<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 2, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 001-13927
CSK AUTO CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 86-0765798
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
645 E. MISSOURI AVE. SUITE 400, PHOENIX, 85012
ARIZONA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(602) 265-9200
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
N/A
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
As of September 10, 1998, CSK Auto Corporation had 27,738,388 shares of
common stock outstanding.
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<PAGE> 2
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CSK AUTO CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
AUGUST 2, FEBRUARY 1,
1998 1998
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 7,578 $ 4,852
Receivables, net of allowances of $2,433 and $2,403,
respectively.............................................. 41,420 37,566
Inventories................................................. 368,534 367,366
Assets held for sale........................................ 6,316 2,418
Prepaid expenses and other current assets................... 16,906 14,143
--------- ---------
Total current assets.............................. 440,754 426,345
--------- ---------
Property and equipment, net................................. 90,410 85,940
Leasehold interests, net.................................... 10,266 10,934
Deferred income taxes....................................... 21,240 22,021
Other assets, net........................................... 7,674 18,011
--------- ---------
Total assets...................................... $ 570,344 $ 563,251
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable............................................ $ 105,086 $ 109,962
Outstanding checks.......................................... 11,910 4,308
Accrued payroll and related expenses........................ 21,576 20,869
Accrued expenses and other current liabilities.............. 36,992 40,818
Due to affiliates........................................... -- 1,000
Current maturities of amounts due under Senior Credit
Facility.................................................. 1,000 1,000
Current maturities of capital lease obligations............. 9,164 8,671
Deferred income taxes....................................... 4,066 4,066
--------- ---------
Total current liabilities......................... 189,794 190,694
--------- ---------
Amounts due under Senior Credit Facility.................... 186,580 239,050
Obligations under 11% Senior Subordinated Notes............. 81,250 125,000
Obligations under 12% Subordinated Notes.................... -- 50,000
Obligations under capital leases............................ 14,115 16,241
Other....................................................... 12,880 17,321
--------- ---------
Total non-current liabilities..................... 294,825 447,612
--------- ---------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $0.01 par value, 50,000,000 shares authorized,
27,738,388 at August 2, 1998 and 19,113,388 shares at
February 1, 1998 issued and outstanding................... 277 191
Additional paid-in capital.................................. 289,137 130,513
Stockholder receivable...................................... (1,018) (1,168)
Deferred compensation....................................... (578) (675)
Accumulated deficit......................................... (202,093) (203,916)
--------- ---------
Total stockholders' equity (deficit).............. 85,725 (75,055)
--------- ---------
Total liabilities and stockholders' equity
(deficit)....................................... $ 570,344 $ 563,251
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE> 3
CSK AUTO CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
------------------------ ------------------------
AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales................................. $ 254,701 $ 217,944 $ 493,124 $ 419,557
Cost and expenses:
Cost of sales........................... 137,040 124,745 267,746 242,246
Operating and administrative............ 95,422 81,100 188,445 158,195
Transition and integration expenses..... -- -- 3,075 --
Write-off of unamortized management
fee.................................. -- -- 3,643 --
---------- ---------- ---------- ----------
232,462 205,845 462,909 400,441
---------- ---------- ---------- ----------
Operating profit.......................... 22,239 12,099 30,215 19,116
Interest expense.......................... 7,410 9,989 16,608 19,714
---------- ---------- ---------- ----------
Income (loss) before income taxes and
extraordinary item...................... 14,829 2,110 13,607 (598)
Income tax expense (benefit).............. 5,487 843 5,017 (216)
---------- ---------- ---------- ----------
Income (loss) before extraordinary item... 9,342 1,267 8,590 (382)
Extraordinary loss, net of $4,236 of
income taxes............................ -- -- (6,767) --
---------- ---------- ---------- ----------
Net income (loss)......................... $ 9,342 $ 1,267 $ 1,823 $ (382)
========== ========== ========== ==========
Basic earnings per share:
Income (loss) before extraordinary item... $ 0.34 $ 0.07 $ 0.33 $ (0.02)
Extraordinary loss, net of income taxes... -- -- (0.26) --
---------- ---------- ---------- ----------
Net income (loss)......................... $ 0.34 $ 0.07 $ 0.07 $ (0.02)
========== ========== ========== ==========
Shares used in computing per share
amounts................................. 27,738,388 17,105,000 25,653,223 17,105,000
========== ========== ========== ==========
Diluted earnings per share:
Income (loss) before extraordinary item... $ 0.33 $ 0.07 $ 0.32 $ (0.02)
Extraordinary loss, net of income taxes... -- -- (0.25) --
---------- ---------- ---------- ----------
Net income (loss)......................... $ 0.33 $ 0.07 $ 0.07 $ (0.02)
========== ========== ========== ==========
Shares used in computing per share
amounts................................. 28,662,448 17,105,000 26,578,154 17,105,000
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 4
CSK AUTO CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN ACCUMULATED STOCKHOLDER DEFERRED TOTAL EQUITY
SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE COMPENSATION (DEFICIT)
---------- ------ ---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 1,
1998...................... 19,113,388 $191 $130,513 $(203,916) $(1,168) $(675) $(75,055)
Amortization of deferred
compensation............ -- -- -- -- -- 97 97
Recovery of shareholder
receivable.............. -- -- -- -- 150 -- 150
Issuance of common stock
in initial public
offering, net of
transaction costs....... 8,625,000 86 158,624 -- -- -- 158,710
Net income................ -- -- -- 1,823 -- -- 1,823
---------- ---- -------- --------- ------- ----- --------
Balance at August 2, 1998
(Unaudited)............... 27,738,388 $277 $289,137 $(202,093) $(1,018) $(578) $ 85,725
========== ==== ======== ========= ======= ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 5
CSK AUTO CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
--------------------------------
AUGUST 2, 1998 AUGUST 3, 1997
-------------- --------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss)......................................... $ 1,823 $ (382)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization of property and
equipment............................................ 10,552 8,585
Amortization of leasehold interests.................... 475 675
Amortization of other deferred charges................. 360 328
Amortization of deferred financing costs............... 539 1,070
Extraordinary loss on early retirement of debt, net.... 6,767 --
Write-off of unamortized deferred charge............... 3,643 --
Deferred income taxes.................................. 5,017 (216)
Change in operating assets and liabilities:
Accounts receivable.................................. (3,854) (6,608)
Inventories.......................................... (1,168) (12,695)
Prepaid expenses and other current assets............ (2,881) (508)
Accounts payable..................................... (4,876) (5,971)
Outstanding checks................................... 7,602 8,527
Accrued payroll, accrued expenses and other current
liabilities....................................... (2,990) 2,201
Due to affiliate..................................... (1,000) --
Other................................................ (4,303) (1,338)
-------- --------
Net cash provided by (used in) operating activities.... 15,706 (6,332)
-------- --------
Cash flows used in investing activities:
Capital expenditures...................................... (18,640) (6,781)
Expenditures for assets held for sale..................... (12,156) (6,505)
Proceeds from sale of property and equipment and assets
held for sale.......................................... 14,910 2,980
Other investing activities................................ (139) (22)
-------- --------
Net cash used in investing activities..................... (16,025) (10,328)
-------- --------
Cash flows provided by financing activities:
Borrowings under Senior Credit Facility................... 65,000 32,000
Payments of debt.......................................... (63,645) (9,500)
Issuance of common stock in initial public offering....... 172,482 --
Underwriters' discount and other costs of initial public
offering............................................... (13,771) --
Premiums paid upon early retirement of debt............... (4,875)
Retirement of 11% Senior Subordinated Notes............... (43,750) --
Retirement of 12% Subordinated Notes...................... (50,000) --
Payment of Senior Credit Facility with public offering
proceeds............................................... (53,825)
Payments on capital lease obligations..................... (4,472) (3,600)
Recovery of stockholder receivable........................ 150 --
Other..................................................... (249) (865)
-------- --------
Net cash provided by financing activities................... 3,045 18,035
-------- --------
Net increase in cash and cash equivalents................... 2,726 1,375
Cash and cash equivalents, beginning of period.............. 4,852 5,223
-------- --------
Cash and cash equivalents, end of period.................... $ 7,578 $ 6,598
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 6
CSK AUTO CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 2, 1998
CSK Auto Corporation is a holding company. At August 2, 1998, CSK Auto
Corporation had no business activity other than its investment in CSK Auto,
Inc., a wholly-owned subsidiary ("Auto"). On a consolidated basis, CSK Auto
Corporation and CSK Auto, Inc. are referred to herein as the "Company".
CSK Auto, Inc. is a specialty retailer of automotive aftermarket parts and
accessories. At August 2, 1998, the Company operated 747 stores in 12 Western
states. The Company operates as a fully integrated chain under three brand
names: Checker Auto Parts, founded in 1968 and operating in the Southwest and
Rocky Mountain states; Schuck's Auto Supply, founded in 1917 and operating in
the Pacific Northwest; and Kragen Auto Parts, founded in 1947 and operating
primarily in California.
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements included herein
were prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"), but do not include all
information and footnotes required by generally accepted accounting principles.
In the opinion of management, the condensed consolidated financial statements
reflect all adjustments, which are of a normal recurring nature, necessary for a
fair presentation of the Company's financial position and the results of its
operations. The accompanying condensed consolidated financial statements should
be read in conjunction with the financial statements and related notes thereto
for the fiscal year ended February 1, 1998, as included in the Company's Annual
Report on Form 10-K.
2. INVENTORIES
Inventories are valued at the lower of cost or market, cost being
determined utilizing the last-in, first-out (LIFO) method. An actual valuation
of inventory under the LIFO method can only be calculated at the end of a fiscal
year based upon the inventory levels and costs at that time. Accordingly,
interim LIFO calculations reflected herein are based upon management's estimates
of year-end inventory levels and costs. The replacement cost of inventories
approximated $314.4 million and $316.2 million at August 2, 1998 and February 1,
1998, respectively.
3. INITIAL PUBLIC OFFERING OF COMMON STOCK
On March 17, 1998, the Company completed an initial public offering (the
"Offering") of 8,625,000 shares of its common stock. The Offering generated net
proceeds of approximately $159.1 million which were used to reduce outstanding
debt of the Company as follows, (in millions):
<TABLE>
<S> <C>
12% Subordinated Notes...................................... $ 50.0
11% Senior Subordinated Notes............................... 43.8
Senior Credit Facility...................................... 53.8
Premiums on retirement...................................... 4.9
Accrued interest............................................ 6.6
------
Total............................................. $159.1
======
</TABLE>
Upon the retirement of the Company's 12% Subordinated Notes, all of Auto's
outstanding preferred stock was cancelled. Upon the consummation of the
Offering, the Company recorded an extraordinary loss of $6.8 million, net of
taxes. Such extraordinary loss consisted primarily of the premiums paid in
connection with the redemption of indebtedness and the write-off of a portion of
deferred debt issuance costs.
