5
<PAGE>
SCHEDULE II
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C
COLUMN B ADDITIONS COLUMN E
---------- ----------------------- ----------
COLUMN A BALANCE AT CHARGED TO CHARGED TO COLUMN D BALANCE AT
- ------------------------------ BEGINNING COSTS AND OTHER ---------- END OF
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR
- ------------------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS
Year Ended December 31,
1993........................ $ 3,478 $ 2,515 -- $ (2,971)(a) $ 3,022
1994........................ 3,022 1,159 -- (1,489)(a) 2,692
1995........................ 2,692 1,720 -- (812)(a) 3,600
</TABLE>
(a) Deductions consist of accounts determined to be uncollectible and charged
against reserves, net of collections on accounts previously charged off.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
DEFERRED TAX ASSET VALUATION
ALLOWANCE
Year Ended December 31,
1993........................ $29,139 -- -- $(13,282)(b) $15,857
1994........................ 15,857 -- -- (4,015)(b) 11,842
1995........................ 11,842 -- -- (1,018)(b) 10,824
</TABLE>
(b) Deductions are primarily the result of the utilization of net operating loss
carryforwards.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
- ---------- ---------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
**2.1 Stock Subscription Agreement, dated June 17, 1996, by and among Jupiter Partners, L.P.,
as amended
**2.2 Stock Purchase Agreement, dated June 17, 1996, by and between
Core-Mark L.L.C. and the Company, as amended
**3.1 Articles of Incorporation of the Company
**3.2 By-laws of the Company
**4.1 Indenture, dated as of September 27, 1996, between the Company and Bankers Trust Company
as Trustee
**4.2 Exchange and Registration Rights Agreement, dated September 27, 1996, among the Company,
Chase Securities Inc. and Donaldson, Lufkin & Jenrette Securities Corporation
**4.3 Form of Face of Initial Security
**4.4 Form of Face of Exchange Security
*4.5 Form of Letter of Transmittal
**4.6 Form of Notice of Guaranteed Delivery
**4.7 Guidelines for Certification of Taxpayer Identification Number or Substitute Form W-9
**5 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison re the legality of the Notes being
registered
**10.1 Manufacturing Rights Agreement by and among Famous Value Brands, the Company, Core-Mark
Interrelated Companies, Inc. and C/M Products, Inc.+
**10.2 Manufacturing Agreement for "Best Buy" Cigarettes by and between Famous Value Brands and
C/M Products, Inc.+
**10.3 Trademark License Agreement by and between Famous Value Brands and Core-Mark
Interrelated Companies, Inc.+
**10.4 The Credit Agreement, dated August 7, 1996, among the Company, several lenders parties
thereto and The Chase Manhattan Bank
**10.5 Stockholders Agreement dated as of August 7, 1996, by and among the Company and all of
the holders of its Common Stock
**10.6.1 Severance and Noncompetition Agreement, dated August 7, 1996, between the Company and
Gary L. Walsh
**10.6.2 Schedule of Severance and Noncompetition Agreements omitted pursuant to Instruction no.
2 to Item 601 of Regulation S-K
**10.7 Letter, dated August 7, 1996, from Jupiter Partners LP to Gary L. Walsh
**10.8 Purchase Agreement, dated September 24, 1996, between the Company, Chase Securities Inc.
and Donaldson, Lufkin & Jenrette Securities Corporation
*10.9.1 Indemnification Agreement, dated November 12, 1996, between the Company and John F.
Klein
*10.9.2 Schedule of Indemnification Agreements omitted pursuant to Instruction no. 2 to Item 601
of Regulation S-K
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
- ---------- ---------------------------------------------------------------------------------------- ---------------
<S> <C> <C>
*12 Statements re computation of ratios
**21 List of Subsidiaries of the Company
*23.1 Consent of KPMG Peat Marwick LLP
**23.2 Consent of Paul, Weiss, Rifkind, Wharton & Garrison
(included in Exhibit 5)
**24 Power of attorney (included on signature pages)
**25 Statement of eligibility of Trustee
*27 Financial Data Schedule
</TABLE>
- ------------------------
* Filed herewith.
** Previously Filed.
+ The Company has requested confidential treatment with respect to portions of
these Exhibits
<PAGE>
LETTER OF TRANSMITTAL
CORE MARK INTERNATIONAL, INC.
OFFER TO EXCHANGE ITS
11 3/8% SENIOR SUBORDINATED NOTES DUE 2003
(THE "NEW NOTES")
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
11 3/8% SENIOR SUBORDINATED NOTES DUE 2003
(THE "EXISTING NOTES")
PURSUANT TO THE PROSPECTUS, DATED , 1996
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
DECEMBER ,
OR SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE OFFER MAY BE EXTENDED (THE
"EXPIRATION DATE"). THE EXCHANGE OFFER WILL NOT BE EXTENDED BEYOND APRIL ,
1997. TENDERS MAY BE WITHDRAWN PRIOR TO THE EXPIRATION DATE.
TO: Bankers Trust Company of New York, EXCHANGE AGENT
<TABLE>
<CAPTION>
BY MAIL: BY HAND: BY OVERNIGHT MAIL OR COURIER:
<S> <C> <C>
BT Services Tennessee, Inc. Bankers Trust Company BT Services Tennessee, Inc.
Reorganization Unit Corporate Trust and Agency Group Corporate Trust and Agency Group
P.O. Box 292737 Receipt & Delivery Window Reorganization Unit
Nashville, TN 37229-2737 4 Albany Street 648 Grassmere Park Road
New York, NY 10006 Nashville, TN 37211
For information, call:
(800) 735-7777
Confirm: (615) 835-3572
Fax: (615) 835-3701
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX BELOW
------------------------
List below the Existing Notes to which this Letter of Transmittal relates.
If the space provided below is inadequate, the certificate numbers and principal
amount of Existing Notes should be listed on a separate signed schedule affixed
hereto.
<TABLE>
<CAPTION>
DESCRIPTION OF EXISTING NOTES (1) (2) (3)
<S> <C> <C> <C>
PRINCIPAL AMOUNT
OF EXISTING NOTES
NAME(S) AND ADDRESS(ES) OF REGISTERED PRINCIPAL TENDERED
HOLDER(S) CERTIFICATE AMOUNT OF (IF LESS THAN
(PLEASE FILL IN, IF BLANK) NUMBER(S)(*) EXISTING NOTES ALL)(**)
* Need not be completed by book-entry holders.
** Unless otherwise indicated, the holder will be deemed to
have tendered the full aggregate principal amount
represented by such Existing Notes.
</TABLE>
<PAGE>
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated , 1996 (the "Prospectus"), of Core-Mark International,
Inc., a Delaware corporation (the "Company"), and this Letter of Transmittal
(the "Letter"), which together constitute the Company's offer (the "Exchange
Offer") to exchange up to $75,000,000 aggregate principal amount of its 11 3/8%
Senior Subordinated Notes due 2003 (the "New Notes"), for a like principal
amount of the Company's issued and outstanding 11 3/8% Senior Subordinated Notes
due 2003 (collectively, the "Existing Notes").
The undersigned has completed the appropriate boxes above and below and
signed this Letter to indicated the action the undersigned desires to take with
respect to the Exchange Offer.
