<PAGE>
As filed with the Securities and Exchange Commission on June 4, 1998
Registration No. ___-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------------
ADVANCE HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Virginia 5531 54-1622754
(State or other jurisdiction of (Primary Standard Industrial (Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
5673 Airport Road
Roanoke, Virginia 24012
(540) 362-4911
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
----------------------
J. O'Neil Leftwich
Senior Vice President and
Chief Financial Officer, Secretary and Treasurer
Advance Holding Corporation
5673 Airport Road
Roanoke, Virginia 24012
(540) 362-4911
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------------
COPIES TO:
Cynthia M. Dunnett, Esq.
Riordan & McKinzie
300 South Grand Avenue
29th Floor
Los Angeles, California 90071
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) OFFERING PRICE AGGREGATE REGISTRATION
PER UNIT(1) OFFERING PRICE(1) FEE
<S> <C> <C> <C> <C>
12.875% Senior Discount
Debentures due 2009 $60,016,598 100.0% $60,016,598 $17,704.90
============================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 of the Securities Act of 1933, as amended.
================================================================================
<PAGE>
PROSPECTUS
ADVANCE HOLDING CORPORATION
Offer to Exchange its
12.875% Series B Senior Discount Debentures due April 15, 2009,
which have been registered under the Securities Act,
for any and all of its outstanding
12.875% Series A Senior Discount Debentures due April 15, 2009
The Exchange Offer will expire at 5:00 P.M., New York City time, on
, 1998, unless extended.
-----------------------
Advance Holding Corporation ("Holding") hereby offers, upon the terms and
subject to the conditions set forth in this Prospectus (the "Prospectus") and
the accompanying Letter of Transmittal (the "Letter of Transmittal" and together
with this Prospectus, the "Exchange Offer"), to exchange its 12.875% Series B
Senior Discount Debentures due April 15, 2009 (the "Series B Debentures") which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a registration statement (the "Registration
Statement") of which this Prospectus is a part, for its outstanding 12.875%
Series A Senior Discount Debentures due April 15, 2009 (the "Series A
Debentures"), of which $112.0 million principal amount at maturity is
outstanding as of the date hereof.
Holding will accept for exchange any and all validly tendered Series A
Debentures prior to 5:00 P.M., New York City time, on ,
1998, unless extended (the "Expiration Date"). Series A Debentures may be
tendered only in integral multiples of $1,000 of principal amount at maturity.
Tenders of Series A Debentures may be withdrawn at any time prior to 5:00 P.M.,
New York City time, on the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of Series A Debentures being
tendered for exchange. However, the Exchange Offer is subject to certain
customary conditions. In the event Holding terminates the Exchange Offer and
does not accept for exchange any Series A Debentures, Holding will promptly
return the Series A Debentures to the holders thereof. Holding will not receive
any proceeds from the Exchange Offer. See "The Exchange Offer."
The Series B Debentures will be obligations of Holding evidencing the same
debt as the Series A Debentures, and will be entitled to the benefits of the
same indenture (the "Indenture"). See "Description of Series B Debentures".
The form and terms of the Series B Debentures are the same as the form and terms
of the Series A Debentures in all material respects except that the Series B
Debentures have been registered under the Securities Act and hence do not
include certain rights to registration thereunder and do not contain transfer
restrictions or terms with respect to the special interest payments applicable
to the Series A Debentures. The Series A Debentures were issued on April 15,
1998 pursuant to an offering exempt from registration under the Securities Act.
See "The Exchange Offer".
(Continued on following page)
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL ARE FIRST BEING MAILED TO
HOLDERS OF THE SERIES A DEBENTURES ON , 1998.
SEE "RISK FACTORS" ON PAGE 14 FOR INFORMATION THAT SHOULD BE CONSIDERED IN
CONNECTION WITH THIS EXCHANGE OFFER.
-----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------------------
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
(Continuation of cover page)
The Series B Debentures are being offered hereunder in order to satisfy
certain obligations of Holding under the Registration Rights Agreement, dated as
of April 15, 1998 (the "Exchange Offer Registration Rights Agreement"), by and
among Holding and the Initial Purchasers (as defined herein), a copy of which
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The Exchange Offer is intended to satisfy Holding's
obligations under the Exchange Offer Registration Rights Agreement to register
the Series A Debentures under the Securities Act. Once the Exchange Offer is
consummated, Holding will have no further obligations to register any of the
Series A Debentures not tendered by the holders of the Series A Debentures (the
"Holders") for exchange. See "Risk Factors--Consequences to Non-Tendering
Holders of Series A Debentures".
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in several no-action letters to third
parties, Holding believes that the Series B Debentures issued pursuant to the
Exchange Offer in exchange for Series A Debentures may be offered for resale,
resold and otherwise transferred by holders thereof without compliance with the
registration and prospectus delivery provisions of the Securities Act. However,
any Holder who is an "affiliate" of Holding or who intended to participate in
the Exchange Offer for the purpose of distributing the Series B Debentures (i)
cannot rely on the interpretation by the staff of the Commission set forth in
the above referenced no-action letters, (ii) cannot tender its Series A
Debentures in the Exchange Offer, and (iii) must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any sale or transfer of the Series A Debentures, unless such sale or transfer is
made pursuant to an exemption from such requirements. See "Risk Factors--
Consequences to Non-Tendering Holders of Series A Debentures". In addition,
each broker-dealer that receives Series B Debentures for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Series B Debentures. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Series B Debentures received in exchange for
Series A Debentures where such Series A Debentures were acquired by such broker-
dealer as a result of market-making activities or other trading activities and
not acquired directly from Holding. Holding has agreed that for a period of 180
days after the Expiration Date, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution." EXCEPT AS DESCRIBED IN THIS PARAGRAPH, THIS PROSPECTUS MAY NOT
BE USED FOR AN OFFER TO RESELL, RESALE OR OTHER TRANSFER OF SERIES B DEBENTURES.
Series A Debentures were initially represented by two Global Series A
Debentures (as defined herein) in fully registered form, each registered in the
name of a nominee of The Depository Trust Company ("DTC"), as depository. The
Series B Debentures exchanged for Series A Debentures represented by the Global
Series A Debentures may be initially represented by one or more global
securities ("Global Series B Debenture") in fully registered form, each
registered in the name of the nominee of DTC. The Global Series B Debenture
will be exchangeable for Series B Debentures in registered form, in
denominations of $1,000 and integral multiples thereof as described herein. The
Series B Debentures in global form will trade in The Depository Trust Company's
Same-Day Funds Settlement System, and secondary market trading activity in such
Series B Debentures will therefore settle in immediately available funds. See
"Description of Series B Debentures--Form, Denomination and Book-Entry
Procedures".