In connection with the Offering, the Company's Board of Directors approved
a 17.105 to 1 stock split. Accordingly, all share information herein has been
adjusted to give retroactive effect to such stock split. In addition, under the
terms of the Company's restated Certificate of Incorporation in effect at the
time of the
5
<PAGE> 7
CSK AUTO CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Offering, each share of each class of outstanding capital stock of the Company
automatically converted to common stock upon the consummation of the Offering on
March 17, 1998.
In March 1998, the Company amended its Certificate of Incorporation to
increase the total common stock authorization to 50 million shares.
4. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued statement
of Financial Accounting Standards No. 128, Earnings per Share ("FAS 128"). FAS
128 establishes standards for computing and presenting earnings per share
("EPS") and supercedes APB Opinion No. 15, Earnings per Share ("APB 15"). FAS
128 replaces the presentation of primary EPS with a presentation of basic EPS
which excludes dilution and is computed by dividing income available to common
shareholders by the weighted-average of common shares outstanding during the
period. This statement also requires dual presentation of basic EPS and diluted
EPS on the face of the income statement for all periods presented. Diluted EPS
is calculated similarly to fully diluted EPS pursuant to APB 15, with some
modifications. FAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. The statement
requires restatement of all prior-period EPS data presented after the effective
date. Consequently, the Company adopted FAS 128 effective as of fiscal 1997 and
has restated all prior period EPS data presented within these financial
statements. Calculation of shares used in computing per share amounts under the
provisions of SFAS 128 and Securities and Exchange Commission Staff Accounting
Bulletin No. 98 is summarized as follows: (unaudited)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
-------------------------------- --------------------------------
AUGUST 2, 1998 AUGUST 3, 1997 AUGUST 2, 1998 AUGUST 3, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Common stock outstanding:
Beginning of period............... 27,738,388 17,105,000 19,133,388 17,105,000
End of period..................... 27,738,388 17,105,000 27,738,388 17,105,000
Issued during the period.......... -- -- 8,625,000 --
Weighted average shares............. 27,738,388 17,105,000 25,653,223 17,105,000
</TABLE>
Weighted average shares issuable under employee stock options, totaling
924,060 and 924,931 are included in the shares used in computing diluted per
share amounts for the thirteen weeks and twenty-six weeks ended August 2, 1998,
respectively.
5. WRITE-OFF OF UNAMORTIZED MANAGEMENT FEE
In connection with the Acquisition and Financings that occurred in October
1996 (See the Company's Annual Report on Form 10-K), the Company pre-paid a fee
of $5.0 million to its then majority shareholder in connection with a management
advisory and consulting services agreement (the "Management Agreement"). The
term of the Management Agreement was 5 years unless earlier terminated as a
result of the occurrence of certain events, including the initial public
offering of a class of equity securities. Upon the consummation of the Offering
in March 1998, the Management Agreement terminated and the remaining unamortized
portion of the pre-paid fee ($3.6 million) was expensed.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company's business is seasonal in nature, with the highest sales
occurring in the summer months of June through August. The Company's business is
also affected by weather conditions because unusually severe or inclement
weather tends to reduce sales as elective maintenance is postponed during such
periods. However, extremely hot or cold temperatures can enhance sales by
causing parts to fail and demand for seasonal products to increase.
On December 8, 1997, the Company acquired 82 stores located in the Los
Angeles market from Trak Auto Corporation (the "Trak West" stores). During the
first quarter of fiscal 1998, the Company completed the integration of these
stores into its operations.
On March 17, 1998, the Company completed an initial public offering (the
"Offering") of approximately 8.6 million shares of its common stock and utilized
the net proceeds thereof (approximately $159.1 million) to reduce outstanding
debt.
RESULTS OF OPERATIONS
The following table expresses the statements of operations as a percentage
of sales for the periods shown:
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS
THIRTEEN WEEKS ENDED ENDED
---------------------- ----------------------
AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales...................................... 53.8 57.2 54.3 57.7
----- ----- ----- -----
Gross profit....................................... 46.2 42.8 45.7 42.3
Operating and administrative....................... 37.5 37.2 38.2 37.7
Transition and integration expense................. -- -- 0.6 --
Write-off of unamortized management fee............ -- -- 0.7 --
----- ----- ----- -----
Operating profit................................... 8.7 5.6 6.2 4.6
Interest expense................................... 2.9 4.6 3.4 4.7
----- ----- ----- -----
Income (loss) before income taxes and extraordinary
item............................................. 5.8 1.0 2.8 (0.1)
Income tax expense (benefit)....................... 2.2 0.4 1.0 (0.1)
----- ----- ----- -----
Income (loss) before extraordinary item............ 3.6 0.6 1.8 0.0
Extraordinary loss, net of tax..................... -- -- (1.4) --
----- ----- ----- -----
Net income (loss).................................. 3.6% 0.6% 0.4% 0.0%
===== ===== ===== =====
</TABLE>
THIRTEEN WEEKS ENDED AUGUST 2, 1998 COMPARED TO THIRTEEN WEEKS ENDED AUGUST 3,
1997
Net sales for the thirteen weeks ended August 2, 1998 (the "second quarter
of fiscal 1998") increased $36.8 million, or 16.9%, over net sales for the
thirteen week period ended August 3, 1997, primarily reflecting an increase in
the number of stores operated. As a result of the acquisition of the Trak West
stores in December 1997 and new store openings, the Company operated 747 stores
at the end of the second quarter of fiscal 1998 compared to 591 stores at the
end of the second quarter of fiscal 1997. Comparable store sales for the second
quarter of fiscal 1998 were flat compared to the prior-year period, due
primarily to unseasonably cooler temperatures and rain in many of the Company's
key markets early in the quarter. During the second quarter of fiscal 1998, the
Company opened 17 new stores, relocated 7 stores and expanded 2 additional
stores.
Gross profit for the second quarter of fiscal 1998 was $117.7 million, or
46.2 % of net sales, compared to $93.2 million, or 42.8% of net sales, for the
comparable period of fiscal 1997. The increase in gross profit percentage
primarily resulted from the Company's ability to obtain generally better pricing
and more favorable
7
<PAGE> 9
terms and support from its vendors as a result of the Company's improving
operating results and financial condition.
Operating and administrative expenses increased by $14.3 million to $95.4
million, or 37.5% of net sales, for the second quarter of fiscal 1998 from $81.1
million, or 37.2% of net sales, for the comparable period of fiscal 1997. The
increase in expense is primarily the result of the operating costs of new stores
that are in the early stages of maturation and the operating costs of the Trak
West stores, which exceed the Company average as a percent of sales.
Operating profit increased to $22.2 million, or 8.7% of net sales, for the
second quarter of fiscal 1998 compared to $12.1 million, or 5.6% of net sales,
for the comparable period of fiscal 1997, due to the factors cited above.
Interest expense for the second quarter of fiscal 1998 totaled $7.4 million
compared to $10.0 million for the second quarter of fiscal 1997. The decrease in
expense is the result of the early retirement of outstanding debt with the
proceeds of the Offering.
As a result of the above factors, net income increased to $9.3 million, or
$0.33 per diluted common share, for the second quarter of fiscal 1998, compared
to net income of $1.3 million, or $0.07 per diluted common share, for the second
quarter of fiscal 1997.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
increased by $10.4 million to $27.9 million in the second quarter of fiscal
1998, compared to $17.5 million for the second quarter of fiscal 1997. EBITDA is
used by the Company for the purpose of analyzing operating performance, leverage
and liquidity. Additionally, the Company's $300.0 million Senior Credit Facility
contains various financial covenants that are based upon EBITDA as it is defined
in the Senior Credit Facility. EBITDA is not a measure of financial performance
under generally accepted accounting principles and should not be considered as
an alternative to net income as a measure of the Company's operating
performance.
TWENTY-SIX WEEKS ENDED AUGUST 2, 1998 COMPARED TO TWENTY-SIX WEEKS ENDED AUGUST
3, 1997
Net sales for the twenty-six weeks ended August 2, 1998 increased $73.6
million, or 17.5% over net sales for the twenty-six week period ended August 3,
1997, primarily reflecting an increase in the number of stores operated. As a
result of the acquisition of the Trak West stores in December 1997 and new store
openings, the Company operated 747 stores at the end of the second quarter of
fiscal 1998 compared to 591 stores at the end of the second quarter of fiscal
1997. During the first twenty-six weeks of fiscal 1998, the Company opened 33
new stores, expanded 2 stores, relocated 19 stores and closed four stores in
addition to those closed due to relocations.
Gross profit for the twenty-six weeks ended August 2, 1998 was $225.4
million, or 45.7 % of net sales, compared to $177.3 million, or 42.3% of net
sales, for the comparable period of fiscal 1997. The increase in gross profit
percentage primarily resulted from the Company's ability to obtain generally
better pricing and more favorable terms and support from its vendors as a result
of the Company's improving operating results and financial condition.
Operating and administrative expenses increased by $30.3 million to $188.4
million, or 38.2% of net sales, for the first twenty-six week period of fiscal
1998 from $158.2 million, or 37.7% of net sales, for the comparable period of
fiscal 1997. The increase in expense is primarily the result of the operating
costs of new stores that are in the early stages of maturation and the operating
costs of the Trak West stores, which exceed the Company average as a percent of
sales. In addition, the Company incurred $3.1 million of one-time expense during
the first quarter of fiscal 1998 to complete the integration of the Trak West
stores into the Company's operations and a $3.6 million non-cash charge to write
off the remaining unamortized balance of a pre-paid management consulting and
advisory services agreement that terminated by its terms upon the consummation
of the Offering.
8
<PAGE> 10
Operating profit increased to $30.2 million, or 6.2% of net sales, for the
twenty-six week period of fiscal 1998 compared to $19.1 million, or 4.6% of net
sales, for the comparable period of fiscal 1997, due to the factors cited above.
Interest expense for the twenty-six week period of fiscal 1998 totaled
$16.6 million compared to $19.7 million for the comparable period of fiscal
1997. The decrease in expense is primarily the result of the early retirement of
approximately $147.6 million of outstanding debt with the proceeds of the
Offering. As a result of such retirement of debt, the Company incurred an
extraordinary loss of $6.8 million, net of tax, which consisted primarily of the
premiums paid in connection with the retirement of such indebtedness and the
write-off of a portion of deferred debt issuance costs.
As a result of the above factors, net income increased to $1.8 million, or
$0.07 per diluted common share, for the first twenty-six weeks of fiscal 1998,
compared to a net loss of $0.4 million, or ($0.02) per diluted common share, for
the comparable period of fiscal 1997. Pro forma net income for the first
twenty-six weeks of fiscal 1998 was approximately $13.5 million, or $0.47 per
diluted common share, assuming that the Offering and related retirement of
indebtedness had occurred on the first day of fiscal 1998 and adjusting for the
extraordinary loss and other non-recurring items discussed above.