This Letter is to be used either if certificates of Existing Notes are to be
forwarded herewith or if delivery of Existing Notes is to be made by book-entry
transfer to an account maintained by the Exchange Agent at The Depository Trust
Company, pursuant to the procedures set forth in "The Exchange Offer--Procedures
for Tendering Existing Notes" in the Prospectus. Delivery of this Letter and any
other required documents should be made to the Exchange Agent. Delivery of
documents to a book-entry transfer facility does not constitute delivery to the
Exchange Agent.
Holders whose Existing Notes are not immediately available or who cannot
deliver their Existing Notes and all other documents required hereby to the
Exchange Agent on or prior to the Expiration Date must tender their Existing
Notes according to the guaranteed delivery procedure set forth in the Prospectus
under the caption "The Exchange Offer--Procedures for Tendering Existing Notes."
See Instruction 1.
<TABLE>
<S> <C>
/ / CHECK HERE IF EXISTING NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT
MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
</TABLE>
Name of Tendering Institution
- -------------------------------------- / / The Depository Trust Company
Account Number
- --------------------------------------------------------------------------------
Transaction Code Number
- ----------------------------------------------------------------------------
<TABLE>
<S> <C>
/ / CHECK HERE IF EXISTING NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVER AND
COMPLETE THE FOLLOWING:
</TABLE>
Name of Registered Holder(s)
- ------------------------------------------------------------------------
Name of Eligible Institution that Guaranteed Delivery
- ---------------------------------------------------
If delivered by book-entry transfer:
Account Number
- --------------------------------------------------------------------------------
Date of execution of Notice of Guaranteed Delivery
- ------------------------------------------------------
<TABLE>
<S> <C>
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS
AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
</TABLE>
Name:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of New
Notes. If the undersigned is a broker-dealer that will receive New Notes for its
own account in exchange for Existing Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus in connection with any resale of such New Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of
Existing Notes indicated above. Subject to, and effective upon, the acceptance
for exchange of the Existing Notes tendered hereby, the undersigned hereby
sells, assigns and transfers to, or upon the order of, the Company all right,
title and interest in and to such Existing Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Existing Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Company. The
undersigned will, upon request, execute and deliver any additional documents
deemed by the Company or the Exchange Agent to be necessary or desirable to
complete the sale, assignment and transfer of the Existing Notes tendered
hereby.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on the Company's belief, based on interpretations by the staff of the
Securities and Exchange Commission (the "SEC") to third parties in unrelated
transactions, that the New Notes issued in exchange for the Existing Notes
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by holders thereof (other than (i) any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act of 1933, as amended (the "Securities Act") or (ii) any broker-dealer that
purchase Notes from the Company to resell pursuant to Rule 144A under the
Securities Act "Rule 144A") or any other available exemption) without compliance
with the registration and prospectus delivery provisions of the Securities Act
provided that such New Notes are acquired in the ordinary course of such
holders' business and such holders have no arrangement or understanding with any
person to participate in the distribution of such New Notes and are not
participating in, and do not intend to participate in, the distribution of such
New Notes. The undersigned acknowledges that any holder of Existing Notes using
the Exchange Offer to participate in a distribution of the New Notes (i) cannot
rely on the position of the staff of the SEC enunciated in its interpretive
letter with respect to Exxon Capital Holdings Corporation (available April 13,
1989) or similar letters and (ii) must comply with the registration and
prospectus requirements of the Securities Act in connection with a secondary
resale transaction.
The undersigned represents that (i) the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of such holder's
business, (ii) such holder has no arrangement or understanding with any person
to participate in the distribution of such New Notes and is not participating
in, and do not intend to participate in, the distribution of such New Notes, and
(iii) such holder is not an "affiliate," as defined in Rule 405 under the
Securities Act, of the Company or, if such holder is an affiliate, that such
holder will comply with the registration and prospectus delivery requirements of
the Securities Act to the extent applicable.
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of New
Notes. If the undersigned is a broker-dealer that will receive New Notes for its
own account in exchange for Existing Notes that were acquired as a result of
market-making activities or other trading as a result of market-making
activities or other trading activities, it acknowledges that it will deliver a
prospectus in connection with any resale of such New Notes; however, by so
acknowledging and by delivering a prospectus, the undersigned will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The undersigned, if a California resident, hereby further represents and
warrants that the undersigned (or the beneficial owner of the Existing Notes
tendered hereby, if not the undersigned) (i) is a bank, savings and loan
association, trust company, insurance company, investment company registered
under the Investment Company Act of 1940, pension or profit-sharing trust (other
than a pension or profit-sharing trust of the Company, a self-employed
individual retirement plan, or individual retirement account), or a corporation
which has a net worth on a consolidated basis according to its most recent
audited financial statement of not less than $14,000,000, and (ii) is acquiring
the New Notes for its own account for investment purposes (or for the account of
the beneficial owner of such New Notes for investment purposes).
All authority conferred or agreed to be conferred in this Letter and every
obligation of the undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in the instructions
contained in this Letter.
<PAGE>
The undersigned understands that tenders of the Existing Notes pursuant to
any one of the procedures described under "The Exchange Offer--Procedures for
Tendering Existing Notes" in the Prospectus and in the instructions hereto will
constitute a binding agreement between the undersigned and the Company in
accordance with the terms and subject to the conditions of the Exchange Offer.
The undersigned recognizes that, under certain circumstances set forth in
the Prospectus under "The Exchange Offer--Certain Conditions to the Exchange
Offer," the Company may not be required to accept for exchange any of the
Existing Notes tendered. Existing Notes not accepted for exchange or withdrawn
will be returned to the undersigned at the address set forth below unless
otherwise indicated under "Special Delivery Instructions" below.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please issue the New Notes (and, if applicable, substitute
certificates representing Existing Notes for any Existing Notes not exchanged)
in the name of the undersigned. Similarly, unless otherwise indicated under the
box entitled "Special Delivery Instructions" below, please deliver the New Notes
(and, if applicable, substitute certificates representing Existing Notes for any
Existing Notes not exchanged) to the undersigned at the address shown above in
the box entitled "Description of Existing Notes."
THE BOOK-ENTRY TRANSFER FACILITY, AS THE HOLDER OF RECORD OF CERTAIN
EXISTING NOTES, HAS GRANTED AUTHORITY TO BOOK-ENTRY TRANSFER FACILITY
PARTICIPANTS WHOSE NAMES APPEAR ON A SECURITY POSITION LISTING WITH RESPECT TO
SUCH EXISTING NOTES AS OF THE DATE OF TENDER OF SUCH EXISTING NOTES TO EXECUTE
AND DELIVER THE LETTER OF TRANSMITTAL AS IF THEY WERE THE HOLDERS OF RECORD.
ACCORDINGLY, FOR PURPOSES OF THIS LETTER OF TRANSMITTAL, THE TERM "HOLDER" SHALL
BE DEEMED TO INCLUDE SUCH BOOK-ENTRY TRANSFER FACILITY PARTICIPANTS.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF EXISTING
NOTES" ABOVE AND SIGNING THIS LETTER AND DELIVERING SUCH NOTES AND THIS LETTER
TO THE EXCHANGE AGENT, WILL BE DEEMED TO HAVE TENDERED THE EXISTING NOTES AS SET
FORTH IN SUCH BOX ABOVE.