The yield and interest on the Series B Debentures is 12.875% (computed on a
semi-annual bond equivalent basis) calculated from April 15, 1998. The Series B
Debentures will accrete at a rate of 12.875% compounded semi-annually, to an
aggregate principal amount of $112.0 million by April 15, 2003. Cash interest
will not accrue on the Series B Debentures prior to April 15, 2003. Commencing
April 15, 2003, cash interest on the Series B Debentures will accrue and be
payable, at a rate of 12.875% per annum, semi-annually in arrears on each April
15 and October 15.
(Continued on following page)
i
<PAGE>
(Continuation of cover page)
The Series B Debentures will be redeemable at the option of Holding, in
whole or in part, at any time on or after April 15, 2003, in cash at the
redemption prices set forth herein, plus accrued and unpaid interest and
Liquidated Damages (as defined herein), if any, thereon to the date of
redemption. In addition, at any time prior to April 15, 2001, Holding may, at
its option, on any one or more occasions, redeem up to 35% of the aggregate
principal amount at maturity of the Series B Debentures originally issued at a
redemption price equal to 112.875% of the Accreted Value thereof, plus
Liquidated Damages, if any, with the net cash proceeds of one or more Equity
Offerings (as defined); provided that at least 65% of the original aggregate
principal amount at maturity of the Series B Debentures will remain outstanding
immediately following each such redemption. See "Description of Series B
Debentures--Optional Redemption." Upon the occurrence of a Change of Control,
each holder of Series B Debentures will have the right to require Holding to
repurchase all or any part of such holder's Series B Debentures at a price in
cash equal to 101% of the Accreted Value thereof plus Liquidated Damages, if
any, thereon in the case of any such purchase prior to April 15, 2003, or 101%
of the aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of purchase in the case of any
such purchase on or after April 15, 2003. See "Description of Series B
Debentures--Repurchase at the Option of Holders--Change of Control." There can
be no assurance that, in the event of a Change of Control, Holding would have
sufficient funds to purchase all Series B Debentures tendered. See "Risk
Factors--Possible Inability to Purchase Series B Debentures upon Change of
Control."
The Series B Debentures will be senior obligations of Holding. The Series
B Debentures will rank pari passu in right of payment with all future senior
indebtedness of Holding and will rank senior in right of payment to all future
subordinated indebtedness of Holding. The Series B Debentures will be
effectively subordinated to all liabilities of Holding's subsidiaries.
Prior to this offering, there has been no public market for the Series A
Debentures. Following completion of the Exchange Offer, Holding does not intend
to list the Series B Debentures on a national securities exchange or to seek
approval for quotation through the Nasdaq National Market. The Initial
Purchasers have informed Holding that they currently intend to make a market in
the Series B Debentures. However, the Initial Purchasers are not obligated to
do so and any such market making may be discontinued at any time without notice.
Therefore, no assurance can be given as to whether an active trading market will
develop or be maintained for the Series B Debentures. As the Series A
Debentures were issued and the Series B Debentures will be issued to a limited
number of institutions who typically hold similar securities for investment,
Holding does not expect that an active public market for the Series B Debentures
will develop. In addition, resales by certain holders of the Series A
Debentures or the Series B Debentures of a substantial percentage of the
aggregate principal amount of such debentures could constrain the ability of any
market maker to develop or maintain a market for the Series B Debentures. To
the extent that a market for the Series B Debentures should develop, the market
value of the Series B Debentures will depend on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition, performance and prospects of Holding. Such factors might cause the
Series B Debentures to trade at a discount from face value. See "Risk Factors--
Lack of a Public Market for the Series B Debentures". Holding has agreed to pay
the expenses of the Exchange Offer.
THIS PROSPECTUS DESCRIBES CERTAIN DOCUMENTS WHICH ARE NOT PRESENTED HEREIN
OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM THE
CHIEF FINANCIAL OFFICER, ADVANCE HOLDING CORPORATION, 5673 AIRPORT ROAD,
ROANOKE, VIRGINIA 24012, TELEPHONE NUMBER (540) 362-4911.
ii
<PAGE>
AVAILABLE INFORMATION
Holding has filed with the Commission a registration statement on Form S-4
(together with all amendments thereto, the "Registration Statement") under the
Securities Act for the registration of the Series B Debentures offered hereby.
As permitted by the rules and regulations of the Commission, this Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto. For further information with respect to
Holding and the Series B Debentures offered hereby, reference is made to the
Registration Statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus concerning the contents of any contract
or other document are not necessarily complete. With respect to each such
contract or other document filed with the Commission as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
Upon consummation of the Exchange Offer, Holding will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder (the "Exchange Act") for a
period following the effectiveness of the Registration Statement. The
Registration Statement, the exhibits and schedules forming a part thereof and
the reports and other information filed by Holding with the Commission in
accordance with the Exchange Act may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and will also be available for
inspection and copying at the regional offices of the Commission located at 7
World Trade Center, 13th Floor, New York, New York 10048 and at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material may also be obtained upon written request from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission also maintains a
World Wide Web site (http://www.sec.gov) that contains reports, proxy and other
information regarding registrants that file electronically with the SEC. While
any Series A Debentures remain outstanding, Holding will make available, upon
request, to any holder and any prospective purchaser of the Series A Debentures
the information required by Rule 144A(d)(4) under the Securities Act during any
period in which Holding is not subject to Section 13 or 15(d) of the Exchange
Act. Any such request should be mailed to Advance Holding Corporation, 5673
Airport Road, Roanoke, Virginia 24012. Telephone requests may be directed to
the Chief Financial Officer at (540) 362-4911.
The Indenture provides that, at any time after the consummation of the
Exchange Offer and for so long as any of the Series B Debentures are
outstanding, Holding will file with the Commission the periodic reports required
to be filed with the Commission under the Exchange Act and make such reports
available to securities analysts and prospective investors upon their request,
whether or not required by the rules and regulations of the Commission. Holding
will also, within 15 days of filing each such report with the Commission,
provide the Trustee and the holders of the Series B Debentures with annual
reports containing the information required to be contained in Form 10-K
promulgated under the Exchange Act, quarterly reports containing the information
required to be contained in Form 10-Q promulgated under the Exchange Act, and
from time to time such other information as is required to be contained in Form
8-K promulgated under the Exchange Act. If the Commission does not accept such
reports, for so long as any Series B Debentures remain outstanding, Holding will
provide the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act to holders of the Series B Debentures and to securities
analysts and prospective investors upon their request.
iii
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information and consolidated financial statements
and the unaudited pro forma consolidated financial data of Holding, including
the notes thereto, contained elsewhere in this Prospectus. Unless the context
otherwise requires, "Holding" refers to Advance Holding Corporation and its
subsidiaries, including Advance Stores Company, Incorporated, and the "Company"
refers to Advance Stores Company, Incorporated and its subsidiaries. All
references to a fiscal year refer to a year ending on the last Saturday nearest
December 31 for a stated year (e.g., "fiscal 1997" refers to the year ended
January 3, 1998). Unless otherwise indicated, all references to non-financial
data are as of April 25, 1998.