As a result of the factors cited above, EBITDA increased by $19.1 million
to $48.3 million in the twenty-six weeks ended August 2, 1998, compared to $29.2
million for the comparable period of fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs have been for the funding of working
capital requirements (primarily inventory) and store fixtures and leasehold
improvements associated with its store expansion and relocation program, the
expansion of its sales to commercial customers and the increase in the number of
hard parts SKU's in its stores. Historically, the Company has financed its
growth and infrastructure requirements through internally generated funds, funds
borrowed under its various credit agreements, funds obtained from an affiliate
of a shareholder through sales-leaseback and other transactions, and lease
arrangements with third parties.
The Company believes that it has sufficient liquidity to fund its debt
service obligations and to continue to implement its growth strategy. In
addition to its operating cash flow and borrowing capacity under the $300.0
million Senior Credit Facility ($84.0 million of unused capacity is available at
August 2, 1998), the Company has access to an off-balance sheet leasing facility
that will provide for the acquisition and development of approximately 100 to
125 new stores over the period of February 1,1998 through May 31, 1999. The
facility calls for up to $125 million of funding to be provided for acquisition
and development costs with the stores to be leased to the Company under
operating lease arrangements upon the completion of their construction.
For the twenty-six week period ended August 2, 1998, net cash provided by
operating activities was $15.7 million compared to $6.3 million of cash used in
operating activities during the comparable period of fiscal 1997. The largest
component of the change in cash flow from operating activities relates to
inventories, where $1.2 million of cash was used in operating activities during
fiscal 1998, while $12.7 million was used for such purposes in fiscal 1997. In
addition, during the 1998 period, $6.8 million was provided by the extraordinary
loss on the early retirement of debt; $3.6 million was provided by the write-off
of an unamortized deferred charge and $5.0 million was provided by changes in
deferred income taxes. Net cash used in investing activities totaled $16.0
million in the twenty-six weeks ended August 2, 1998, compared to $10.3 million
in the comparable period of fiscal 1997. The increase in cash used in investing
activities was the result of generally larger disbursements for capital
expenditures and assets held for sale under the Company's new store development
program. Net cash provided by financing activities totaled $3.0 million in the
twenty-six week period of fiscal 1998 compared to $18.0 million in the
comparable period of fiscal 1997. In the 1998 period, net cash provided by
financing activities consisted of $65.0 million of revolving credit facility
borrowings, payments of debt of $63.6 million, $4.5 million of payments on
capital lease obligations and receipt of $0.2 million of stockholder
receivables. In addition, the Company received gross proceeds of $172.5 million
in connection with the Offering. Such proceeds were applied as follows: $13.8
million to pay underwriters' discounts and other transaction costs; $50.0
million to retire all outstanding 12% Subordinated Notes; $43.8
9
<PAGE> 11
million to retire certain of the 11% Senior Subordinated Notes; $ 53.8 million
to pay certain outstanding balances under the Senior Credit Facility; $4.9
million to pay premiums in connection with the retirement of certain of the
aforementioned debt instruments and the balance to pay accrued interest and for
general corporate purposes. In the 1997 period, the Company borrowed $32.0
million under the Senior Credit Facility, made payments of capital lease
obligations of $3.6 million, made payments of debt of $9.5 million and paid $0.9
million in connection with other financing activities.
FORWARD-LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis contains certain
forward-looking statements about the future performance of the Company that are
based on management's assumptions and beliefs in light of the information
currently available. These forward-looking statements are subject to
uncertainties and other factors that could cause actual results to differ
materially from those statements. Factors that may cause differences are
identified in the Company's Annual Report on Form 10-K, and are incorporated
herein by reference.
10
<PAGE> 12
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company has been served with a lawsuit that was filed in the Superior
Court in San Diego, California on May 4, 1998. The case is brought by two former
store managers and a former senior assistant manager. It purports to be a class
action for all present and former California store managers and senior assistant
managers and seeks overtime pay for a period beginning in May of 1995 as well as
injunctive relief requiring overtime pay in the future. The Company believes it
has meritorious defenses to this action and intends to defend it vigorously.
ITEM 2. CHANGES IN SECURITIES.
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE
ITEM 5. OTHER INFORMATION.
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<TABLE>
<C> <S>
3.01* Amended and Restated Articles of Incorporation of the
Company.
3.02* Certificate of Correction of the Company.
3.03** Amended and Restated By-laws of the Company.
10.01 CSK Auto Corporation Directors Stock Plan.
10.02 Amended and Restated Employment Agreement, dated as of June
12, 1998, between Auto and Maynard Jenkins.
10.03 Amended and Restated Employment Agreement, dated as of June
12, 1998, between Auto and James Bazlen.
27 Financial Data Schedule.
</TABLE>
(b)Reports on Form 8-K: None
- ---------------
* Incorporated herein by reference to the Company's annual report on Form 10-K,
dated May 4, 1998.
** Incorporated herein by reference to the Company's registration statement on
Form S-1 (File No. 333-43211)
11
<PAGE> 13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CSK Auto Corporation
By: /s/ DON W. WATSON
------------------------------------
Don W. Watson
Chief Financial Officer
DATED: September 10, 1998
12
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
3.01* Amended and Restated Articles of Incorporation of the
Company.
3.02* Certificate of Correction of the Company.
3.03** Amended and Restated By-laws of the Company.
10.01 CSK Auto Corporation Directors Stock Plan.
10.02 Amended and Restated Employment Agreement, dated as of June
12, 1998, between Auto and Maynard Jenkins.
10.03 Amended and Restated Employment Agreement, dated as of June
12, 1998, between Auto and James Bazlen.
27 Financial Data Schedule.
</TABLE>
- ---------------
* Incorporated herein by reference to the Company's annual report on Form 10-K,
dated May 4, 1998.
** Incorporated herein by reference to the Company's registration statement on
Form S-1 (File No. 333-43211)
<PAGE> 1
EXHIBIT 10.01
CSK AUTO CORPORATION
DIRECTORS STOCK PLAN
SECTION 1
PURPOSE
The purpose of the CSK Auto Corporation Directors Stock Plan (the "Plan")
is to advance the interests of CSK Auto Corporation, a Delaware corporation
(hereinafter the "Company"), by enabling the Company to attract, retain and
motivate qualified individuals to serve on the Company's Board of Directors
and to align the financial interests of such individuals with those of the
Company's stockholders by providing for or increasing their proprietary
interest in the Company. The stock options granted pursuant to this Plan
are not qualified under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
SECTION 2
DEFINITIONS
"BOARD" MEANS THE BOARD OF DIRECTORS OF THE COMPANY.
"COMMITTEE" MEANS THE BOARD AND/OR A COMMITTEE OF THE BOARD
ACTING PURSUANT TO ITS AUTHORIZATION TO ADMINISTER THIS PLAN UNDER
SECTION 7.
"COMMON STOCK" MEANS THE COMPANY'S COMMON STOCK, PAR VALUE
$.01 PER SHARE, AS PRESENTLY CONSTITUTED, SUBJECT TO ADJUSTMENT AS
PROVIDED IN SECTION 9.
"FAIR MARKET VALUE" MEANS, AS OF ANY DATE, AND UNLESS THE
BOARD SHALL SPECIFY OTHERWISE, THE MEAN BETWEEN THE HIGH AND THE LOW
MARKET PRICES FOR THE COMMON STOCK REPORTED FOR THAT DATE ON THE
COMPOSITE TAPE FOR SECURITIES LISTED ON THE NEW YORK STOCK EXCHANGE OR,
IF THE COMMON STOCK DID NOT TRADE ON THE NEW YORK STOCK EXCHANGE ON THE
DATE IN QUESTION, THEN FOR THE NEXT PRECEDING DATE FOR WHICH THE COMMON
STOCK TRADED ON THE NEW YORK STOCK EXCHANGE.
"NON-EMPLOYEE DIRECTOR" MEANS A MEMBER OF THE BOARD WHO IS NOT
AT THE TIME ALSO AN EMPLOYEE OF THE COMPANY OR ANY OF ITS DIRECT OR
INDIRECT MAJORITY-OWNED SUBSIDIARIES (REGARDLESS OF WHETHER SUCH
SUBSIDIARY IS ORGANIZED AS A CORPORATION, PARTNERSHIP OR OTHER ENTITY).
<PAGE> 2
SECTION 3
SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 9, the maximum number of
shares of Common Stock which may be issued pursuant to this Plan shall not
exceed 50,000. Shares issued under this Plan may be authorized and unissued
shares of Common Stock or shares of Common Stock reacquired by the Company.
All or any shares of Common Stock subject to a stock option or stock grant
which for any reason are not issued or are reacquired under the stock
option or stock grant may again be made subject to a stock option or stock
grant under the Plan.
SECTION 4
PARTICIPANTS
Any person who is a Non-Employee Director shall be eligible for the
award of stock options and/or stock grants hereunder.
SECTION 5
NON-EMPLOYEE DIRECTOR AWARDS
The Board may provide for stock options and/or stock grants to be awarded
to Non-Employee Directors in consideration for their service to the
Company. The Board shall determine to which Non-Employee Directors any such
stock options and/or stock grants shall be awarded hereunder (any such
person, a "Participant"). The Board shall specify the number of shares
subject to each stock option or stock grant provided for under this Section
5, or the formula pursuant to which such number shall be determined, the
Participants to receive any such award, the date of award and the vesting
and expiration terms applicable to such stock option or stock grant. The
award of stock options or stock grants hereunder may, but need not, be
conditioned on the Non-Employee Director electing to forego his or her
right to all or any part of his or her cash retainer or other fees. Subject
to adjustment pursuant to Section 9, the maximum number of shares of Common
Stock subject to stock options and stock grants awarded under this Plan
during any calendar year to any person on account of his or her service as
a Non-Employee Director, other than stock options or stock grants that a
Non-Employee Director has elected to receive in lieu of cash retainer or
other fees, shall not exceed 50,000 shares.
SECTION 6
TERMS AND CONDITIONS OF STOCK OPTIONS AND STOCK GRANTS
General Terms and Conditions: Stock options and stock grants awarded
pursuant to the Plan need not be identical but each stock option and stock
grant shall be subject to the following general terms and conditions:
2
<PAGE> 3
TERMS AND RESTRICTIONS UPON SHARES: THE BOARD MAY PROVIDE THAT
THE SHARES OF COMMON STOCK ISSUED UPON EXERCISE OF A STOCK OPTION OR
RECEIPT OF A STOCK GRANT SHALL BE SUBJECT TO SUCH FURTHER CONDITIONS,
RESTRICTIONS OR AGREEMENTS AS THE BOARD IN ITS DISCRETION MAY SPECIFY
PRIOR TO THE EXERCISE OF SUCH STOCK OPTION OR RECEIPT OF SUCH STOCK
GRANT, INCLUDING WITHOUT LIMITATION, DEFERRALS ON ISSUANCE, CONDITIONS
ON VESTING OR TRANSFERABILITY, AND FORFEITURE OR REPURCHASE PROVISIONS.