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete Accompanying Substitute Form W-9)
Dated:..........................................................................
<TABLE>
<S> <C>
X ................................................ ..................................................
X ................................................ ..................................................
SIGNATURE(S) OF OWNER(S)/OR AUTHORIZED SIGNATORY DATE
</TABLE>
Area Code and Telephone Number . . . . . . . . . . .
If a holder is tendering any Existing Notes, this Letter must be signed by the
registered holder(s) as the name(s) appear(s) on the certificate(s) for the
Existing Notes or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, officer or other person acting in a fiduciary
or representative capacity, please set forth full title. See Instruction 3.
Name(s) ........................................................................
..................................................................
(PLEASE TYPE OR PRINT)
Capacity: ......................................................................
Address .......................................................................
................................................................
(INCLUDE ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution: .......................................................
(AUTHORIZED SIGNATURE)
...............................................................................
(TITLE)
...............................................................................
(NAME OF FIRM)
Dated:..........................................................................
<PAGE>
<TABLE>
<S> <C>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4) (SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for To be completed ONLY if certificates for New
New Notes are to be issued in the name of and Notes are to be sent to someone other than
sent to someone other than the person or the person or persons whose signature(s)
persons whose signature(s) appear on this appear(s) on this Letter above or to such
Letter above. person or persons at an address other than
shown in the box entitled "Description of
Existing Notes" on this Letter above.
ISSUE: NEW NOTES TO: MAIL: NEW NOTES TO:
NAME(S):..................................... NAME(S):.....................................
(PLEASE TYPE OR PRINT) (PLEASE TYPE OR PRINT)
...................................... .............................................
(PLEASE TYPE OR PRINT) (PLEASE TYPE OR PRINT)
ADDRESS:..................................... ADDRESS:.....................................
...................................... .............................................
(ZIP CODE) (ZIP CODE)
SOCIAL SECURITY NUMBER:......................
(COMPLETE SUBSTITUTE FORM W-9)
</TABLE>
IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH, THIS
LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATE(S) FOR EXISTING
NOTES OR A CONFIRMATION OF BOOK-ENTRY TRANSFER OF SUCH EXISTING NOTES AND ALL
OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE
EXPIRATION DATE.
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND EXISTING NOTES; GUARANTEED DELIVERY PROCEDURE.
This Letter is to be used to forward, and must accompany, all certificates
representing Existing Notes tendered pursuant to the Exchange Offer.
Certificates representing the Existing Notes in proper form for transfer (or a
confirmation of book-entry transfer of such Existing Notes into the Exchange
Agent's account at the book-entry transfer facility) must be received by the
Exchange Agent at its address set forth herein on or before the Expiration Date.
THE METHOD OF DELIVERY OF THIS LETTER, THE EXISTING NOTES AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING HOLDERS, BUT THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE
EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED
MAIL PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO PERMIT TIMELY DELIVERY.
If a holder desires to tender Existing Notes and such holder's Existing
Notes are not immediately available or time will not permit such holder's Letter
of Transmittal, Existing Notes (or a confirmation of book-entry transfer of
Existing Notes into the Exchange Agent's account at the book-entry transfer
facility) or other required documents to reach the Exchange Agent on or before
the Expiration Date, such holder's tender may be effected if:
(a) such tender is made by or through an Eligible Institution (as
defined below);
(b) on or prior to the Expiration Date, the Exchange Agent has received
a telegram, facsimile transmission (receipt confirmed by telephone and an
original delivered by guaranteed overnight courier) or letter from such
Eligible Institution setting forth the name and address of the holder of
such Existing Notes tendered and stating that the tender is being made
thereby and guaranteeing that, within three business days after the
Expiration Date, a duly executed Letter of Transmittal, or facsimile
thereof, together with the Existing Notes (or a confirmation of book-entry
transfer of such Existing Notes into the Exchange Agent's account at the
book-entry transfer facility), and any other documents required by this
Letter and the instructions hereto, will be deposited by such Eligible
Institution with the Exchange Agent; and
(c) this Letter, or a facsimile hereof, and Existing Notes in proper
form for transfer (or a confirmation of book-entry transfer of such Existing
Notes into the Exchange Agent's account at the book-entry transfer facility)
and all other required documents are received by the Exchange Agent within
three business days after the Expiration Date.
See "The Exchange Offer--Procedures for Tendering Existing Notes" in the
Prospectus.
2. WITHDRAWALS.
Any holder who has tendered Existing Notes may withdraw the tender by
delivering written notice of withdrawal (which may be sent by telegram,
facsimile (receipt confirmed by telephone and an original delivered by
guaranteed overnight courier)) to the Exchange Agent prior to the Expiration
Date. For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at its address set forth herein. Any such notice
of withdrawal must (i) specify the name of the person having tendered the
Existing Notes to be withdrawn (the "Depositor"), (ii) identify the Existing
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Existing Notes), (iii) be timely received and signed by the
holder in the same manner as the original signature on the Letter by which such
Existing Notes were tendered or as otherwise set forth in Instruction 3 below
(including any required signature guarantees), or be accompanied by documents of
transfer sufficient to have the Trustee (as defined in the Prospectus) register
the transfer of such Existing Notes pursuant to the terms of the Indenture into
the name of the person withdrawing the tender and (iv) specify the name in which
any such Existing Notes are to be registered, if different from that of the
Depositor. If Existing Notes have been tendered pursuant to the procedure for
book-entry transfer, any notice of withdrawal must specify the name and number
of the account at the book-entry transfer facility to be credited with the
withdrawn Existing Notes or otherwise comply with the book-entry transfer
facility's procedures. See "The Exchange Offer--Withdrawal Rights" in the
Prospectus.
<PAGE>
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Existing Notes
tendered hereby, the signature must correspond exactly with the name as written
on the face of the certificates without any change whatsoever.
If any tendered Existing Notes are owned of record by two or more joint
owners, all such owners must sign this Letter.
If any tendered Existing Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
The signatures on this Letter or a notice of withdrawal, as the case may be,
must be guaranteed unless the Existing Notes surrendered for exchange pursuant
thereto are tendered (i) by a registered holder of the Existing Notes who has
not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" in this Letter or (ii) for the account of an Eligible
Institution. In the event that the signatures in this Letter or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantees
must be by a firm which is a member of a registered national securities exchange
or a member of the National Association of Securities Dealers, Inc., a clearing
agency, an insured credit union, a savings association or by a commercial bank
or trust company having an office or correspondent in the United States
(collectively, "Eligible Institutions"). If Existing Notes are registered in the
name of a person other than the signer of this Letter, the Existing Notes
surrendered for exchange must be endorsed by, or be accompanied by a written
instrument or instruments of transfer or exchange, in satisfactory form as
determined by the Company in its sole discretion, duly executed by the
registered holder with the signature thereon guaranteed by an Eligible
Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Existing Notes should indicate in the applicable box
the name and address to which New Notes issued pursuant to the Exchange Offer
are to be issued or sent, if different from the name or address of the person
signing this Letter. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. If no such instructions are given, any New Notes will be issued in
the name of, and delivered to, the name or address of the person signing this
Letter and any Existing Notes not accepted for exchange will be returned to the
name or address of the person signing this Letter.