THE COMPANY
The Company is the second largest specialty retailer of automotive parts
and accessories in the United States and, as of April 25, 1998, had 863 stores
in 16 states operating under the "Advance Auto Parts" name. The Company has
achieved significant growth through a focused store expansion strategy of
opening stores in new contiguous and selected existing markets. Since
accelerating its store expansion plan in 1992, the Company has grown from the
eighth largest to the second largest U.S. specialty retailer of automotive
parts, increasing its store count from 223 to 863. From fiscal 1992 through
fiscal 1997, the Company increased net sales and pro forma EBITDA by a compound
annual growth rate of 29.3% and 28.4%, respectively. In addition, the Company
has aggressively implemented its commercial delivery program to penetrate the
"do-it-for me" ("DIFM") segment of the automotive aftermarket. The Company,
which is the largest automotive retailer in a majority of its markets based on
store count, has expanded from its original geographic base of North Carolina,
South Carolina, Tennessee and Virginia to also operate in Alabama, Arkansas,
Florida, Georgia, Indiana, Kentucky, Maryland, Michigan, Mississippi, Ohio,
Pennsylvania and West Virginia. For fiscal 1997, net sales and pro forma EBITDA
were $848.1 million and $68.2 million, respectively.
The Company believes that it has successfully established customer loyalty
in its markets by providing high levels of customer service, by offering an
extensive selection of brand name and quality private label products at
competitive prices and by creating strong name recognition, all of which are
reinforced by targeted regional advertising. In addition, the Company believes
that its size provides numerous competitive advantages over smaller retail
chains and independent operators, which make up a majority of its competition.
These advantages include: (i) greater product availability, (ii) purchasing
economies, (iii) economies of scale with respect to advertising, distribution
and warehousing, and (iv) a greater number of convenient locations with longer
store hours. The Company has expanded on these advantages by investing heavily
in employee training and information systems, which are designed to support the
Company's commitment to superior customer service.
The automotive aftermarket is a highly fragmented industry with the top 10
retail chains accounting for approximately 10% of the industry's approximately
$78.0 billion in annual sales. The Company believes that the industry is
consolidating as national and regional specialty retail chains gain market share
at the expense of smaller independent operators and less specialized mass
merchandisers. The Company primarily serves the approximately $34.0 billion
retail "do-it-yourself" ("DIY") segment of the automotive aftermarket, which the
Company believes has historically been characterized by stable, recession-
resistant demand. In addition, in 1996, the Company implemented a commercial
delivery program to capitalize on the approximately $44.0 billion commercial or
DIFM segment of the automotive aftermarket. The Company has aggressively
implemented this program in 468 stores and expects to add approximately 25
stores to the program in the remainder of 1998. The Company serves its
commercial delivery customers from its existing store base, which allows the
Company to leverage its existing fixed costs and in-store personnel with minimal
capital outlay.
OPERATING STRATEGY
The Company's operating strategy focuses on serving its customers and
capitalizing on its position as a leading automotive aftermarket retailer. The
Company's key operating objectives are to:
1
<PAGE>
Provide Superior Customer Service. The Company believes that its customers
place significant value on technical knowledge and service. Due to increased
vehicle diversity and automotive parts proliferation, customers increasingly
rely on well-trained sales associates to offer knowledgeable assistance in
product selection and use. To serve this need, Company employees participate in
continuous training programs, including formal classroom workshops, seminars and
Automotive Service Excellence ("ASE") certification to build technical,
managerial and customer service skills. In addition, the Company has customer
service measurement systems and recognition programs for division managers,
store managers, sales associates and other employees to measure and encourage
overall customer satisfaction.
Offer Broad Selection of Quality Products. The Company offers a broad
selection of brand name and quality private label automotive parts and other
products designed to cover a wide range of vehicles. At the end of fiscal 1997,
substantially all of the Company's stores offered between 15,000 to 16,000 in-
store stock keeping units ("SKUs") supplemented by approximately 36,000 SKUs
available on a next-day delivery basis to substantially all of its stores
through the Company's Parts Delivered Quickly ("PDQ(R)") system. The Company is
currently implementing an SKU expansion strategy such that, by the end of 1998,
the Company will offer to its customers on a same day basis a range of 20,000 to
21,000 SKUs in substantially all of its stores and approximately 100,000 SKUs
through its PDQ(R) system. The store SKU expansion will be supported by (i) the
roll-out of "hub" stores with approximately 4,000 additional SKUs, which will
generally be available on an immediate or same day basis to other area stores,
and (ii) daily restocking of these additional SKUs. In addition, the Company is
expanding the PDQ(R) system with the opening of a master PDQ(R) facility which
will initially provide approximately 70,000 SKUs and will have the capacity to
offer up to 200,000 SKUs. The majority of the expanded SKUs will be replacement
parts which generally have higher gross margins than accessories and other
products. The Company believes that the SKU expansion program will be an
important competitive advantage, particularly with respect to the commercial
delivery program.
Capitalize on Strong Vendor Relationships and Merchandising Expertise. The
Company has consistently been able to negotiate lower product costs and improved
purchasing terms due to its ability to successfully grow its store base and
existing business. These favorable purchasing relationships enable the Company
to employ an everyday low price strategy with an emphasis on being a price
leader in replacement parts. The Company purchases from over 200 different
vendors with no single vendor accounting for 10% or more of purchases. The
Company's merchandising staff focuses on offering customers a broad selection of
products displayed in a manner designed to enhance sales. The Company
continually measures store productivity and is able to rapidly roll out sales
enhancing displays or other merchandising changes to all of its stores.