THE COMMITTEE MAY ESTABLISH RULES FOR THE DEFERRED DELIVERY OF SHARES
OF COMMON STOCK UPON EXERCISE OF A STOCK OPTION OR RECEIPT OF A STOCK
GRANT WITH THE DEFERRAL EVIDENCED BY USE OF "STOCK UNITS" EQUAL IN
NUMBER TO THE NUMBER OF SHARES OF COMMON STOCK WHOSE DELIVERY IS SO
DEFERRED. A "STOCK UNIT" IS A BOOKKEEPING ENTRY REPRESENTING AN AMOUNT
EQUIVALENT TO THE FAIR MARKET VALUE OF ONE SHARE OF COMMON STOCK. STOCK
UNITS REPRESENT AN UNFUNDED AND UNSECURED OBLIGATION OF THE CORPORATION
EXCEPT AS OTHERWISE PROVIDED BY THE BOARD. SETTLEMENT OF STOCK UNITS
UPON EXPIRATION OF THE DEFERRAL PERIOD SHALL BE MADE IN SHARES OF
COMMON STOCK OR OTHERWISE AS DETERMINED BY THE COMMITTEE. THE AMOUNT OF
COMMON STOCK, OR OTHER SETTLEMENT MEDIUM, TO BE SO DISTRIBUTED MAY BE
INCREASED BY AN INTEREST FACTOR OR BY DIVIDEND EQUIVALENTS. UNTIL A
STOCK UNIT IS SETTLED, THE NUMBER OF SHARES OF COMMON STOCK REPRESENTED
BY A STOCK UNIT SHALL BE SUBJECT TO ADJUSTMENT PURSUANT TO SECTION 9.
TRANSFERABILITY OF OPTION: UNLESS OTHERWISE PROVIDED BY THE
COMMITTEE, EACH STOCK OPTION SHALL BE TRANSFERABLE ONLY BY WILL OR THE
LAWS OF DESCENT AND DISTRIBUTION.
OTHER TERMS AND CONDITIONS: NO HOLDER OF A STOCK OPTION OR
STOCK GRANT SHALL HAVE ANY RIGHTS AS A STOCKHOLDER WITH RESPECT TO ANY
SHARES OF COMMON STOCK SUBJECT TO A STOCK OPTION OR STOCK GRANT
HEREUNDER UNTIL SAID SHARES HAVE BEEN ISSUED. STOCK OPTIONS AND STOCK
GRANTS MAY ALSO CONTAIN SUCH OTHER PROVISIONS, WHICH SHALL NOT BE
INCONSISTENT WITH ANY OF THE FOREGOING TERMS, AS THE BOARD OR THE
COMMITTEE SHALL DEEM APPROPRIATE. THE BOARD MAY WAIVE CONDITIONS TO
AND/OR ACCELERATE EXERCISABILITY OF A STOCK OPTION OR STOCK GRANT,
EITHER AUTOMATICALLY UPON THE OCCURRENCE OF SPECIFIED EVENTS (INCLUDING
IN CONNECTION WITH A CHANGE OF CONTROL OF THE COMPANY) OR OTHERWISE IN
ITS DISCRETION. NO STOCK OPTION OR STOCK GRANT, HOWEVER, NOR ANYTHING
CONTAINED IN THE PLAN, SHALL CONFER UPON ANY PARTICIPANT ANY RIGHT TO
SERVE AS A DIRECTOR OF THE COMPANY.
STOCK OPTION PRICE: THE EXERCISE PRICE FOR EACH STOCK OPTION
SHALL BE ESTABLISHED BY THE BOARD OR UNDER A FORMULA ESTABLISHED BY THE
BOARD. THE EXERCISE PRICE SHALL NOT BE LESS THAN THE FAIR MARKET VALUE
OF THE STOCK ON THE DATE OF GRANT. THE EXERCISE PRICE SHALL BE PAID IN
FULL AT THE TIME OF EXERCISE. THE EXERCISE PRICE SHALL BE PAYABLE IN
CASH, BY PAYMENT UNDER AN ARRANGEMENT WITH A BROKER WHERE PAYMENT IS
MADE PURSUANT TO AN IRREVOCABLE DIRECTION TO THE BROKER TO DELIVER ALL
OR PART OF THE PROCEEDS FROM THE SALE OF THE OPTION
3
<PAGE> 4
SHARES TO THE COMPANY, BY THE SURRENDER OF SHARES OF COMMON STOCK OWNED
BY THE OPTIONHOLDER EXERCISING THE OPTION AND HAVING A FAIR MARKET
VALUE ON THE DATE OF EXERCISE EQUAL TO THE EXERCISE PRICE BUT ONLY IF
SUCH WILL NOT RESULT IN AN ACCOUNTING CHARGE TO THE COMPANY, OR BY ANY
COMBINATION OF THE FOREGOING. IN ADDITION, THE EXERCISE PRICE SHALL BE
PAYABLE IN SUCH OTHER FORM(S) OF CONSIDERATION AS THE COMMITTEE IN ITS
DISCRETION SHALL SPECIFY, INCLUDING WITHOUT LIMITATION BY LOAN (AS
DESCRIBED IN SECTION 8) OR BY TECHNIQUES THAT MAY RESULT IN AN
ACCOUNTING CHARGE TO THE COMPANY.
STOCK GRANT TERMS: STOCK GRANTS UNDER THE PLAN MAY, IN THE
SOLE DISCRETION OF THE BOARD, BUT NEED NOT, BE CONDITIONED UPON THE
PARTICIPANT PAYING CASH OR CASH-EQUIVALENT CONSIDERATION OR AGREEING TO
FOREGO OTHER COMPENSATION FOR THE SHARES COVERED BY THE STOCK GRANT.
STOCK GRANTS UNDER THE PLAN MAY BE SUBJECT TO SUCH CONDITIONS,
RESTRICTIONS OR OTHER VESTING TERMS AS ARE ESTABLISHED IN THE SOLE
DISCRETION OF THE BOARD. THE CONDITIONS, RESTRICTIONS OR VESTING TERMS
MAY BE CONTINGENT UPON THE PASSAGE OF TIME, CONTINUED SERVICE OR
ACHIEVEMENT OF COMPANY OR INDIVIDUAL PERFORMANCE GOALS, AS SPECIFIED BY
THE BOARD.
SECTION 7
ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Board, except that as provided herein
the Plan may be administered by a Committee of the Board, as appointed from
time to time by the Board. The Board shall fill vacancies on and from time
to time may remove or add members to the Committee.
Subject to the express provisions of this Plan, the Committee shall be
authorized and empowered to do all things necessary or desirable in
connection with the administration of this Plan, including, without
limitation: (a) to prescribe, amend and rescind rules relating to this Plan
and to define terms not otherwise defined herein; (b) to prescribe the form
of documentation used to evidence any stock option or stock grant awarded
hereunder, including provision for such terms as it considers necessary or
desirable, not inconsistent with the terms established by the Board; (c) to
establish and verify the extent of satisfaction of any conditions to
exercisability applicable to stock options or to receipt or vesting of
stock grants; (d) to determine whether, and the extent to which,
adjustments are required pursuant to Section 9 hereof; and (e) to interpret
and construe this Plan, any rules and regulations under the Plan and the
terms and conditions of any stock option or stock grant awarded hereunder,
and to make exceptions to any procedural provisions in good faith and for
the benefit of the Company. Notwithstanding any provision of this Plan, the
Board may at any time limit the authority of the Committee to administer
this Plan.
4
<PAGE> 5
All decisions, determinations and interpretations by the Board or, except
as to the Board, the Committee regarding the Plan, any rules and
regulations under the Plan and the terms and conditions of any stock option
or stock grant awarded hereunder, shall be final and binding on all
Participants and holders of stock options and stock grants. The Board and
the Committee may consider such factors as it deems relevant, in its sole
and absolute discretion, in making such decisions, determinations and
interpretations including, without limitation, the recommendations or
advice of any officer or other employee of the Company and such attorneys,
consultants and accountants as it may select.
SECTION 8
LOANS
The Company may, if authorized by the Board, make loans for the purpose of
enabling a Participant to exercise stock options and, if applicable,
receive stock awarded under the Plan and to pay the tax liability resulting
from a stock option exercise or stock grant under the Plan. The Board shall
have full authority to determine the terms and conditions of such loans.
Such loans may be secured by the shares of Common Stock received upon
exercise of such stock option or receipt of such stock grant.
SECTION 9
ADJUSTMENT OF AND CHANGES IN THE STOCK
If the outstanding securities of the class then subject to this Plan are
increased, decreased or exchanged for or converted into cash, property or a
different number or kind of shares or securities, or if cash, property or
shares or securities are distributed in respect of such outstanding
securities, in either case as a result of a reorganization,
reclassification, dividend (other than a regular, quarterly cash dividend)
or other distribution, stock split, reverse stock split, spin-off or the
like, or if substantially all of the property and assets of the Company are
sold, then, unless the terms of such transaction shall provide otherwise,
the maximum number and type of shares or other securities that may be
issued under this Plan shall be appropriately adjusted. The Committee shall
determine in its sole discretion the appropriate adjustment to be effected
pursuant to the immediately preceding sentence. In addition, in connection
with any such change in the class of securities then subject to this Plan,
the Committee may make appropriate and proportionate adjustments in the
number and type of shares or other securities or cash or other property
that may be acquired pursuant to stock options and stock grants theretofore
awarded under this Plan and the exercise price of such stock options or
price, if any, of such stock grants.
No right to purchase or receive fractional shares shall result from any
adjustment in stock options or stock grants pursuant to this Section 9. In
case of any such adjustment, the shares subject to the stock option or
stock grant shall be rounded up to the nearest whole share of Common Stock.
5
<PAGE> 6
SECTION 10
REGISTRATION, LISTING OR QUALIFICATION OF STOCK
In the event that the Board or the Committee determines in its discretion
that the registration, listing or qualification of the shares of Common
Stock issuable under the Plan on any securities exchange or under any
applicable law or governmental regulation is necessary as a condition to
the issuance of such shares under the stock option or stock grant, the
stock option or stock grant shall not be exercisable or exercised in whole
or in part unless such registration, listing, qualification, consent or
approval has been unconditionally obtained.
SECTION 11
TAXES
The Board or Committee may make such provisions or impose such conditions
as it may deem appropriate for the withholding or payment by a Participant
of any taxes which it determines are necessary or appropriate in connection
with any issuance of shares under this Plan, and the rights of a holder of
a stock option or stock grant in any shares are subject to satisfaction of
such conditions. The Company shall not be required to issue shares of
Common Stock or to recognize the disposition of such shares until such
obligations are satisfied. At the Participant's election, any such
obligations may be satisfied by having the Company withhold a portion of
the shares of Common Stock that otherwise would be issued to the holder of
the stock option or stock grant upon exercise of the stock option or
vesting or receipt of the stock grant or by surrendering to the Company
shares of Common Stock previously acquired. The Company and any affiliate
of the Company shall not be liable to a Participant or any other persons as
to any tax consequence expected, but not realized, by any Participant or
other person due to the receipt of any stock options or shares awarded
hereunder.