<PAGE>
5. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9.
Under the federal income tax laws, payments that may be made by the Company
on account of New Notes issued pursuant to the Exchange Offer may be subject to
backup withholding at the rate of 31%. In order to avoid such backup
withholding, each tendering holder should complete and sign the Substitute Form
W-9 included in this Letter and either (a) provide the correct taxpayer
identification number ("TIN") and certify, under penalties of perjury, that the
TIN provided is correct and that (i) the holder has not been notified by the
Internal Revenue Service (the "IRS") that the holder is subject to backup
withholding as a result of failure to report all interest or dividends or (ii)
the IRS has notified the holder that the holder is no longer subject to backup
withholding; or (b) provide an adequate basis for exemption. If the tendering
holder has not been issued a TIN and has applied for one, or intends to apply
for one in the near future, such holder should write "Applied For" in the space
provided for the TIN in Part I of the Substitute Form W-9, sign and date the
Substitute Form W-9 and sign the Certificate of Payee Awaiting Taxpayer
Identification Number. If "Applied For" is written in Part I, the Company (or
the Paying Agent under the Indenture governing the New Notes) shall retain 31%
of payments made to the tendering holder during the sixty (60) day period
following the date of the Substitute Form W-9. If the holder furnishes the
Exchange Agent or the Company with his or her TIN within sixty (60) days after
the date of the Substitute Form W-9, the Company (or the Paying Agent) shall
remit such amounts retained during the sixty (60) day period to the holder and
no further amounts shall be retained or withheld from payments made to the
holder thereafter. If, however, the holder has not provided the Exchange Agent
or the Company with his or her TIN within such sixty (60) day period, the
Company (or the Paying Agent) shall remit such previously retained amounts to
the IRS as backup withholding. In general, if a holder is an individual, the
taxpayer identification number is the Social Security number of such individual.
If the Exchange Agent or the Company is not provided with the correct taxpayer
identification number, the holder may be subject to a $50 penalty imposed by the
IRS. Certain holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, such holder must submit a statement (generally, IRS Form W-8), signed
under penalties of perjury, attesting to that individual's exempt status. Such
statements can be obtained from the Exchange Agent. For further information
concerning backup withholding and instructions for completing the Substitute
Form W-9 (including how to obtain a taxpayer identification number if you do not
have one and how to complete the Substitute Form W-9 if Existing Notes are
registered in more than one name), consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause
Existing Notes to be deemed invalidly tendered, but may require the Company (or
the Paying Agent) to withhold 31% of the amount of any payments made on account
of the New Notes. Backup withholding is not an additional federal income tax.
Rather, the federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained.
6. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Existing Notes to it or its order pursuant to the Exchange Offer. If,
however, New Notes and/or substitute Existing Notes not exchanged are to be
delivered to, or are to be registered or issued in the name of, any person other
than the registered holder of the Existing Notes tendered hereby, or if tendered
Existing Notes are registered in the name of any person other than the person
signing this Letter, or if a transfer tax is imposed for any reason other than
the transfer of Existing Notes to the Company or its order pursuant to the
Exchange Offer, the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted herewith, the amount of such transfer taxes will be billed directly to
such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Existing Notes specified in this
Letter.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
<PAGE>
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Existing Notes, by execution of this Letter,
shall waive any right to receive notice of the acceptance of their Existing
Notes for exchange.
Neither the Company nor any other person is obligated to give notice of
defects or irregularities in any tender, nor shall any of them incur any
liability for failure to give any such notice.
9. INADEQUATE SPACE.
If the space provided herein is inadequate, the aggregate principal amount
of Existing Notes being tendered and the certificate number or numbers (if
available) should be listed on a separate schedule attached hereto and
separately signed by all parties required to sign this Letter.
10. MUTILATED, LOST, STOLEN OR DESTROYED EXISTING NOTES.
If any certificate has been lost, mutilated, destroyed or stolen, the holder
should promptly notify Bankers Trust Company of New York, as Trustee, B.T.
Services Tennessee, Inc. Corporate Trust & Agency Group, Securities Replacement
Unit, 648 Grassmere Park Road, Nashville, TN 37211, Telephone (800) 735-7777.
The holder will then be instructed as to the steps that must be taken to replace
the certificate(s). This Letter of Transmittal and related documents cannot be
processed until the Existing Notes have been replaced.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent at the address and telephone number indicated above.
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYER'S NAME: CORE-MARK INTERNATIONAL, INC.
PART I--TAXPAYER
IDENTIFICATION NUMBER
SUBSTITUTE
_____________________________
ENTER YOUR TAXPAYER
IDENTIFICATION NUMBER IN
THE
FORM W-9
SOCIAL SECURITY NUMBER
APPROPRIATE BOX. FOR MOST
INDIVIDUALS, THIS IS YOUR
DEPARTMENT OF THE TREASURY
SOCIAL SECURITY NUMBER. IF
YOU DO NOT HAVE A NUMBER, OR
INTERNAL REVENUE SERVICE
SEE HOW TO OBTAIN A "TIN" IN
THE ENCLOSED GUIDELINES.
_____________________________
NOTE: IF THE ACCOUNT IS IN
MORE THAN ONE NAME, SEE EMPLOYER IDENTIFICATION NUMBER
THE CHART ON PAGE 2 OF THE
ENCLOSED GUIDELINES TO
DETERMINE WHAT NUMBER TO
GIVE.
PART II--FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING (SEE
ENCLOSED GUIDELINES)
PAYER'S REQUEST FOR TAXPAYER
CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY
THAT:
IDENTIFICATION NUMBER (TIN)
(1) THE NUMBER SHOWN ON THIS FORM IS MY CORRECT TAXPAYER
IDENTIFICATION NUMBER (OR I AM WAITING AND
CERTIFICATION
FOR A NUMBER TO BE ISSUED TO ME), AND
(2) I AM NOT SUBJECT TO BACKUP WITHHOLDING EITHER BECAUSE
I HAVE NOT BEEN NOTIFIED BY THE INTERNAL REVENUE
SERVICE (THE "IRS") THAT I AM SUBJECT TO BACKUP
WITHHOLDING AS A RESULT OF A FAILURE TO REPORT ALL
INTEREST OR DIVIDENDS OR THE IRS HAS NOTIFIED ME THAT
I AM NO LONGER SUBJECT TO BACKUP WITHHOLDING.
SIGNATURE __________________________________________ DATE __
CERTIFICATION GUIDELINES--YOU MUST CROSS OUT ITEM (2) OF THE ABOVE
CERTIFICATION IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE SUBJECT TO
BACKUP WITHHOLDING BECAUSE OF UNDERREPORTING OF INTEREST OR DIVIDENDS ON YOUR
TAX RETURN. HOWEVER, IF AFTER BEING NOTIFIED BY THE IRS THAT YOU WERE SUBJECT
TO BACKUP WITHHOLDING YOU RECEIVED ANOTHER NOTIFICATION FROM THE IRS THAT YOU
ARE NO LONGER SUBJECT TO BACKUP WITHHOLDING, DO NOT CROSS OUT ITEM (2).