Employ Advanced Information Technology and Logistics Systems. Since
1992, the Company has invested significantly in its information technology and
logistics systems to facilitate its rapid growth by enhancing customer service,
increasing in-stock SKUs and providing for a broad product selection with same
day or next day delivery. Use of these systems has helped to increase the
Company's average customer sale from $10.86 in fiscal 1992 to $14.28 in fiscal
1997. In addition, these systems facilitate rapid expansion of the Company's
store base by improving operating efficiencies. The Company has nearly
completed converting its distribution centers from a labor intensive system to a
technologically advanced, fully integrated system with real time software and
modern material handling equipment. With these technological enhancements and
the opening of a fourth distribution center completed by the end of 1998, the
Company will be able to service over 1,600 stores, satisfying expected store
requirements for the foreseeable future.
GROWTH STRATEGY
As the Company pursues its expansion plan, management believes it will
continue to benefit from greater purchasing economies and an increased ability
to leverage advertising and logistics expenses. The Company will continue to
focus on the following key areas in implementing its growth strategy.
Continue New Store Growth. The Company's new store growth strategy is
focused on penetrating targeted new geographic areas with multiple store
openings, while continuing to open additional stores in selected existing
2
<PAGE>
territories to increase its market share. The Company believes that the highly
fragmented nature of the retail automotive aftermarket industry allows it to
quickly establish itself in new markets and to increase its market penetration
in existing markets. The Company opened 170 stores in 1997, 50 stores in 1998
and plans to open approximately 125 stores in the remainder of fiscal 1998. To
further support its growth, the Company expects to begin television advertising
on a national basis in late 1998. The Company believes that its proven ability
to effectively select new markets and store locations and quickly open new
stores will allow it to double its store base in approximately five years.
Pursue Acquisitions. To augment its store growth strategy, the Company
intends to continue to pursue growth opportunities through selected acquisitions
where such acquisitions provide a quicker and more economic alternative to new
store openings. The fragmented nature of the automotive aftermarket industry
creates significant acquisition opportunities in existing and new markets. The
Company believes it can increase revenues and profitability of acquired stores
by leveraging its established infrastructure and improving stocking levels,
merchandising and customer service. Since 1994, acquisitions have accounted for
approximately 10% of the Company's new store openings.
Increase Commercial Sales. In 1996, the Company focused its marketing
efforts on expanding sales to the DIFM segment of the automotive aftermarket,
which the Company believes represents approximately 56% of the automotive
aftermarket. Since 1996, the Company has added its commercial delivery program
to 468 stores. Due to its success in rapidly building its commercial sales
program, which currently represents approximately 10% of sales, the Company will
continue to expand this program, including adding approximately 25 stores in the
remainder of 1998. The Company serves its commercial delivery customers through
its existing store base which allows the Company to effectively leverage its
store-level costs. Commercial delivery customers order parts via a telephone
call to a Company store, and orders are delivered usually in less than an hour
in a Company truck. The Company's experience and market research indicate that
its broad selection of quality parts at competitive prices, knowledgeable sales
assistance, quick, accurate delivery, and the availability of credit are
important competitive advantages in serving the commercial delivery customer.
Grow Same Store Sales. The Company believes that it can grow its same
store sales by (i) expanding product availability at the store level and through
the Company's PDQ(R) distribution system; (ii) continuing to implement its
commercial delivery program (as described above); and (iii) increasing name
recognition. The Company believes that expanding its product offerings through
increased SKU availability will enhance sales by (a) decreasing the likelihood
of a lost sale due to not stocking an item and (b) attracting customers,
particularly commercial delivery customers, who require hard to find replacement
parts and brand names. In addition, the Company believes that its market
penetration strategy and regional advertising will continue to build broad name
recognition and increase sales.
The Company is incorporated in the Commonwealth of Virginia. Its executive
offices are located at 5673 Airport Road, Roanoke, Virginia 24012 and its
telephone number is (540) 362-4911.
3
<PAGE>
THE RECAPITALIZATION
On April 15, 1998, Holding consummated its recapitalization pursuant to an
Agreement and Plan of Merger dated as of March 4, 1998 (the "Merger Agreement").
Pursuant to the Merger Agreement, AHC Corporation ("AHC"), a corporation wholly-
owned by an investment fund organized by Freeman Spogli & Co. Incorporated
("FS&Co."), merged into Holding (the "Merger"), with Holding as the surviving
corporation. In the Merger, a portion of the common stock (the "Holding Common
Stock") and all of the preferred stock of Holding were converted into the right
to receive in the aggregate approximately $351.0 million in cash and certain
options to purchase shares of Holding Common Stock. Certain shares held by
Nicholas F. Taubman and the Arthur Taubman Trust dated July 13, 1964 (the
"Taubman Trust"), having an aggregate value of approximately $17.5 million,
remained outstanding. Such shares represented approximately 14% of the
outstanding Holding Common Stock upon consummation of the Merger. Immediately
prior to the Merger, FS&Co. and Ripplewood Partners, L.P. and its affiliates
("Ripplewood") purchased approximately $80.5 million and approximately $20.0
million, respectively, of the common stock of AHC, which were converted in the
Merger into approximately 64% and approximately 16%, respectively, of the
outstanding Holding Common Stock (the investments by FS&Co. and Ripplewood are
collectively referred to herein as the "Equity Investment"). In connection with
the Merger, management of the Company purchased approximately $8.0 million, or
approximately 6.4%, of the outstanding Holding Common Stock. See "Management--
Stock Subscription Plans."
On April 15, 1998, the Company entered into a new bank credit facility (the
"New Credit Facility") that provided for (i) three senior secured term loan
facilities in the aggregate amount of $250.0 million and (ii) a secured
revolving credit facility of up to $125.0 million. At the closing of the
Merger, $125.0 million was borrowed under one of the term loan facilities to
fund the Recapitalization. The balance of the funds under the revolving credit
facility and the term loan facilities is available to fund the Company's
expansion. The New Credit Facility has availability for letter of credit usage,
is secured by substantially all of the assets of the Company and is guaranteed
by the Guarantors. See "Description of the New Credit Facility."
Substantially all of Holding's funded debt obligations existing immediately
before the consummation of the Recapitalization were repaid (the "Debt
Retirement"). In connection with the Recapitalization, the Company repaid its
intercompany obligations to Holding and paid a dividend to Holding (the "Company
Distribution") in an aggregate amount, together with the proceeds of the sale of
the Series A Debentures, sufficient to fund Holding's Recapitalization payment
obligations.
The Merger, the Debt Retirement, the Company Distribution, the borrowing by
the Company of funds under the New Credit Facility, the issuance and sale by
Holding of the Series A Debentures (the "Debentures Offering") and the offering
of the Company's 10.25% Series A Senior Subordinated Notes due 2008 (the "Notes
Offering") are referred to herein collectively as the "Recapitalization." The
Recapitalization was recorded as a recapitalization for financial reporting
purposes.