SECTION 12
ARBITRATION AND APPLICABLE LAW
Any claim, dispute or other matter in question of any kind relating to this
Plan shall be settled by arbitration before a single arbitrator and
otherwise conducted in accordance with the Rules of the American
Arbitration Association, which proceedings shall be held in the city in
which the Company's executive offices are located. Notice of demand for
arbitration shall be made in writing to the opposing party and to the
American Arbitration Association within a reasonable time after the claim,
dispute or other matter in question has arisen. In no event shall a demand
for arbitration be made after the date when the applicable statute of
limitations would bar the institution of a legal or equitable proceeding
based on such claim, dispute or other matter in question. The decision of
the arbitrator shall be final and may be enforced in any court of competent
jurisdiction. This
6
<PAGE> 7
Plan and any rights hereunder shall be interpreted and construed in
accordance with the laws of the State of Delaware and applicable federal
law.
SECTION 13
EFFECTIVE DATE, AMENDMENT AND TERMINATION OF PLAN
This Plan shall become effective upon its approval by a majority of the
outstanding shares of the Company present, or represented by proxy, and
entitled to vote at the Company's 1999 annual meeting of stockholders to
take place following the conclusion of its 1998 fiscal year. Any stock
options and stock grants awarded prior to the such date shall be contingent
on such approval and, if such approval is not obtained, shall be null and
of no effect.
Unless earlier suspended or terminated by the Board, no stock options or
stock grants may be awarded after the tenth anniversary of the date the
Plan is approved by the Company's stockholders. The Board may periodically
amend the Plan as determined appropriate, without further action by the
Company's stockholders except to the extent required by applicable law.
Notwithstanding the foregoing, and subject to adjustment pursuant to
Section 9, the Plan may not be amended to increase the number of shares of
Common Stock authorized for issuance under the Plan, unless any such
amendment is approved by the Company's stockholders. The Plan may be
earlier terminated at such earlier time as the Board may determine.
Termination and expiration of the Plan will not affect the rights and
obligations arising under stock options or stock grants theretofore awarded
and then in effect.
7
<PAGE> 1
EXHIBIT 10.02
EMPLOYMENT AGREEMENT
(as Amended and Restated as of June 12, 1998)
This Employment Agreement ("this Agreement") is made and entered into
as of June 12, 1998 (the "Effective Date"), by and between CSK Auto, Inc., an
Arizona corporation (the "Company"), and Maynard Jenkins ("Executive").
WHEREAS, the Company and Executive are party to a certain Employment
Agreement, dated as of January 27, 1997 (the "Old Employment Agreement"); and
WHEREAS, Employer and Employee desire to amend certain provisions of
the Old Employment Agreement;
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree that, as of the Effective Date, the terms and conditions of the Old
Employment Agreement be, and they hereby, are amended and restated in their
entirety, and the Company hereby agrees to employ Executive, and Executive
hereby accepts such employment, on the terms and conditions hereinafter set
forth.
1. POSITION.
From the Effective Date until the termination of Executive's employment
hereunder (the "Period of Employment"), Executive shall serve as Chief Executive
Officer of the Company, and shall have the normal duties and responsibilities of
a chief executive officer. Executive shall be subject to the customary oversight
and direction of, and shall report solely to, the Board of Directors of the
Company (the "Board"). Executive shall become both the Chairman of the Board and
the Chairman of the Board of Directors (the "Parent Board") of the corporate
parent of the Company, if there be such a corporate parent (the "Parent"), as of
the Effective Date and thereafter during the Period of Employment shall remain
the Chairman of the Board and the Parent Board. During the Period of Employment,
Executive will (a) during normal business hours, devote his full time and
exclusive attention to, and use his best efforts to advance, the business and
welfare of the Company, and (b) not engage in any other employment activities
for any direct or indirect remuneration without the concurrence of the Board,
provided, however, Executive may serve on corporate, charitable and community
boards so long as such activities do not unreasonably interfere with the
performance of his duties under this Agreement and provided that any such
activities are approved in advance by the Board, which approval will not be
unreasonably withheld.
2. PLACE OF EMPLOYMENT.
Executive's office shall be at the Company's principal executive
offices in Phoenix, Arizona.
<PAGE> 2
3. COMPENSATION.
3.1 Base Salary. During the Period of Employment, the Company shall pay
Executive a Base Salary at the rate of Six Hundred Thousand Dollars ($600,000)
per annum payable at least as frequently as monthly and subject to payroll
deductions as may be necessary or customary in respect of the Company's salaried
employees in general. The amount of Executive's Base Salary shall not be changed
through the Company's fiscal year ending in January 1999, and thereafter
Executive's Base Salary hereunder shall be subject to annual review by the
Board, provided that the level of such Base Salary shall not be subject to
reduction.
3.2 Performance-Based Compensation. In addition to the Base Salary
provided for in Section 3.1 hereof, Executive shall be eligible to receive a
cash bonus in respect of each fiscal year during the Period of Employment (the
"Performance Bonus"). The Performance Bonus for any fiscal year shall be in an
amount equal to a percentage of his Base Salary and shall be determined by the
Company's Board of Directors based upon the Company's financial performance in
such fiscal year, with reference to a financial target (in terms of net income,
earnings per share or other measure) set by the Board as part of its annual
budgeting process.
4. BENEFITS.
4.1 Executive. During the Period of Employment, Executive shall be
entitled to participate in all benefit plans and programs maintained by the
Company which are available to its executive officers, including any and all
perquisites, provided that Executive's right to participate in such plans and
programs shall not affect the Company's right to amend or terminate the general
applicability of such plans and programs, and Executive acknowledges that he
shall have no vested rights under or to participate in any such plan or program
except as expressly provided under the terms thereof. In addition, if the
standard life insurance program provided by the Company does not provide at
least $1,500,000 of insurance on the life of Executive, the Company will at its
own cost, but subject to the availability of such insurance, provide Executive
with supplemental life insurance with a death benefit equal in amount to the
difference between $1,500,000 and the death benefit provided for Executive under
the Company's standard life insurance program; provided, however, that the
Company will not be obligated to pay any amount per annum in excess of
$10,000.00 in additional premiums to secure such supplemental life insurance.
Any insurance policy maintained by the Company on the life of the Executive
shall be made payable to such beneficiary or beneficiaries as the Executive may
designate by written notice to the Company. Commencing on the Effective Date,
Executive shall be entitled to five (5) weeks of vacation annually (or such
greater amount as is provided to senior executives of the Company generally)
with carryovers in accordance with Company policy. Executive shall also be
entitled to the business and personal use of an automobile provided by the
Company and the reimbursement of all expenses of operating and maintaining such
automobile. Such automobile shall be provided by the Company to Employee by the
Company (i) assuming the lease payments due on Executive's existing automobile
lease, (ii) purchasing Executive's existing leased automobile from the lessor
thereof and making such automobile available to Employee, or (iii) if neither of
such alternatives is available, leasing or purchasing a similar automobile for
Executive's use. The Company shall provide Executive with office space,
stenographic
2
<PAGE> 3
assistance, and such other facilities and services as shall be suitable to
Executive's position and adequate for the performance of his duties hereunder.
4.2 Additional Benefits. During the Period of Employment, Executive
shall be entitled to designate one additional person who will be permitted to be
enrolled, at the sole cost of Executive, in any health care insurance program of
the Company in which Executive is enrolled, provided that such person's right to
participate in such plan shall not affect the Company's right to amend or
terminate the general applicability of such plan, and such person shall have no
vested rights under or to participate in any such plan except as expressly
provided under the terms thereof.
5. EXPENSES; TAXES.
5.1 Employment Expenses. Upon presentation of acceptable substantiation
therefor, the Company will pay or reimburse Executive for such reasonable
travel, entertainment and other expenses as he may incur during the Period of
Employment in connection with the performance of his duties hereunder. Federal,
state and local income taxes shall be withheld on all cash and in-kind payments
made by the Company to Executive in accordance with applicable tax laws and
regulations.
5.2 Moving Expenses. Upon presentation of acceptable substantiation
therefor, the Company will reimburse Executive for all costs and expenses up to
$50,000, incurred in relocating Executive's principal residence from the San
Jose, California area to the Phoenix area (the "Reimbursed Amount"), plus, in
recognition of the taxable nature of the Reimbursed Amount, an additional amount
designed to fully gross-up Executive for all state and federal income taxes
payable on the Reimbursed Amount and any other amounts payable under this
Section 5.2.
6. TERMINATION OF EMPLOYMENT.
The provisions of this Section 6 shall apply upon termination of
Executive's employment hereunder. In connection with any termination of
Executive's employment hereunder, Executive or his beneficiaries shall be
entitled to receive, prorated as appropriate, earned but unpaid salary
(excluding the Performance Bonus, except as specifically provided below),
unreimbursed amounts pursuant to Section 5 hereof, and unpaid and unreimbursed
payments and benefits under, and in accordance with the terms of, applicable
benefit plans and programs, said payments being collectively referred to as
Standard Termination Payments.
6.1 For Cause or Not for Good Reason. If the Company terminates
Executive's employment for Cause (as hereafter defined) or if Executive
terminates his employment other than for Good Reason (as defined in Section
6.3), the Company's obligations to compensate Executive shall in all respects
cease as of the date of such termination, except for Standard Termination
Payments. Termination of Executive's employment for "Cause" shall mean
termination by the Company because Executive:
(i) has been convicted of a felony or a crime involving
moral turpitude, or
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(ii) has used alcohol or drugs on an ongoing basis to an
extent that materially interferes with the
performance by Executive of his duties under this
Agreement, or
(iii) has embezzled or misappropriated Company funds or
property, or
(iv) has willfully and knowingly violated Section 7.1,
Section 7.2 or Section 7.3 hereof, or
(v) has willfully and continually failed to substantially
perform his duties hereunder (other than any such
failure resulting from mental or physical illness)
after written demand for substantial performance is
delivered by the Board which specifically identifies
the manner in which the Board believes Executive has
not substantially performed his duties and Executive
fails to cure his non-performance within fifteen (15)
business days of receiving such notice.
Notwithstanding the occurrence of any event listed in clauses (i)
through (v) above, Executive shall not be deemed to have been terminated for
Cause without (a) reasonable notice to Executive setting forth the reasons for
the Company's intention to terminate for Cause, (b) an opportunity for
Executive, together with his counsel, to be heard before the Board, and (c)
delivery to Executive of a notice of termination from the Board finding that, in
the good faith opinion of a majority of the Board (exclusive of Executive),
Executive was guilty of the conduct referred to in such notice.