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
I CERTIFY, UNDER PENALTIES OF PERJURY, THAT A TAXPAYER IDENTIFICATION NUMBER
HAS NOT BEEN ISSUED TO ME, AND THAT I MAILED OR DELIVERED AN APPLICATION TO
RECEIVE A TAXPAYER IDENTIFICATION NUMBER TO THE APPROPRIATE INTERNAL REVENUE
SERVICE CENTER OR SOCIAL SECURITY ADMINISTRATION OFFICE (OR I INTEND TO MAIL OR
DELIVER AN APPLICATION IN THE NEAR FUTURE). I UNDERSTAND THAT IF I DO NOT
PROVIDE A TAXPAYER IDENTIFICATION NUMBER TO THE PAYER, 31 PERCENT OF ALL
PAYMENTS MADE TO ME ON ACCOUNT OF THE NEW NOTES SHALL BE RETAINED UNTIL I
PROVIDE A TAXPAYER IDENTIFICATION NUMBER TO THE PAYER AND THAT, IF I DO NOT
PROVIDE MY TAXPAYER IDENTIFICATION NUMBER WITHIN SIXTY (60) DAYS, SUCH RETAINED
AMOUNTS SHALL BE REMITTED TO THE INTERNAL REVENUE SERVICE AS BACKUP WITHHOLDING
AND 31 PERCENT OF ALL REPORTABLE PAYMENTS MADE TO ME THEREAFTER WILL BE WITHHELD
AND REMITTED TO THE INTERNAL REVENUE SERVICE UNTIL I PROVIDE A TAXPAYER
IDENTIFICATION NUMBER.
SIGNATURE ________________________________ DATE ________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE NEW NOTES. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
<PAGE>
Exhibit 10.9.1
INDEMNIFICATION AGREEMENT
AGREEMENT made this 12th day of November, 1996 by and between
Core-Mark International, Inc., a Delaware corporation (the "Company"), and John
F. Klein (the "Indemnitee").
WHEREAS, it is essential to the Company and its stockholders to
attract and retain qualified and capable directors, officers, employees, agents
and fiduciaries; and
WHEREAS, the Certificate of Incorporation of the Company (the
"Certificate of Incorporation") requires the Company to indemnify and advance
expenses to its directors and officers to the fullest extent authorized by law
and allows the Company to indemnify employees and agents to the fullest extent
authorized by law; and
WHEREAS, historically, basic protection against undue risk of personal
liability of directors and officers has been provided through insurance coverage
providing reasonable protection at reasonable cost; and
WHEREAS, from time to time in recent years directors' and officers'
liability insurance has been difficult to obtain or has been available only at
excessive costs and it is presently uncertain whether, and to what extent, such
insurance is or will continue to be available to the Company at a reasonable
cost for the protection of Indemnitee; and
WHEREAS, it has been the policy of the Company to generally indemnify
its directors and officers so as to provide them with the maximum possible
protection permitted by law; and
WHEREAS, the Company, in recognition of the foregoing and in order to
induce Indemnitee to serve or continue to serve the Company in an effective
manner, to supplement or replace the Company's directors' and officers'
liability insurance coverage and to provide Indemnitee with specific contractual
assurance that the protection promised by the Certificate of Incorporation will
be available to Indemnitee (regardless of, among other things, any amendment to
or revocation of the Certificate of Incorporation or any change in the
composition of the Company's Board of Directors), wishes to provide the
Indemnitee with the benefits contemplated by this Agreement; and
WHEREAS, as a result of the provision of such benefits, Indemnitee has
agreed to serve or to continue to serve as an executive officer of the Company;
<PAGE>
NOW, THEREFORE, the parties hereto do hereby agree as follows:
1. DEFINITIONS. The following terms, as used herein, shall have the
following respective meanings:
(a) AFFILIATE. An "Affiliate" of a specified Person is a Person
who directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the Person specified.
(b) ASSOCIATE. An "Associate" of a specified Person shall mean
(i) any corporation or organization (other than the Company or a Subsidiary) of
which such Person is an officer or partner or is, directly, or indirectly, the
Beneficial Owner of ten (10) percent or more of any class of Equity Securities,
(ii) any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar fiduciary
capacity (other than an Employee Plan Trustee, as defined in paragraph (c)
below), (iii) any Relative of such Person, or (iv) any officer or director of
any corporation controlling or controlled by such Person.
(c) BENEFICIAL OWNERSHIP. Beneficial Ownership shall be
determined, and a Person shall be the Beneficial Owner of all securities which
such Person is deemed to own beneficially, pursuant to Rule 13d-3 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as amended (or
any successor rule or statutory provision), or, if said Rule 13d-3 shall be
rescinded and there shall be no successor rule or statutory provision thereto,
pursuant to said Rule 13d-3 as in effect on October 18, 1996; PROVIDED, HOWEVER,
that a Person shall, in any event, also be deemed to be the Beneficial Owner of
any Voting Shares: (A) of which such Person or any of its Affiliates or
Associates is, directly or indirectly, the Beneficial Owner, or (B) of which
such Person or any of its Affiliates or Associates has (i) the right to acquire
(whether such right is exercisable immediately or only after the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (ii) sole or shared voting or investment power with respect
thereto pursuant to any agreement, arrangement, understanding, relationship or
otherwise (but shall not be deemed to be the Beneficial Owner of any Voting
Shares solely by reason of a revocable proxy granted for a particular meeting of
stockholders pursuant to a public solicitation of proxies for such meeting, with
respect to shares of which neither such Person nor any such Affiliate or
Associate is otherwise deemed the Beneficial Owner) or (C) of which any other
Person is, directly or indirectly, the Beneficial Owner if such first mentioned
Person or any of its Affiliates or Associates acts with such other Person as a
partnership, syndicate or other group pursuant to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of any
shares of capital stock of the Company; and PROVIDED FURTHER, HOWEVER, that (i)
no director or officer of the Company, nor any Associate or Affiliate of any
such director or officer, shall, solely by reason of any or all of such 3
<PAGE>
directors and officers acting in their capacities as such, be deemed for any
purposes hereof to be the Beneficial Owner of any Voting Shares of which any
other such director or officer (or any Associate or Affiliate thereof) is the
Beneficial Owner and (ii) no trustee of any employee stock ownership or similar
plan of the Company or any Subsidiary ("Employee Plan Trustee") or any Associate
or Affiliate of any such Trustee shall, solely by reason of being an Employee
Plan Trustee or Associate or Affiliate of any Employee Plan Trustee, be deemed
for any purposes hereof to be the Beneficial Owner of any Voting Shares held by
or under any such plan.
(d) CHANGE IN CONTROL. A "Change in Control" shall be deemed to
have occurred if (A) any Person (other than (i) the Company or any Subsidiary,
(ii) any pension, profit sharing, employee stock ownership or other employee
benefit plan of the Company or any Subsidiary or any trustee of or fiduciary
with respect to any such plan when acting in such capacity, or (iii) any Person
who is, as of October 18, 1996, the Beneficial Owner of 35% or more of the total
voting power of the Voting Shares) is or becomes, after the date of this
Agreement, the Beneficial Owner of 35% or more of the total voting power of the
Voting Shares, (B) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of Directors of the
Company, together with any new director whose election or appointment by the
Board of Directors or nomination or recommendation for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof, (C) the stockholders of
the Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
Voting Shares of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into Voting
Shares of the surviving entity) at least 65% of the total voting power
represented by the Voting Shares of the Company or such surviving entity
outstanding, or (D) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets, or (E) a change in
control of a nature that would be required to be reported in response to Item
5(f) of Schedule 14A of Regulation 14 promulgated under the Securities Exchange
Act of 1934, as amended, as in effect on October 18, 1996.