RISK FACTORS
Holders of the Series A Debentures should consider carefully all of
the information set forth in this Prospectus, and in particular, the information
set forth on page 14 under "Risk Factors" before tendering the Series A
Debentures in exchange for the Series B Debentures.
4
<PAGE>
TERMS OF SERIES B DEBENTURES
Securities Offered. $112.0 million in aggregate principal amount at maturity
of 12.875% Series B Senior Discount Debentures due 2009.
Issuer............. Advance Holding Corporation
Gross Proceeds..... $60,016,598
Maturity Date...... April 15, 2009.
Yield and Interest. 12.875% (computed on a semi-annual bond equivalent basis)
calculated from April 15, 1998. The Series B Debentures
will accrete at a rate of 12.875%, compounded semi-annually,
to an aggregate principal amount of $112.0 million by April
15, 2003. Cash interest will not accrue on the Series B
Debentures prior to April 15, 2003. Commencing April 15,
2003, cash interest on the Series B Debentures will accrue
and be payable, at a rate of 12.875% per annum, semi-
annually in arrears on each April 15 and October 15.
Optional Redemption The Series B Debentures will be redeemable at the option
of Holding, in whole or in part, at any time on or after
April 15, 2003, in cash at the redemption prices set forth
herein, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the redemption date. In
addition, at any time prior to April 15, 2001, Holding may,
at its option, on any one or more occasions, redeem up to
35% of the aggregate principal amount at maturity of the
Series B Debentures originally issued at a redemption price
equal to 112.875% of the Accreted Value thereof, plus
Liquidated Damages, if any, with the net cash proceeds of
one or more Equity Offerings; provided that at least 65% of
the original aggregate principal amount at maturity of the
Series B Debentures will remain outstanding immediately
following each such redemption.
Change of Control.. Upon the occurrence of a Change of Control, each holder of
the Series B Debentures will have the right to require
Holding to purchase Series B Debentures at a price in cash
equal to 101% of the Accreted Value thereof plus Liquidated
Damages, if any, thereon in the case of any such purchase
prior to April 15, 2003, or 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of purchase
in the case of any such purchase on or after April 15, 2003.
Holding does not have, and may not in the future have, any
assets other than capital stock of the Company (which has
been pledged to secure the Company's obligations under the
New Credit Facility). As a result, Holding's ability to
purchase all or any part of the Series B Debentures upon the
occurrence of a Change of Control will be dependent upon the
receipt of dividends or other distributions from its direct
and indirect subsidiaries. The New Credit Facility and the
Senior Subordinated Notes restrict the Company from paying
dividends and making any other distributions to Holding. If
Holding is unable to obtain dividends from the Company
sufficient to permit the purchase of the Series B Debentures
or does not refinance such Indebtedness, Holding will likely
not have the financial resources to purchase Series B
Debentures upon the occurrence of a Change of Control. In
any event, there can be no assurance that Holding's
subsidiaries will have the resources available to pay any
such dividend or make any such distribution. Furthermore,
the New Credit Facility will provide that certain change in
control events will constitute a default thereunder and the
5
<PAGE>
Senior Subordinated Notes will provide that, in the event of
a Change of Control, the Company will be required to offer
to purchase the Senior Subordinated Notes at the price
specified therefor. Holding's failure to make a Change of
Control Offer (as defined herein) when required or to
purchase tendered Series B Debentures when tendered would
constitute an Event of Default under the Indenture (as
defined herein). See "Description of Series B Debentures."
Ranking............ The Series B Debentures will be senior obligations of
Holding. The Series B Debentures will rank pari passu in
right of payment with all future senior indebtedness of
Holding and will rank senior in right of payment to all
future subordinated indebtedness of Holding. The Series B
Debentures will be effectively subordinated to all
liabilities of Holding's subsidiaries. As of April 25,
1998, Holding had outstanding approximately $60.0 million of
Indebtedness, excluding its guarantee of the Company's
obligations under the New Credit Facility, and the Company
had $593.8 million of total liabilities outstanding,
including indebtedness under the Senior Subordinated Notes
and the New Credit Facility, trade payables and other
accrued liabilities. In addition, the Company could have
incurred additional indebtedness of up to $250.0 million
under the New Credit Facility.
Original Issue
Discount........... The Series B Debentures are being offered at an
original issue discount for United States federal income tax
purposes. Thus, although cash interest will not be payable
on the Series B Debentures prior to April 15, 2003, original
issue discount will accrue from the issue date of the Series
B Debentures and will be included as interest income
periodically (including for periods ending prior to April
15, 2003) in a holder's gross income for United States
federal income tax purposes in advance of receipt of the
cash payments to which the income is attributable. See
"Certain Federal Income Tax Considerations."
Certain Covenants.. The Indenture contains certain covenants that, among other
things, limit the ability of Holding and its Restricted
Subsidiaries to: incur indebtedness and issue preferred
stock, repurchase stock and certain indebtedness, engage in
transactions with affiliates, create or incur certain liens,
pay dividends or certain other distributions, make certain
investments, enter into new businesses, sell stock of
Restricted Subsidiaries, sell assets and engage in certain
mergers and consolidations.
Form and
Denomination....... The Series B Debentures initially sold by the Initial
Purchasers will be represented by Global Series B Debentures
in fully registered form, deposited with a custodian for and
registered in the name of a nominee of the Depositary.
Beneficial interests in the Global Series B Debentures will
be shown on, and transfers thereof will be effected through,
records maintained by the Depositary and its participants.
Exchange Offer,
Registration Rights Holders of Series B Debentures are not entitled to any
exchange rights with respect to the Series B Debentures.
Holders of Series A Debentures are entitled to certain
exchange rights pursuant to the Exchange Offer Registration
Rights Agreement. Under the Exchange Offer Registration
Rights Agreement, Holding is required to offer to exchange
the Series A Debentures for the Series B Debentures having
substantially identical terms which have been registered
under the Securities Act. This Exchange Offer is intended
to satisfy such
6
<PAGE>
obligation. The form and terms of the Series B Debentures
are the same as the form and terms of the Series A
Debentures in all material respects except that the Series B
Debentures have been registered under the Securities Act and
hence do not include certain rights to registration
thereunder and do not contain transfer restrictions or terms
with respect to the special interest payments applicable to
the Series A Debentures. Once the Exchange Offer is
consummated, Holding will have no further obligations to
register any of the Series A Debentures not tendered by the
Holders for exchange. See "Risk Factors--Consequences to
Non-Tendering Holders of Series A Debentures."