6.2 Upon Death or Permanent Disability. If Executive's employment is
terminated as a result of death or Permanent Disability (as hereinafter
defined), the Company's obligation to compensate Executive shall in all respects
cease as of the date of such termination, except for Standard Termination
Payments and, except that if such death or Permanent Disability occurred during
(a) the first half of a fiscal year, 50% of the Performance Bonus (if any) that
would have been payable to Executive with respect to such fiscal year based on
the Company's financial performance for such fiscal year, and (b) the second
half of a fiscal year, the Performance Bonus (if any) that would have been
payable to Executive with respect to said fiscal year based on the Company's
financial performance for such fiscal year. The Company may terminate
Executive's employment hereunder attributable to the "Permanent Disability" of
Executive if Executive becomes physically or mentally incapacitated or disabled
so that he is unable to perform for the Company substantially the same services
as he performed prior to incurring such incapacity or disability (the Company,
at its option and expense, is entitled to retain a physician reasonably
acceptable to Executive to confirm the existence of such incapacity or
disability, and the determination of such physician shall be binding upon the
Company and Executive), and such incapacity or disability exists for an
aggregate of six (6) calendar months in any twelve (12) calendar month period.
6.3 Not For Cause or For Good Reason. If Executive's employment is
terminated by the Company for a reason other than Cause or Executive's death or
Permanent Disability, or if Executive terminates his employment for Good Reason
(as hereinafter defined), the Company's
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obligation to compensate Executive shall in all respects cease as of the date of
such termination, except (a) for Standard Termination Payments, (b) that the
Company will, for a period of twenty-four (24) months following said date of
termination (the "Twenty-Four Month Period"), pay to Executive each month an
amount equal to Executive's Base Salary in effect at the time of such
termination (or the Base Salary in effect prior to any Base Salary reduction, if
such reduction constituted Good Reason (as hereinafter defined)) divided by
twelve (12), (c) that the Company shall pay to Executive within thirty (30) days
of the date of such termination an amount equal to the Performance Bonus which
would have been payable to Executive with respect to the Twenty-Four Month
Period if the financial targets for such fiscal years had been achieved, and (d)
that the Company will, for a period of six (6) months following said date of
termination, provide Executive with welfare benefits, including any life
insurance, hospitalization, medical and disability benefits, substantially
similar to those provided to Executive as of the date of termination (or the
benefits in effect prior to any reduction in benefits, if such reduction
constituted Good Reason), provided that such benefits shall be discontinued to
the extent Executive receives similar benefits from subsequent employment. For
purposes of this Agreement, "Good Reason" shall exist if (a) the Company shall
have effected a significant adverse change to the employment responsibilities or
authority of Executive or effected any reduction in the level of Executive's
Base Salary or Performance Bonus, (b) the Company shall fail to pay to Executive
any portion of his compensation when due, (c) the Company shall breach a
material term of this Agreement, (d) Executive shall cease to be a member of the
Board or the Parent Board (other than due to (i) Executive's death or Permanent
Disability, (ii) termination of Executive's employment by the Company for Cause,
(iii) termination of Executive's employment by Executive other than for Good
Reason or (iv) Executive's voluntary resignation from the Board or Parent
Board), or (e) the Company is acquired in a single transaction or a series of
related transactions (whether by merger, purchase of all outstanding equity
securities or purchase of assets) by a purchaser which had not previously been a
shareholder of the Company or the Parent, provided that Good Reason shall not
exist unless Executive shall have first provided the Company and the Board with
written notice of the event identified in any of the preceding clauses (a)
through (d) and the Company shall have failed to remedy or cure such event
within fifteen (15) days following receipt of such notice.
6.4 Release and Satisfaction. At the time of termination of Executive's
employment, Executive and the Company agree to execute mutual releases whereby
(a) Executive will release, relinquish and forever discharge the Company and any
director, officer, employee, shareholder, controlling person or agent of the
Company from any and all claims, damages, losses, costs, expenses, liabilities
or obligations, whether known or unknown (other than any such claims, damages,
losses, costs, expenses, liabilities or obligations arising under (i) any
indemnification arrangement of the Company with respect to Executive, (ii) any
employee benefit plan or program (whether or not tax-qualified) covering
Executive, (iii) any stock purchase or stock option plan or agreement to which
the Company and Executive are parties (or any document executed in connection
therewith) or (iv) this Agreement, to the extent the Company or any such person
has continuing obligations pursuant to the express provisions hereof following
such termination), which Executive has incurred or suffered or may incur or
suffer as a result of Executive's employment by the Company or the termination
of such employment, and (b) the Company will release, relinquish and forever
discharge Executive and his heirs, successors and
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assigns from any and all claims, damages, losses, costs, expenses, liability or
obligations, whether known or unknown (except as set forth in Section 6.5 hereof
and other than any such claims, damages, losses, costs, expenses, liabilities or
obligations arising under any of the arrangements or agreements referred to in
clauses (i) through (iii) in the preceding clause (a) of this Section 6.4 or
under this Agreement to the extent Executive or any such person has continuing
obligations pursuant to the express provisions hereof following such
termination), which the Company has incurred or suffered or may incur or suffer
as a result of the Company's employment of Executive or the termination of such
employment.
6.5 Effect on This Agreement. The termination of Executive's employment
shall not affect the continuing operation and effect of Sections 6.4 and 7
hereof, nor affect any obligation of the Company to make payments pursuant to
Section 6 hereof, which shall continue in full force and effect upon the Company
and Executive, and its and his heirs, successors and assigns. Nothing in Section
6.1 or 6.4 hereof shall be deemed to operate or shall operate as a release,
settlement or discharge of any liability of Executive to the Company (a) from
any act or omission by Executive enumerated in Section 6.1 which constituted a
reason for termination of Executive's employment for Cause or (b) in connection
with any amount Executive owes to the Company pursuant to a loan or other
advance.
6.6 Mitigation. Executive shall not be required to mitigate the amount
of any payment provided for under this Agreement by seeking other employment or
otherwise nor will any payments provided for herein be subject to offset in
respect of any claims which the Company may have against Executive and, except
as specifically provided herein, the amount of any payment or benefit provided
for in this Agreement shall not be reduced by any compensation earned or
benefits received by Executive as the result of employment by a future employer,
by offset against any amount claimed to be owed by him to the Company, or
otherwise.
7. NON-DISCLOSURE OF PROPRIETARY INFORMATION,
SURRENDER OF RECORDS; INVENTIONS AND PATENTS.
7.1 Proprietary Information. Executive agrees that he shall not use for
his own purpose or for the benefit of any person or entity other than the
Company or its shareholders or affiliates, nor otherwise disclose to any
individual or entity, at any time while he is employed by the Company or
thereafter any proprietary information of the Company unless such disclosure (a)
has been authorized by the Board, (b) is in the good faith judgment of Executive
required in the course of Executive's employment hereunder, (c) is in the course
of such individual's or entity's employment or retention by the Company, or (d)
is required by law, a court of competent jurisdiction or a governmental or
regulatory agency. For purposes of this Agreement, the term "proprietary
information" shall mean: (a) the name or address of any customer, supplier or
affiliate of the Company, or any information concerning the transactions or
relations of any customer, supplier or affiliate of the Company or any of its
shareholders; (b) any information concerning any product, technology or
procedure employed by the Company, but not generally known to its customers,
suppliers or competitors, or under development by or being tested by the
Company, but not at the time offered generally to customers or suppliers; (c)
any information relating to the marketing methods, sales margins, discounts,
rebates, supplier incentives, or the
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like, the capital structure, or results of any business plan of the Company; (d)
any information contained in the Company's policies and procedures or employees'
manual; (e) any inventions, innovations, trade secrets or other items covered by
Section 7.3 below; and (f) any other information which the Board has determined
by resolution and communicated to Executive to be confidential or proprietary.
However, proprietary information shall not include any information that is or
becomes generally known to the industries with which the Company competes other
than through actions of Executive in violation of Section 7.1 or 7.2 hereof.
7.2 Confidentiality and Surrender of Records. Executive agrees that,
while he is employed by the Company or at any time thereafter, he shall not
except as required by law give any "confidential records" (as hereinafter
defined) to, or permit any inspection or copying of confidential records by, any
individual or entity other than in the course of such individual's or entity's
employment or retention by the Company or as required by law, a court of
competent jurisdiction, or a governmental or regulatory agency, nor shall he
retain any of the same following termination of this employment, without the
prior approval of the Board. For purposes hereof, "confidential records" means
all correspondence, memoranda, files, manuals, financial, operating or marketing
records, magnetic tape, or electronic or other media of any kind which may be in
Executive's possession or under his control or accessible to him which contain
any proprietary information as defined in Section 7.1 above.
7.3 Inventions and Patents. Executive agrees that all inventions,
innovations, trade secrets, patents and processes developed by him alone or in
conjunction with others at any time during his employment by the Company shall
belong to the Company. Executive will use his best efforts to perform all
actions reasonably requested by the Board to establish and confirm such
ownership by the Company.
7.4 Definition of Company. For purposes of this Section 7, the term
"Company" shall include the Company and any and all of its subsidiaries,
ventures or affiliates, whether currently existing or hereafter formed.
7.5 Enforcement. The parties hereto agree that the duration and area
for which the covenants set forth in Section 7 are to be effective are
reasonable. In the event that any court or arbitrator determines that the time
period or the area, or both of them, are unreasonable and that any of the
covenants are to that extent unenforceable, the parties hereto agree that such
covenants will remain in full force and effect, first, for the greatest time
period, and second, in the greatest geographical area that would not render them
unenforceable. The parties intend that this Agreement will be deemed to be a
series of separate covenants, one for each and every county of each and every
state of the United States of America. Executive agrees that damages are an
inadequate remedy for any breach of the covenants in this Section 7, and that
the Company will, whether or not it is pursuing any potential remedies at law,
be entitled to equitable relief in the form of preliminary and permanent
injunctions without bond or other security upon any actual or threatened breach
of this Agreement.
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8. MISCELLANEOUS.
8.1 Notice. Any notice required or permitted to be given hereunder
shall be deemed sufficiently given if sent by registered or certified mail,
postage prepaid, addressed to the addressee at his or its address last provided
the sender in writing by the addressee for purposes of receiving notices
hereunder or, unless or until such address shall be so furnished, to the address
indicated opposite his or its signature to this Agreement. Each party may also
provide notice by sending the other party a facsimile at a number provided by
such other party.
8.2 Modification and No Waiver of Breach. No waiver or modification of
this Agreement shall be binding unless it is in writing signed by the parties
hereto. No waiver by a party of a breach hereof by the other party shall be
deemed to constitute a waiver of a future breach, whether of a similar or
dissimilar nature, except to the extent specifically provided in any written
waiver under this Section 8.2.
8.3 Governing Law. This Agreement shall be governed by and construed
and interpreted in accordance with the laws of the State of New York, and all
questions relating to the validity and performance hereof and remedies hereunder
shall be determined in accordance with such law.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
8.5 Captions. The captions used herein are for ease of reference only
and shall not define or limit the provisions hereof.