(e) CLAIM. "Claim" means any threatened, pending or completed
action, suit, arbitration or proceeding, or any inquiry or investigation,
whether brought by or in the right of the Company or otherwise, that Indemnitee
in good faith believes might lead to the institution of any such action, suit,
arbitration or proceeding, whether civil, criminal, administrative,
investigative or other, or any appeal therefrom.
<PAGE>
(f) EQUITY SECURITY. "Equity Security" shall have the meaning
given to such term under Rule 3a11-1 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as in effect on October 18, 1996.
(g) D&O INSURANCE. "D&O Insurance" means any valid directors'
and officers' liability insurance policy maintained by the Company for the
benefit of the Indemnitee, if any.
(h) DETERMINATION. "Determination" means a determination, and
"Determined" means a matter which has been determined based on the facts known
at the time, by: (i) a majority vote of a quorum of disinterested directors;
or (ii) if such a quorum is not obtainable, or even if obtainable, if a quorum
of disinterested directors so directs, by independent legal counsel in a written
opinion; or (iii) in the event there has been a Change in Control, by the
Special Independent Counsel (in a written opinion) selected by Indemnitee as set
forth in Section 6; or (iv) a majority of the disinterested stockholders of the
Company; or (v) a final adjudication by a court of competent jurisdiction.
(i) EXCLUDED CLAIM. "Excluded Claim" means any payment for
Losses or Expenses in connection with any Claim: (i) based upon or attributable
to Indemnitee gaining in fact any personal profit or advantage to which
Indemnitee is not entitled; or (ii) for the return by the Indemnitee of any
remuneration paid to Indemnitee without the previous approval of the
stockholders of the Company which is illegal; or (iii) for an accounting of
profits in fact made from the purchase or sale by Indemnitee of securities of
the Company within the meaning of Section 16 of the Securities Exchange Act of
1934, as amended, or similar provisions of any state law; or (iv) resulting from
Indemnitee's fraudulent, dishonest or willful misconduct; or (v) the payment of
which by the Company under this Agreement is not permitted by applicable law,
including Section 145(a) of the Delaware General Corporation Law; or (vi) any
Claim arising under the Stock Subscription Agreement dated June 17, 1996, as
amended, between CM/J Acquisition LLC and Core-Mark International, Inc., or out
of any event or occurrence or a state of facts for which Jupiter is indemnified
by Indemnitee thereunder, or under the "Escrow Agreement" as defined therein.
(j) EXPENSES. "Expenses" means any reasonable expenses incurred
by Indemnitee for Indemnifiable Events including, without limitation, attorneys'
fees and all other costs, expenses and obligations paid or incurred in
connection with investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, be a witness in or participate
in, any Claim relating to any Indemnifiable Event, but shall not include Fines.
(k) FINES. "Fines" means any fine, any penalty or, with respect
to an employee benefit plan, any excise tax or penalty assessed with respect
thereto.
<PAGE>
(l) INDEMNIFIABLE EVENT. "Indemnifiable Event" means any event
or occurrence, occurring on or after August 7, 1996, related to the fact that
Indemnitee is or was a director, officer, employee, trustee, agent or fiduciary
of the Company, or is or was serving at the request of the Company as a
director, officer, employee, trustee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise, or
by reason of anything done or not done by Indemnitee, including, but not limited
to, any breach of duty, neglect, error, misstatement, misleading statement,
omission or other act done or wrongfully attempted by Indemnitee, or any of the
foregoing alleged by any claimant, in any such capacity.
(m) JUPITER. "Jupiter" shall mean Jupiter Partners, L.P., a
Delaware limited partnership, and its successors and assigns.
(n) LOSSES. "Losses" means any amounts or sums which Indemnitee
is legally obligated to pay as a result of a Claim or Claims made against
Indemnitee for Indemnifiable Events including, without limitation, damages,
judgments and amounts or sums paid in settlement of a Claim or Claims, and
Fines.
(o) PERSON. "Person" means any individual, partnership,
corporation, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.
(p) RELATIVE. "Relative" means a Person's spouse, parents,
children, siblings, mothers- and fathers-in law, sons- and daughters-in-law and
brothers- and sisters-in-law.
(q) REVIEWING PARTY. "Reviewing Party" means any appropriate
person or body consisting of a member or members of the Company's Board of
Directors or any other person or body appointed by the Board (including the
Special Independent Counsel referred to in Section 6) who is not a party to the
particular Claim for which Indemnitee is seeking indemnification.
(r) SUBSIDIARY. "Subsidiary" means any corporation of which a
majority of any class of Equity Security is owned, directly or indirectly, by
the Company.
(s) VOTING SHARES. "Voting Shares" means any issued and
outstanding shares of capital stock of the Company entitled to vote generally in
the election of directors.
2. BASIC INDEMNIFICATION AGREEMENT. In consideration of, and as an
inducement to, the Indemnitee rendering valuable services to the Company, the
Company agrees that in the event Indemnitee is or becomes a party to or witness
or other participant in, or is threatened to be made a party to or witness or
other
<PAGE>
participant in, a Claim by reason of, or arising in part out of, an
Indemnifiable Event, the Company, to the fullest extent authorized by law, will
indemnify Indemnitee and hold Indemnitee harmless from, any and all Losses and
Expenses (including all interest, assessments and other charges paid or payable
in connection with or in respect of such Losses and Expenses) of such Claim,
whether or not such Claim proceeds to judgment or is settled or otherwise is
brought to a final disposition subject, in each case, to the further provisions
of this Agreement.
3. LIMITATIONS ON INDEMNIFICATION. Notwithstanding the provisions
of Section 2, Indemnitee shall not be indemnified and held harmless from any
Losses or Expenses (a) which have been Determined, as provided herein, to
constitute an Excluded Claim; (b) to the extent Indemnitee is indemnified by the
Company and has actually received payment pursuant to the Certificate of
Incorporation, the Company's By-laws, D&O Insurance, or otherwise; or (c) other
than pursuant to the last sentence of Section 4(c) or Section 12, in connection
with any Claim initiated by the Indemnitee, unless the Company has joined in or
the Board of Directors has authorized such Claim.
4. INDEMNIFICATION PROCEDURES. (a) Promptly after receipt by
Indemnitee of notice of any Claim, Indemnitee shall, if indemnification with
respect thereto may be sought from the Company under this Agreement, notify the
Company of the commencement thereof. Thereafter, Indemnitee shall not make any
admission or effect any settlement with respect to such Claim without the
consent of the Company, except any Claim with respect to which the Indemnitee
has undertaken the defense in accordance with the second to last sentence of
Section 4(c).
(b) If, at the time of the receipt of such notice, the Company
has directors' and/or officers' liability insurance in effect, the Company shall
give prompt notice of the commencement of Claim to the insurers in accordance
with the procedures set forth in the respective policies in favor of Indemnitee.
The Company thereafter shall take all necessary or desirable action to cause
such insurers to pay, on behalf of Indemnitee, all Losses and Expenses payable
as a result of such Claim.