Use of Proceeds.... The Company will not receive any proceeds from the Exchange
Offer.
7
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer. The Series B Debentures are being offered in exchange for
an equal principal amount of Series A Debentures. As of the
date hereof, approximately $112.0 million in aggregate
principal amount at maturity of Series A Debentures are
outstanding. Series A Debentures may be tendered only in
integral multiples of $1,000 of principal amount at
maturity. Holding will issue the Series B Debentures to
Holders on or promptly after the Expiration Date.
Based on an interpretation by the staff of the Commission
set forth in no-action letters issued to third parties,
Holding believes that Series B Debentures issued pursuant to
the Exchange Offer in exchange for Series A Debentures may
be offered for resale, resold and otherwise transferred by
Holders thereof without compliance with the registration and
prospectus delivery provisions of the Securities Act
provided that such Series B Debentures are acquired in the
ordinary course of such holders' business and such holders
have no arrangement with any person to participate in the
distribution of such Series B Debentures. However, Holding
does not intend to request the Commission to consider, and
the Commission has not considered, the Exchange Offer in a
no-action letter and there can be no assurance that the
Commission would make a similar determination with respect
to the Exchange Offer. However, any Holder who is an
"affiliate" of Holding or who intends to participate in the
Exchange Offer for the purpose of distributing the Series B
Debentures (i) cannot rely on the interpretation by the
staff of the Commission set forth in the above referenced
no-action letters, (ii) cannot tender its Series A
Debentures in the Exchange Offer, and (iii) must comply with
the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or transfer of
the Series A Debentures, unless such sale or transfer is
made pursuant to an exemption from such requirements. See
"Risk Factors--Consequences to Non-Tendering Holders of
Series A Debentures".
Each broker-dealer that receives Series B Debentures for its
own account pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection with any
resale of such Series B Debentures. The Letter of
Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended
or supplemented from time to time, may be used by a broker-
dealer in connection with resales of Series B Debentures
received in exchange for Series A Debentures where such
Series A Debentures were acquired by such broker-dealer as a
result of market-making activities or other trading
activities and not acquired directly from Holding. Holding
has agreed that for a period of 180 days after the
Expiration Date, it will make this Prospectus available to
any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
Expiration Date.... 5:00 p.m., New York City time, on , 1998, unless
the Exchange Offer is extended, in which case the term
"Expiration Date" means the latest date and time to which
the Exchange Offer is extended.
Yield and Interest
on the Series B
Debentures........ 12.875% (computed on a semi-annual bond equivalent
basis) calculated from April 15, 1998. The Series B
Debentures will accrete at a rate of 12.875%,
8
<PAGE>
compounded semi-annually, to an aggregate principal amount
of $112.0 million by April 15, 2003. Cash interest will not
accrue on the Series B Debentures prior to April 15, 2003.
Commencing April 15, 2003, cash interest on the Series B
Debentures will accrue and be payable, at a rate of 12.875%
per annum, semi-annually in arrears on each April 15 and
October 15.
Conditions to the
Series B
Debentures........ The Exchange Offer is subject to certain customary
conditions. The conditions are limited and relate in general
to proceedings which have been instituted or laws which have
been adopted that might impair the ability of Holding to
proceed with the Exchange Offer. As of April 25, 1998, none
of these events had occurred, and Holding believes their
occurrence to be unlikely. If any such conditions do exist
prior to the Expiration Date, Holding may (i) refuse to
accept any Series A Debentures and return all previously
tendered Series A Debentures, (ii) extend the Exchange Offer
or (iii) waive such conditions. See "The Exchange Offer--
Conditions."
Procedures for
Tendering Series A
Debentures........ Each Holder of Series A Debentures wishing to accept the
Exchange Offer must complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in accordance with the
instructions contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or such
facsimile, together with such Series A Debentures to be
exchanged and any other required documentation to United
States Trust Company of New York, as Exchange Agent, at the
address set forth herein and therein or effect a tender of
such Series A Debentures pursuant to the procedures for
book-entry transfer as provided for herein. By executing
the Letter of Transmittal, each Holder will represent to
Holding that, among other things, the Series B Debentures
acquired pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person receiving
such Series B Debentures, whether or not such person is the
Holder, that neither the Holder nor any such other person
has an arrangement or understanding with any person to
participate in the distribution of such Series B Debentures
and that neither the Holder nor any such person is an
"affiliate," as defined in Rule 405 under the Securities
Act, of Holding. Each broker-dealer that receives Series B
Debentures for its own account in exchange for Series A
Debentures, where such Series A Debentures were acquired by
such broker-dealer as a result of market-making activities
or other trading activities and not acquired directly from
Holding, must acknowledge that it will deliver a prospectus
in connection with any resale of such Series B Debentures.
See "The Exchange Offer--Procedures for Tendering" and "Plan
of Distribution."
Special Procedures
for Beneficial
Owners............ Any beneficial owner whose Series A Debentures are
registered in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to tender such
Series A Debentures in the Exchange Offer should contact
such registered Holder promptly and instruct such registered
Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing
the Letter of Transmittal and delivering its Series A
Debentures, either make appropriate arrangements to register
ownership of the Series A Debentures in such owner's name or
obtain a properly completed bond power from the registered
Holder. The transfer of registered ownership may take
considerable
9
<PAGE>
time and may not be able to be completed prior to the
Expiration Date. See "The Exchange Offer--Procedures for
Tendering."
Guaranteed Delivery
Procedures........ Holders of Series A Debentures who wish to tender their
Series A Debentures and whose Series A Debentures are not
immediately available or who cannot deliver their Series A
Debentures, the Letter of Transmittal or any other documents
required by the Letter of Transmittal to United States Trust
Company of New York, as Exchange Agent, or cannot complete
the procedure for book-entry transfer, prior to the
Expiration Date must tender their Series A Debentures
according to the guaranteed delivery procedures set forth in
"The Exchange Offer--Guaranteed Delivery Procedures."
Withdrawal Rights.. Tenders may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
Acceptance of
Series A Debentures
and Delivery of
Series B Debentures Holding will accept for exchange any and all Series A
Debentures which are properly tendered in the Exchange Offer
prior to 5:00 p.m., New York City time, on the Expiration
Date. The Series B Debentures issued pursuant to the
Exchange Offer will be delivered promptly following the
Expiration Date. Any Series A Debentures not accepted for
exchange will be returned without expense to the tendering
Holder thereof as promptly as practicable after the
expiration or termination of the Exchange Offer. See "The
Exchange Offer--Terms of the Exchange Offer."