8.6 Entire Agreement. This Agreement together with any agreement, plans
or other documents implementing the terms of this Agreement constitutes the
entire agreement between the parties hereto relating to the matters encompassed
hereby and supersedes any prior oral or written agreements, including, without
limitation, that certain memorandum and term sheet dated December 3, 1996.
8.7 Assignment. The rights of the Company under this Agreement may,
without the consent of Executive, be assigned by the Company, in its sole and
unfettered discretion, to any person, firm, corporation or other business entity
which at any time, whether by purchase, merger, or otherwise, directly or
indirectly, acquires all or substantially all of the stock, assets or business
of the Company.
8.8 Non-Transferability of Interest. None of the rights of Executive to
receive any form of compensation payable pursuant to this Agreement shall be
assignable or transferable except through a testamentary disposition or by the
laws of descent and distribution upon the death of Executive. Any attempted
assignment, transfer, conveyance, or other disposition (other than as aforesaid)
of any interest in the rights of Executive to receive any form of compensation
to be made by the Company pursuant to this Agreement shall be void.
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8.9 Arbitration. Any dispute arising under this Agreement shall be
resolved by binding arbitration conducted under the auspices and pursuant to the
rules of the American Arbitration Association and held in Phoenix, Arizona, or
such other place as the parties may mutually agree. Each party shall bear its or
his own costs and expenses in any such arbitration and one-half of the
arbitrator's fees and expenses.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first written above.
CSK AUTO, INC.
By:
-------------------------------------
Name: James G. Bazlen
Title: President and Chief Operating Officer
Address for Notices:
645 E. Missouri Avenue
Phoenix, AZ 85012
Attention: General Counsel
With a copy to:
CSK Auto Corporation
c/o Investcorp International Inc.
280 Park Avenue, 37th Floor West
New York, NY 10017
Attention: Christopher Stadler
EXECUTIVE
--------------------------------------------
Maynard Jenkins
Address for Notices:
6052 E. Jenan Drive
Scottsdale, AZ 85254
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<PAGE> 1
EXHBIT 10.03
EMPLOYMENT AGREEMENT
(as Amended and Restated as of June 12, 1998)
This Employment Agreement ("this Agreement") is made and entered into
as of June 12, 1998 (the "Effective Date"), by and between CSK Auto, Inc., an
Arizona corporation (the "Company"), and James Bazlen ("Executive").
WHEREAS, the Company and Executive are party to a certain Employment
Agreement, dated as of November 1, 1996 (the "Old Employment Agreement"); and
WHEREAS, Employer and Employee desire to amend certain provisions of
the Old Employment Agreement;
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree that, as of the Effective Date, the terms and conditions of the Old
Employment Agreement be, and they hereby, are amended and restated in their
entirety, and the Company hereby agrees to employ Executive, and Executive
hereby accepts such employment, on the terms and conditions hereinafter set
forth.
1. POSITION.
From the Effective Date until the termination of Executive's employment
hereunder (the "Period of Employment"), Executive shall serve as President and
Chief Operating Officer of the Company, and shall have the normal duties and
responsibilities of a chief operating officer. Executive shall be subject to the
customary oversight and direction of, and shall report solely to, the Board of
Directors of the Company (the "Board"). During the Period of Employment,
Executive will (a) during normal business hours, devote his full time and
exclusive attention to, and use his best efforts to advance, the business and
welfare of the Company, and (b) not engage in any other employment activities
for any direct or indirect remuneration without the concurrence of the Board;
provided, however, Executive may serve on corporate, charitable and community
boards so long as such activities do not unreasonably interfere with the
performance of his duties under this Agreement, and provided that any such
activities are approved in advance by the Board, which approval will not be
unreasonably withheld.
2. PLACE OF EMPLOYMENT.
Executive's office shall be at the Company's principal executive
offices in Phoenix, Arizona.
3. COMPENSATION.
3.1 Base Salary. During the Period of Employment, the Company shall pay
Executive a Base Salary at the rate of Four Hundred Fifty Thousand Dollars
($450,000) per annum payable at least as frequently as monthly and subject to
payroll deductions as may be necessary or customary in respect of the Company's
salaried employees in general. The amount
<PAGE> 2
of Executive's Base Salary shall not be changed through the Company's fiscal
year ending January 1999, and thereafter Executive's Base Salary hereunder shall
be subject to annual review by the Board, provided that the level of such Base
Salary shall not be subject to reduction.
3.2 Performance-Based Compensation. In addition to the Base Salary
provided for in Section 3.1 hereof, Executive shall be eligible to receive a
cash bonus in respect of each fiscal year during the Period of Employment (the
"Performance Bonus"). The Performance Bonus for any fiscal year shall be in an
amount equal to a percentage of his Base Salary and shall be determined by the
Company's Board of Directors based upon the Company's financial performance in
such fiscal year, with reference to a financial target (in terms of net income,
earnings per share or other measure) set by the Board as part of its annual
budgeting process.
4. BENEFITS.
During the Period of Employment, Executive shall be entitled to
participate in all benefit plans and programs maintained by the Company which
are available to its executive officers, including any and all perquisites,
provided that Executive's right to participate in such plans and programs shall
not affect the Company's right to amend or terminate the general applicability
of such plans and programs, and Executive acknowledges that he shall have no
vested rights under or to participate in any such plan or program except as
expressly provided under the terms thereof. Commencing on the Effective Date,
Executive shall be entitled to five (5) weeks of vacation annually (or such
greater amount as is provided to senior executives of the Company generally)
with carryovers in accordance with Company policy. Executive shall also be
entitled to the business and personal use of an automobile provided by the
Company, and the reimbursement of all expenses of operating and maintaining such
automobile. The Company shall provide Executive with office space, stenographic
assistance, and such other facilities and services as shall be suitable to
Executive's position and adequate for the performance of his duties hereunder.
5. EXPENSES; TAXES.
Upon presentation of acceptable substantiation therefor, the Company
will pay or reimburse Executive for such reasonable travel, entertainment and
other expenses as he may incur during the Period of Employment in connection
with the performance of his duties hereunder. Federal, state and local income
taxes shall be withheld on all cash and in-kind payments made by the Company to
Executive in accordance with applicable tax laws and regulations.
6. TERMINATION OF EMPLOYMENT.
The provisions of this Section 6 shall apply upon termination of
Executive's employment hereunder. In connection with any termination of
Executive's employment hereunder, Executive or his beneficiaries shall be
entitled to receive, prorated as appropriate, earned but unpaid Base Salary,
unreimbursed amounts pursuant to Section 5 hereof, and unpaid and unreimbursed
payments and benefits under, and in accordance with the terms of, applicable
benefit plans and programs, said payments being collectively referred to as
Standard Termination Payments.
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6.1 For Cause or Not for Good Reason. If the Company terminates
Executive's employment for Cause (as hereinafter defined) or if Executive
terminates his employment other than for Good Reason (as defined in Section
6.3), the Company's obligations to compensate Executive shall in all respects
cease as of the date of such termination, except for Standard Termination
Payments. Termination of Executive's employment for "Cause" shall mean
termination by the Company because Executive:
(i) has been convicted of a felony or a crime involving
moral turpitude, or
(ii) has used alcohol or drugs on an ongoing basis to an
extent that materially interferes with the
performance by Executive of his duties under this
Agreement, or
(iii) has embezzled or misappropriated Company funds or
property, or
(iv) has willfully and knowingly violated Section 7.1,
Section 7.2 or Section 7.3 hereof, or
(v) has willfully and continually failed to substantially
perform his duties hereunder (other than any such
failure resulting from mental or physical illness)
after written demand for substantial performance is
delivered by the Board which specifically identifies
the manner in which the Board believes Executive has
not substantially performed his duties and Executive
fails to cure his non-performance within fifteen (15)
business days of receiving such notice.
Notwithstanding the occurrence of any event listed in clauses (i)
through (v) above, Executive shall not be deemed to have been terminated for
Cause without (a) reasonable notice to Executive setting forth the reasons for
the Company's intention to terminate for Cause, (b) an opportunity for
Executive, together with his counsel, to be heard before the Board, and (c)
delivery to Executive of a notice of termination from the Board finding that, in
the good faith opinion of a majority of the Board (exclusive of Executive),
Executive was guilty of the conduct referred to in such notice.
6.2 Upon Death or Permanent Disability. If Executive's employment is
terminated as a result of death or Permanent Disability (as hereinafter
defined), the Company's obligation to compensate Executive shall in all respects
cease as of the date of such termination, except for Standard Termination
Payments including, without limitation, all disability benefits to which
Executive was entitled on the date of such termination, regardless of when such
benefits would be payable. The Company may terminate Executive's employment
hereunder attributable to the "Permanent Disability" of Executive if Executive
becomes physically or mentally incapacitated or disabled so that he is unable to
perform for the Company substantially the same services as he performed prior to
incurring such incapacity or disability (the Company, at its option and expense,
is entitled to retain a physician reasonably acceptable to Executive to confirm
the existence of such incapacity or disability, and the determination of such
physician shall be
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binding upon the Company and Executive), and such incapacity or disability
exists for an aggregate of six (6) calendar months in any twelve (12) calendar
month period.
6.3 Not For Cause or For Good Reason. If (i) Executive's employment is
terminated by the Company for a reason other than Cause, Executive's death or
Executive's Permanent Disability, or (ii) Executive terminates his employment
for Good Reason (as hereinafter defined), the Company's obligation to compensate
Executive shall in all respects cease as of the date of such termination, except
(a) for Standard Termination Payments, (b) that the Company will, for a period
of twelve (12) months following said date of termination, pay to Executive each
month an amount equal to Executive's Base Salary in effect at the time of such
termination divided by twelve (12), (c) that the Company will, at the time it
normally pays year-end bonuses to other employees based upon the Company's
performance in the prior fiscal year, pay to Executive with respect to the year
in which his employment terminated a prorated bonus based upon the number of
months in such fiscal year for which the Executive was employed multiplied by
the lower of the bonus Executive would have received if his employment had
continued throughout such year and the bonus that the Executive received for the
fiscal year immediately preceding the fiscal year in which his employment
terminated, and (d) that the Company will, for a period of twelve (12) months
following said date of termination, provide Executive with welfare benefits,
including any life insurance, hospitalization, medical and disability benefits,
substantially similar to those provided to Executive as of the date of
termination, provided that such benefits shall be discontinued to the extent
Executive receives similar benefits from subsequent employment. For purposes of
this Agreement, "Good Reason" shall exist if (x) a significant adverse change to
the employment responsibilities or authority of Executive occurs and is promptly
objected to by Executive in writing, (y) the Company shall fail to pay to
Executive or, if applicable, Executive's heirs any portion of his compensation
or benefits when due, and (z) the Company shall require Executive to be based at
any location outside of the greater Phoenix metropolitan area; provided that
Good Reason shall not exist unless Executive shall have first provided the
Company and the Board with written notice of the event identified in any of the
preceding clauses (x) through (z) and the Company shall have failed to remedy or
cure such event within fifteen (15) days following receipt of such notice.