(c) To the extent the Company does not, at the time of the
Claim, have applicable directors' and/or officers' liability insurance, or if a
Determination is made that any Expenses arising out of such Claim will not be
payable under the directors' and/or officers' liability insurance then in
effect, the Company shall be obligated to pay the Expenses of any Claim in
advance of the final disposition thereof and the Company, if appropriate, shall
be entitled to assume the defense of such Claim, with counsel satisfactory to
Indemnitee, upon the delivery to Indemnitee of written notice of its election so
to do. After delivery of such notice, the Company will not be liable to
Indemnitee under this Agreement for any Expenses (including attorneys' fees and
expenses) subsequently incurred by the Indemnitee in connection with such
defense other than reasonable Expenses of investigation; PROVIDED THAT
Indemnitee shall have the right to employ individual counsel in such
<PAGE>
Claim but the fees and expenses of such counsel incurred after delivery of
notice from the Company of its assumption of such defense shall be at the
Indemnitee's expense; PROVIDED FURTHER THAT if: (i) the employment of counsel
by Indemnitee has been previously authorized by the Company, (ii) Indemnitee
shall have reasonably concluded (based on advice of counsel) that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense or (iii) the Company shall not, in fact, have employed counsel to
assume the defense of such action, the reasonable fees and expenses of counsel
shall be at the expense of the Company. In the event the Company takes the
position that the Indemnitee is not entitled to indemnification in connection
with the proposed settlement of any Claim, the Indemnitee shall have the right
at its own expense to undertake defense of any such Claim, insofar as such
proceeding involves Claims against the Indemnitee, by written notice given to
the Company within 10 days after the Company has notified the Indemnitee in
writing of its contention that the Indemnitee is not entitled to
indemnification. If it is subsequently determined in connection with such
proceeding that the Indemnifiable Events are not Excluded Claims and that the
Indemnitee, therefore, is entitled to be indemnified under the provisions of
Section 2 hereof, the Company shall promptly indemnify the Indemnitee.
(d) All payments on account of the Company's indemnification
obligations under this Agreement shall be made within sixty (60) days of
Indemnitee's written request therefor unless a Determination is made that the
Claims giving rise to Indemnitee's request are Excluded Claims or otherwise not
payable under this Agreement, provided that all payments on account of the
Company's obligation to pay Expenses under Section 4(c) of this Agreement prior
to the final disposition of any Claim shall be made within 20 days of
Indemnitee's written request therefor and such obligation shall not be subject
to any such Determination but shall be subject to Section 4(e) of this
Agreement.
(e) Indemnitee shall reimburse the Company for all Losses and
Expenses paid by the Company in connection with any Claim against Indemnitee in
the event, and only to the extent, that a Determination shall have been made by
a court of competent jurisdiction in a decision from which there is no further
right to appeal that Indemnitee is not entitled to be indemnified by the Company
for such Losses and Expenses because the Claim is an Excluded Claim or because
Indemnitee is otherwise not entitled to payment under this Agreement.
5. SETTLEMENT. The Company shall have no obligation to indemnify
Indemnitee under this Agreement for any amounts paid in settlement of any Claim
effected without the Company's prior written consent. The Company shall not
settle any Claim in which it takes the position that Indemnitee is not entitled
to indemnification in connection with such settlement without the consent of the
Indemnitee, nor shall the Company settle any Claim in any manner which would
impose any Fine or any obligation on Indemnitee, without Indemnitee's written
consent. Neither the
<PAGE>
Company nor Indemnitee shall unreasonably withhold its consent to any proposed
settlement.
6. CHANGE IN CONTROL; EXTRAORDINARY TRANSACTIONS. If there is a
Change in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), then all Determinations thereafter
with respect to the rights of Indemnitee to be paid Losses and Expenses under
this Agreement shall be made only by a special independent counsel (the "Special
Independent Counsel") selected by Indemnitee and approved by the Company (which
approval shall not be unreasonably withheld) or by a court of competent
jurisdiction. The Company shall pay the reasonable fees of such Special
Independent Counsel and shall indemnify such Special Independent Counsel against
any and all reasonable expenses (including reasonable attorneys' fees), claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto.
7. NO PRESUMPTION. For purposes of this Agreement, the termination
of any Claim by judgment, order, settlement (whether with or without court
approval) or conviction, or upon a plea of NOLO CONTENDERE, or its equivalent,
shall not, of itself, create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law.
8. RIGHTS NOT EXCLUSIVE. The rights of the Indemnitee hereunder
shall be in addition to any other rights Indemnitee may have under the
Certificate of Incorporation, the Company's By-laws, the Delaware General
Corporation Law, any vote of stockholders or disinterested directors or
otherwise, both as to action in the Indemnitee's official capacity and as to
action in any other capacity by holding such office, and shall continue after
the Indemnitee ceases to serve the Company as a director, officer, employee,
agent or fiduciary, for so long as the Indemnitee shall be subject to any Claim
by reason of, or arising in part out of, an Indemnifiable Event. To the extent
that a change in the Delaware General Corporation Law (whether by statute or
judicial decision) permits greater indemnification by agreement that would be
afforded currently under the Certificate of Incorporation, the Company's By-laws
and this Agreement, it is the intent of the parties hereto that Indemnitee shall
enjoy by this Agreement the greater benefits so afforded by such change.
9. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
<PAGE>
10. PARTIAL INDEMNITY, ETC. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Losses and Expenses of a Claim but not, however, for all of the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion thereof to which Indemnitee is entitled. Moreover, notwithstanding
any other provision of this Agreement, to the extent that Indemnitee has been
successful on the merits or otherwise in defense of any or all Claims relating
in whole or in part to any Indemnifiable Event or in defense of any issue or
matter therein, including dismissal without prejudice, Indemnitee shall be
indemnified against all Expenses incurred in connection therewith. In
connection with any Determination as to whether Indemnitee is entitled to be
indemnified hereunder, the burden of proof shall be on the Company to establish
that Indemnitee is not so entitled, except as otherwise provided in Section
12(a).
11. LIABILITY OF COMPANY. The Indemnitee agrees that neither the
stockholders nor the directors nor any officer, employee, representative or
agent of the Company shall be personally liable for the satisfaction of the
Company's obligations under this Agreement and the Indemnitee shall look solely
to the assets of the Company for satisfaction of any claims hereunder.
12. ENFORCEMENT.
(a) Indemnitee's right to indemnification and other rights under
this Agreement shall be specifically enforceable by Indemnitee and shall be
enforceable notwithstanding any adverse Determination, other than a
Determination which has been made by a final adjudication not subject to further
appeal of a court of competent jurisdiction. In any such action, if a prior
adverse Determination has been made, the burden of proving that indemnification
is required under this Agreement shall be on Indemnitee. In all other cases,
the Company shall have the burden of proving that indemnification is not
required under this Agreement.
(b) In the event that any action is instituted by Indemnitee
under this Agreement, or to enforce or interpret any of the terms of this
Agreement, Indemnitee shall be entitled to be paid all court costs and
reasonable expenses, including reasonable counsel fees, incurred by Indemnitee
with respect to such action, unless the court determines that each of the
material assertions made by Indemnitee as a basis for such action were not made
in good faith or were frivolous.