Certain Tax
Considerations..... The exchange pursuant to the Exchange Offer will
not be a taxable event for Federal income tax purposes. See
"Certain Federal Income Tax Considerations."
Exchange Agent..... United States Trust Company of New York is serving as
Exchange Agent in connection with the Exchange Offer.
GENERAL
Holding's principal executive offices are located at 5673 Airport Road,
Roanoke, Virginia 24012 and its telephone number is (540) 362-4911.
ADDITIONAL INFORMATION
For additional information regarding the Series B Debentures, see
"Description of Series B Debentures" and "Certain Federal Income Tax
Considerations."
10
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary consolidated statement of operations,
balance sheet and other operating data of Holding. The summary consolidated
historical financial information of Holding for each of the five fiscal years
presented below has been derived from the audited consolidated financial
statements of Holding which have been audited by Arthur Andersen LLP. The
summary consolidated historical financial information of Holding for the sixteen
weeks ended April 19, 1997 and April 25, 1998 is derived from financial
statements that are unaudited and include, in the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the data for such periods, and are not necessarily indicative of
the results expected for a full fiscal year or for any future period. The
following summary consolidated historical and pro forma financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Consolidated Financial Statements of
the Company and notes thereto and the Unaudited Pro Forma Consolidated Financial
Data and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR(1)
-----------------------------------------------------------------
Pro
Forma
Fiscal
1993 1994 1995 1996 1997 1997(2)
---------- ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Net sales............... $365,241 $482,347 $602,559 $705,983 $848,108 $848,108
Gross profit............ 137,491 184,903 232,597 268,368 323,522 323,522
Selling, general and
administrative
expenses(3)............ 117,856 155,583 196,289 228,226 281,095 278,039
Expenses
associated with
recapitalization....... -- -- -- -- -- --
Operating income (loss). 19,635 29,320 36,308 40,142 42,427 45,483
Net income(loss)(4)..... 11,560 23,706 18,003 21,264 21,287 1,109
OTHER DATA:
EBITDA(5)............... $ 28,830 $ 42,568 $ 51,107 $ 57,641 $ 64,228 $ 68,166
EBITDAR(6).............. 44,669 64,770 82,291 96,249 112,538 116,476
Pro forma cash interest
expense(7)............. 31,938
Pro forma total
interest expense....... 42,562
Capital expenditures.... 25,316 25,781 42,939 44,264 48,864 48,864
Percentage increase in
comparable store
sales(8)............... 17.3% 9.5% 1.7% 1.1% 5.1% 5.1%
Net cash provided by
(used in) operating
activities............. 7,510 (5,255) 23,128 28,018 42,475
Net cash used in
investing activities... (25,275) (15,111) (40,144) (44,205) (48,799)
Net cash provided by
(used in) financing
activities............. 19,460 18,809 23,643 11,132 6,954
PRO FORMA CREDIT RATIOS:
Ratio of EBITDA to cash
interest expense(7)..... 2.13x
Ratio of EBITDA to total
interest expense....... 1.60x
SELECTED STORE DATA:
New stores.............. 81 90 104 115 170 170
Number of stores (end of
period)................ 352 437 536 649 814 814
Stores with commercial
delivery program (end of
period)................ -- -- -- 213 421 421
Total store square
footage (000s) (end of
period) (9)............. 2,408 3,150 3,939 4,710 5,857 5,857
</TABLE>
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED
------------------------------------------
PRO FORMA
APRIL 19, APRIL 25, APRIL 25,
1997 1998 1998
------------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales............... $239,151 $288,963 $ 288,963
Gross profit............ 92,291 112,586 112,586
Selling, general and
administrative
expenses(3)............ 82,034 99,286 98,441
Expenses
associated with
recapitalization....... -- (14,005) --
Operating income (loss). 10,257 (705) 14,145
Net income(loss)(4)..... 4,822 (2,352) 353
OTHER DATA:
EBITDA(5)............... $ 16,552 $ 6,781 $ 21,631
EBITDAR(6).............. 30,222 24,198 39,048
Pro forma cash interest
expense(7)............. 10,416
Pro forma total
interest expense....... 13,629
Capital expenditures.... 9,658 15,813 15,813
Percentage increase in
comparable store
sales(8)............... 10.4% 3.9% 3.9%
Net cash provided by
(used in) operating
activities............. 11,684 18,211
Net cash used in
investing activities... (9,599) (9,647)
Net cash provided by
(used in) financing
activities............. (2,647) 23,148
PRO FORMA CREDIT RATIOS:
Ratio of EBITDA to cash
interest expense(7).... 2.08x
Ratio of EBITDA to total
interest expense....... 1.59x
SELECTED STORE DATA:
New stores.............. 26 50 50
Number of stores (end of
period)................ 675 863 863
Stores with commercial
delivery program (end of
period)................ 296 468 468
Total store square
footage (000s) (end of
period) (9)............. 4,895 6,180 6,180
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
AT APRIL 25, 1998
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents(10).......................... $ 47,175
Net working capital(11)................................ 98,472
Total assets........................................... 575,357
Total debt............................................. 395,249
Stockholders' deficit.................................. (104,671)
</TABLE>
______________________
(1) Holding's fiscal year consists of 52 or 53 weeks ending on the Saturday
nearest to December 31. All fiscal years presented are 52 weeks except for
fiscal year 1997, which consists of 53 weeks. Holding's first quarter
consists of 16 weeks.
(2) The pro forma data for fiscal 1997 and the sixteen weeks ended April 25,
1998 sets forth the financial data of Holding as adjusted to give effect to
the Recapitalization which includes: (i) borrowings of $125.0 million under
the New Credit Facility, the issuance of $200.0 million of Senior
Subordinated Notes, the issuance of $60.0 million of Series A Debentures and
(ii) the payment of $19.6 million of debt issuance costs. The pro forma
consolidated statement of operations data excludes non-recurring management
bonuses of $11.5 million and $2.5 million of other expenses incurred in
connection with the Recapitalization. See "Use of Proceeds,"
"Capitalization," "Unaudited Pro Forma Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(3) Fiscal 1997 historical and pro forma amounts include an unusual medical
claim that exceeded Holding's stop loss insurance coverage. Holding has
increased its stop loss coverage effective January 1, 1998 to a level that
would provide coverage for a medical claim of this magnitude. The pre-tax
amount of this claim, net of related increased insurance costs, was $0.9
million.