6.4 Release and Satisfaction. At the time of termination of Executive's
employment, Executive and the Company agree to execute mutual releases whereby
(a) Executive will release, relinquish and forever discharge the Company and any
director, officer, employee, shareholder, controlling person or agent of the
Company from any and all claims, damages, losses, costs, expenses, liabilities
or obligations, whether known or unknown (other than any such claims, damages,
losses, costs, expenses, liabilities or obligations arising under (i) any
indemnification arrangement of the Company with respect to Executive, (ii) any
employee benefit plan or program (whether or not tax-qualified) covering
Executive, (iii) any stock purchase or stock option plan or agreement to which
the Company and Executive are parties (or any document executed in connection
therewith) or (iv) this Agreement, to the extent the Company or any such person
has continuing obligations pursuant to the express provisions hereof following
such termination), which Executive has incurred or suffered or may incur or
suffer as a result of Executive's employment by the Company or the termination
of such employment, and (b) the Company will release, relinquish and forever
discharge Executive and his heirs, successors and
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assigns from any and all claims, damages, losses, costs, expenses, liability or
obligations, whether known or unknown (except as set forth in Section 6.5 hereof
and other than any such claims, damages, losses, costs, expenses, liabilities or
obligations arising under any of the arrangements or agreements referred to in
clauses (i) through (iii) in the preceding clause (a) of this Section 6.4 or
under this Agreement to the extent Executive or any such person has continuing
obligations pursuant to the express provisions hereof following such
termination), which the Company has incurred or suffered or may incur or suffer
as a result of the Company's employment of Executive or the termination of such
employment.
6.5 Effect on This Agreement. The termination of Executive's employment
shall not affect the continuing operation and effect of Sections 6.4 and 7
hereof, nor affect any obligation to make payments pursuant to Section 6 hereof,
which shall continue in full force and effect upon the Company and Executive,
and its and his heirs, successors and assigns. Nothing in Section 6.1 or 6.4
hereof shall be deemed to operate or shall operate as a release, settlement or
discharge of any liability of Executive to the Company (a) from any act or
omission by Executive enumerated in Section 6.1 which constituted a reason for
termination of Executive's employment for Cause or (b) in connection with any
amount Executive owes to the Company pursuant to a loan or other advance.
6.6 Mitigation. Executive shall not be required to mitigate the amount
of any payment provided for under this Agreement by seeking other employment or
otherwise nor will any payments provided for herein be subject to offset in
respect of any claims which the Company may have against Executive and, except
as specifically provided herein, the amount of any payment or benefit provided
for in this Agreement shall not be reduced by any compensation earned or
benefits received by Executive as the result of employment by a future employer,
by offset against any amount claimed to be owed by him to the Company, or
otherwise.
7. NON-DISCLOSURE OF PROPRIETARY INFORMATION, SURRENDER OF RECORDS; INVENTIONS
AND PATENTS.
7.1 Proprietary Information. Executive agrees that he shall not use for
his own purpose or for the benefit of any person or entity other than the
Company or its shareholders or affiliates, nor otherwise disclose to any
individual or entity, at any time while he is employed by the Company or
thereafter any proprietary information of the Company unless such disclosure (a)
has been authorized by the Board, (b) is, in the good faith judgment of
Executive, required in the course of Executive's employment hereunder, (c) is in
the course of such individual's or entity's employment or retention by the
Company, or (d) is required by law, a court of competent jurisdiction, or a
governmental or regulatory agency. For purposes of this Agreement, the term
"proprietary information" shall mean: (a) the name or address of any customer,
supplier or affiliate of the Company, or any information concerning the
transactions or relations of any customer, supplier or affiliate of the Company
or any of its shareholders; (b) any information concerning any product,
technology or procedure employed by the Company, but not generally known to its
customers, suppliers or competitors, or under development by or being tested by
the Company, but not at the time offered generally to customers or suppliers;
(c) any information relating to the marketing methods, sales margins, discounts,
rebates, supplier incentives, or the
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<PAGE> 6
like, the capital structure, or results of any business plan of the Company; (d)
any information contained in the Company's policies and procedures or employees'
manual; (e) any inventions, innovations, trade secrets or other items covered by
Section 7.3 below; and (f) any other information which the Board has determined
by resolution and communicated to Executive to be confidential or proprietary.
However, proprietary information shall not include any information that is or
becomes generally known to the industries in which the Company competes other
than through actions of Executive in violation of Section 7.1 or 7.2 hereof.
7.2 Confidentiality and Surrender of Records. Executive agrees that,
while he is employed by the Company or at any time thereafter, he shall not
except as required by law give any "confidential records" (as hereinafter
defined) to, or permit any inspection or copying of confidential records by, any
individual or entity other than in the course of such individual's or entity's
employment or retention by the Company or as required by law, a court of
competent jurisdiction, or a governmental or regulatory agency, nor shall he
retain any of the same following termination of this employment, without the
prior approval of the Board. For purposes hereof, "confidential records" means
all correspondence, memoranda, files, manuals, financial, operating or marketing
records, magnetic tape, or electronic or other media of any kind which may be in
Executive's possession or under his control or accessible to him which contain
any proprietary information as defined in Section 7.1 above.
7.3 Inventions and Patents. Executive agrees that all inventions,
innovations, trade secrets, patents and processes developed by him alone or in
conjunction with others at any time during his employment by the Company shall
belong to the Company. Executive will use his best efforts to perform all
actions reasonably requested by the Board to establish and confirm such
ownership by the Company.
7.4 Definition of Company. For purposes of this Section 7, the term
"Company" shall include the Company and any and all of its subsidiaries,
ventures or affiliates, whether currently existing or hereafter formed.
7.5 Enforcement. The parties hereto agree that the duration and area
for which the covenants set forth in Section 7 are to be effective are
reasonable. In the event that any court or arbitrator determines that the time
period or the area, or both of them, are unreasonable and that any of the
covenants are to that extent unenforceable, the parties hereto agree that such
covenants will remain in full force and effect, first, for the greatest time
period, and second, in the greatest geographical area that would not render them
unenforceable. The parties intend that this Agreement will be deemed to be a
series of separate covenants, one for each and every county of each and every
state of the United States of America. Executive agrees that damages are an
inadequate remedy for any breach of the covenants in this Section 7, and that
the Company will, whether or not it is pursuing any potential remedies at law,
be entitled to equitable relief in the form of preliminary and permanent
injunctions without bond or other security upon any actual or threatened breach
of this Agreement.
6
<PAGE> 7
8. MISCELLANEOUS.
8.1 Notice. Any notice required or permitted to be given hereunder
shall be deemed sufficiently given if sent by registered or certified mail,
postage prepaid, addressed to the addressee at his or its address last provided
the sender in writing by the addressee for purposes of receiving notices
hereunder or, unless or until such address shall be so furnished, to the address
indicated opposite his or its signature to this Agreement. Each party may also
provide notice by sending the other party a facsimile at a number provided by
such other party.
8.2 Modification and No Waiver of Breach. No waiver or modification of
this Agreement shall be binding unless it is in writing signed by the parties
hereto. No waiver by a party of a breach hereof by the other party shall be
deemed to constitute a waiver of a future breach, whether of a similar or
dissimilar nature, except to the extent specifically provided in any written
waiver under this Section 8.2.
8.3 Governing Law. This Agreement shall be governed by and construed
and interpreted in accordance with the laws of the State of New York, and all
questions relating to the validity and performance hereof and remedies hereunder
shall be determined in accordance with such law.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same agreement.
8.5 Captions. The captions used herein are for ease of reference only
and shall not define or limit the provisions hereof.
8.6 Entire Agreement. This Agreement together with any agreement, plans
or other documents implementing the terms of this Agreement constitute the
entire agreement between the parties hereto relating to the matters encompassed
hereby and supersede any prior oral or written agreements.
8.7 Assignment. The rights of the Company under this Agreement may,
without the consent of Executive, be assigned by the Company, in its sole and
unfettered discretion, to any person, firm, corporation or other business entity
which at any time, whether by purchase, merger, or otherwise, directly or
indirectly, acquires all or substantially all of the stock, assets or business
of the Company.
8.8 Non-Transferability of Interest. None of the rights of Executive to
receive any form of compensation payable pursuant to this Agreement shall be
assignable or transferable except through a testamentary disposition or by the
laws of descent and distribution upon the death of Executive. Any attempted
assignment, transfer, conveyance, or other disposition (other than as aforesaid)
of any interest in the rights of Executive to receive any form of compensation
to be made by the Company pursuant to this Agreement shall be void.
7
<PAGE> 8
8.9 Arbitration. Any dispute arising under this Agreement shall be
resolved by binding arbitration conducted under the auspices and pursuant to the
rules of the American Arbitration Association and held in Phoenix, Arizona, or
such other place as the parties may mutually agree. Each party shall bear its or
his own costs and expenses in any such arbitration and one-half of the
arbitrator's fees and expenses.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
8
<PAGE> 9
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first written above.
CSK AUTO, INC.
By:
------------------------------------
Name: Maynard Jenkins
Title: Chairman and Chief Executive Officer
Address for Notices:
645 E. Missouri Avenue
Phoenix, AZ 85012
Attention: General Counsel
With a copy to:
CSK Auto Corporation
c/o Investcorp International Inc.
280 Park Avenue, 37th Floor West
New York, NY 10017
Attention: Christopher Stadler
EXECUTIVE
-------------------------------------------
James Bazlen
Address for Notices:
4421 E. Horseshoe Rd.
Phoenix, AZ 85028
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS, CONDENSED CONSOLIDATED BALANCE SHEET AND
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE TWENTY-SIX WEEKS
ENDED AUGUST 2, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-02-1998
<PERIOD-END> AUG-02-1998
<CASH> 7,578
<SECURITIES> 0
<RECEIVABLES> 41,420
<ALLOWANCES> 2,433
<INVENTORY> 368,534
<CURRENT-ASSETS> 440,754
<PP&E> 180,395
<DEPRECIATION> (89,985)
<TOTAL-ASSETS> 570,344
<CURRENT-LIABILITIES> 189,794
<BONDS> 81,250
0
0
<COMMON> 277
<OTHER-SE> 85,448
<TOTAL-LIABILITY-AND-EQUITY> 570,344
<SALES> 493,124
<TOTAL-REVENUES> 439,124
<CGS> 267,746
<TOTAL-COSTS> 462,909
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,608
<INCOME-PRETAX> 13,607
<INCOME-TAX> 5,017
<INCOME-CONTINUING> 8,590
<DISCONTINUED> 0
<EXTRAORDINARY> (6,767)
<CHANGES> 0
<NET-INCOME> 1,823
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
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