13. SEVERABILITY. In the event that any provision of this Agreement
is determined by a court to require the Company to do or to fail to do an act
which is in violation of applicable law, such provision (including any provision
within a single section, paragraph or sentence) shall be limited or modified in
its application to the minimum extent necessary to avoid a violation of law and,
as so limited or modified, such provision and the balance of this Agreement
shall be enforceable in accordance with their terms to the fullest extent
permitted by law.
<PAGE>
14. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware applicable to agreements
made and to be performed entirely within such State.
15. CONSENT TO JURISDICTION. The Company and the Indemnitee each
hereby irrevocably consent to the jurisdiction of the courts of the State of
Delaware, the courts of the State of New York in and for the Borough of
Manhattan, and the Federal Courts of the United States sitting therein for all
purposes in connection with any action or proceeding which arises out of or
relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in one of such courts.
16. NOTICES. All notices or other communications required or
permitted hereunder shall be sufficiently given for all purposes if in writing
and personally delivered, telegraphed, telexed, sent by facsimile transmission
or sent by registered or certified mail, return receipt requested, with postage
prepaid addressed as follows, or to such other address as the parties shall have
given notice of pursuant
hereto:
(a) If to the Company, to:
Core-Mark International, Inc.
395 Oyster Point Boulevard
Suite 415
South San Francisco, CA 94080
Attention: Corporate Secretary
Facsimile no: (415) 589-4010
(b) If to the Indemnitee, to:
_________________________
_________________________
_________________________
_________________________
17. AMENDMENT; WAIVER. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless made in a writing
signed by each of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
18. TERMINATION. This Agreement shall terminate prospectively in the
event of a Change in Control of the Company as defined in clause (A) of Section
1(d) of this Agreement, provided that no such termination shall affect the
Company's liability or obligations with respect to any Indemnifiable Event
occurring prior to such termination, whether or not a Claim in respect thereof
has been made or commenced as of such date.
<PAGE>
19. SUCCESSORS AND ASSIGNS. This Agreement shall be (i) binding upon
all successors and assigns of the Company, including any direct or indirect
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, and (ii) shall
be binding upon and inure to the benefit of any successors and assigns, heirs,
and personal or legal representatives of Indemnitee.
20. COUNTERPARTS. This Agreement may be signed in counterparts, each
of which shall be an original and all of which, when taken together, shall
constitute one and the same instrument.
21. NO NEGATIVE IMPLICATIONS. Nothing in this Agreement, including
without limitation the definition of "Indemnifiable Event" in Section 1(l)
hereof, shall be deemed or construed to limit the Company's obligations under
Article Seventh of its Certificate of Incorporation or Article V of its Bylaws,
as in effect on the date hereof, or to adversely affect or diminish the rights
of the Indemnitee thereunder.
IN WITNESS WHEREOF, the Company and Indemnitee have executed this
Agreement as of the day and year first above written.
ATTEST:
[Corporate Seal] CORE-MARK INTERNATIONAL, INC.
By:
------------------------------
Title:
------------------------------
John F. Klein
<PAGE>
Exhibit 10.9.2
1. Indemnification Agreement, dated October 30, 1996, between the Company and
Gary L. Walsh.
2. Indemnification Agreement, dated October 30, 1996, between the Company and
Robert A. Allen.
3. Indemnification Agreement, dated October 30, 1996, between the Company and
Leo F. Korman.
4. Indemnification Agreement, dated October 30, 1996, between the Company and
Debra L. Varian.
5. Indemnification Agreement, dated November 12, 1996, between the Company and
Thomas A. Berglund.
6. Indemnification Agreement, dated November 12, 1996, between the Company and
Terry J. Blumer.
7. Indemnification Agreement, dated November 12, 1996, between the Company and
John A. Sprague.
<PAGE>
EXHIBIT 12
CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 30,
1991 1992 1993 1994 1995 1995 1996
---------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income (loss) before income taxes
(a)............................ $ (7,222) $ 4,333 $ 41,652 $ 11,904 $ 12,286 $ 9,874 $ 14,325
Fixed charges.................... 13,757 9,670 8,593 9,522 11,821 8,900 9,472
---------- --------- --------- --------- --------- --------- ---------
Earnings........................... $ 6,535 $ 14,003 $ 50,245 $ 21,426 $ 24,107 $ 18,774 $ 23,797
Fixed Charges:
Interest expense (net)(b)........ $ 10,358 $ 5,983 $ 4,887 $ 5,773 $ 8,052 $ 6,154 $ 6,593
One-third rental expense......... 3,399 3,687 3,706 3,749 3,769 2,746 2,879
---------- --------- --------- --------- --------- --------- ---------
Fixed charges...................... $ 13,757 $ 9,670 $ 8,593 $ 9,522 $ 11,821 $ 8,900 $ 9,472
Earnings to fixed charges.......... N/A 1.4x 5.8x 2.3x 2.0x 2.1x 2.5x
Deficiency......................... $ (7,222) -- -- -- -- -- --
PRO FORMA:
Earnings:
Income before income taxes(a).... $ 106 $ 6,113
Fixed charges.................... 24,001 17,684
--------- ---------
Earnings........................... $ 24,107 $ 23,797
Fixed Charges:
Interest expense (net)(b)........ $ 20,232 $ 14,805
One-third rental expense......... 3,769 2,879
--------- ---------
Fixed charges...................... $ 24,001 $ 17,684
Earnings to fixed charges.......... 1.0x 1.3x
</TABLE>
(a) Before cumulative effects of changes in accounting principles and
extraordinary items.
(b) Including amortization of SFAS No. 15 troubled debt restructuring deferred
credit and debt financing costs.
<PAGE>
Exhibit 23.1
The Board of Directors
Core-Mark International, Inc.
The audits referred to in our report dated February 23, 1996, included the
related financial statement schedule as of December 31, 1995, and for each of
the years in the three-year period ended December 31, 1995, included in the
registration statement. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
San Francisco, California
December 2, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 SEP-30-1996
<PERIOD-END> DEC-31-1995 SEP-30-1996
<CASH> 24,447 16,394
<SECURITIES> 0 0
<RECEIVABLES> 105,190 92,982
<ALLOWANCES> 3,600 3,823
<INVENTORY> 96,703 73,296
<CURRENT-ASSETS> 230,882 188,385
<PP&E> 40,746 44,478
<DEPRECIATION> 20,217 23,140
<TOTAL-ASSETS> 324,536 283,909
<CURRENT-LIABILITIES> 126,652 120,080
<BONDS> 101,598 163,339
0 0
0 0
<COMMON> 0 55
<OTHER-SE> 87,669 (8,128)
<TOTAL-LIABILITY-AND-EQUITY> 324,536 283,909
<SALES> 2,047,187 1,637,266
<TOTAL-REVENUES> 2,047,187 1,637,266
<CGS> 1,901,604 1,518,946
<TOTAL-COSTS> 125,245 97,402
<OTHER-EXPENSES> 1,065 928
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,987 5,665
<INCOME-PRETAX> 12,286 14,325
<INCOME-TAX> 5,563 6,274
<INCOME-CONTINUING> 6,723 8,051
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (1,830)
<CHANGES> 0 0
<NET-INCOME> 6,723 6,221
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