(4) Fiscal 1994 amount includes a net after-tax gain of $6.7 million on the
sale of equity securities of TBC Corporation, a distributor of automotive
products in which the Company held a minority equity ownership interest.
(5) EBITDA represents operating income plus depreciation and amortization
included in operating income. While EBITDA is not intended to represent
cash flow from operations as defined by generally accepted accounting
principles ("GAAP") and should not be considered as a substitute for net
income as an indicator of operating performance or as an alternative to cash
flow (as measured by GAAP) as a measure of liquidity, Holding has included
it herein to provide additional information with respect to Holding's
ability to meet its future debt service, capital expenditure and working
capital requirements. Holding's method for calculating EBITDA may differ
from similarly titled measures reported by other companies. Pro forma
EBITDA represents EBITDA, as defined above, plus management's estimate of
expenses primarily related to compensation and other benefits of the
Company's Chairman, who prior to the Recapitalization was Holding's
principal stockholder, that will not be incurred after the Recapitalization,
non-recurring management bonuses and other expenses incurred in connection
with the Recapitalization and other unusual expenses. (See Note 3 above.)
The computation of pro forma EBITDA is set forth below as follows:
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA SIXTEEN WEEKS ENDED
FISCAL 1997 APRIL 25, 1998
--------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Historical EBITDA........................... $64,228 $ 6,781
Private company expenses(a)............... 3,056 845
Unusual medical claim(b).................. 882 --
Non-recurring Recapitalization costs(c)... -- 14,005
--------------- -------------------
Pro forma EBITDA.................... $68,166 $21,631
=============== ===================
</TABLE>
12
<PAGE>
_____________________
(a) Reflects management's estimate of expenses primarily related to
compensation and other benefits of the Company's Chairman, who prior to
the Recapitalization was Holding's principal stockholder, that were
eliminated after the Recapitalization.
(b) Represents unusual medical claim that exceeded Holding's stop loss
insurance coverage, net of related increased insurance costs (See
Note 3 above).
(c) Represents non-recurring management bonuses and other costs incurred in
connection with the Recapitalization.
(6) EBITDAR represents EBITDA plus operating lease expense. Because the
proportion of stores leased versus owned varies among industry competitors,
the Company believes that EBITDAR permits a meaningful comparison of
operating performance among industry competitors. The Company leases
substantially all of its stores.
(7) Cash interest expense represents total interest expense, excluding interest
in respect to the Debentures and amortization of deferred debt issuance
costs.
(8) Comparable store net sales data is calculated based on the change in net
sales of all stores opened as of the beginning of the preceding fiscal
year. New stores become part of the comparable store base on the first day
of their second full fiscal year in operation. Relocations are included in
comparable store net sales from the date of opening. Increases for fiscal
1997 have been adjusted to exclude the effect of the fifty-third week.
(9) Total store square footage is based on the Company's actual store formats
and includes normal selling, office, stockroom and receiving space.
(10) Subsequent to April 25, 1998, Holding made a contribution to the Company of
$8.3 million.
(11) Net working capital represents total current assets excluding cash, cash
equivalents and marketable securities less total current liabilities
excluding bank overdrafts and notes payable and current maturities of long-
term debt.
13
<PAGE>
RISK FACTORS
In evaluating the Exchange Offer, Holders of the Series A Debentures should
carefully consider the following factors in addition to the other information
contained in this Prospectus.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS; STOCKHOLDERS' DEFICIT
Holding and the Company have substantial indebtedness and debt service
obligations. Holding has entered into the Indenture and the Company has entered
into an indenture governing the Senior Subordinated Notes (the "Senior
Subordinated Notes Indenture") pursuant to which they borrowed money in order to
finance the Recapitalization, including refinancing the existing outstanding
indebtedness of Holding and the Company. In addition, the Company has entered
into the New Credit Facility to fund the Recapitalization and provide additional
working capital for the Company. As of April 25, 1998, (i) Holding had
outstanding approximately $60.0 million of indebtedness under the Series A
Debentures, excluding its secured guarantee of the Company's obligations under
the New Credit Facility, (ii) the Company and its subsidiaries had $593.8
million of liabilities outstanding, including Indebtedness under the Senior
Subordinated Notes and the New Credit Facility trade payables and other accrued
liabilities, and (iii) the Company had a stockholders' deficit of $56.3 million.
In addition, the Company could have incurred additional indebtedness of up to
$250.0 million under the New Credit Facility. See "Description of Series B
Debentures" and "Description of Other Indebtedness."
The level of Holding's and the Company's indebtedness may have important
consequences to the holders of the Series B Debentures, including: (i) the
ability of Holding or the Company to obtain additional debt financing in the
future for acquisitions, working capital and capital expenditures may be
limited; (ii) a substantial portion of Holding's and the Company's cash flow
must be dedicated to debt service and will not be available for other purposes;
(iii) Holding's level of indebtedness could limit its flexibility in reacting to
changes in its operating environment and economic conditions generally and (iv)
the covenants contained in Holding's and the Company's debt instruments,
including the Indenture, limit Holding's and the Company's ability to, among
other things, borrow additional funds, dispose of assets or make investments.
In order to satisfy Holding's obligations under the Series B Debentures and
the Company's obligations under the Senior Subordinated Notes, its operating
leases, the New Credit Facility, the Development Authority of McDuffie County
Taxable Industrial Development Revenue Bonds (Advance Stores Company,
Incorporated Project), Series 1997 (the "IRB") and certain other indebtedness
presently outstanding, Holding and the Company must generate substantial
operating cash flow. The ability of Holding and the Company to meet their
respective debt service and other obligations or to refinance any such
obligation will depend on the future performance of the Company, which will be
subject to prevailing economic conditions and to financial, business and other
factors beyond the control of Holding and the Company. In addition, the New
Credit Facility, the Senior Subordinated Notes and the IRB will mature prior to
the maturity of the Series B Debentures. While Holding believes that, based on
current levels of operations, it and the Company will be able to meet their
respective debt service and other obligations and to refinance such
indebtedness, there can be no assurances with respect thereto, including with
respect to the Company's ability to refinance borrowings under the New Credit
Facility at the maturity of the obligations arising thereunder. Furthermore,
because the New Credit Facility bears interest at floating rates, Holding's and
the Company's financial performance and flexibility may be adversely affected by
fluctuations in interest rates. See "Unaudited Pro Forma Consolidated Financial
Data" for information regarding the operating cash flow and debt service
obligations of Holding and the Company.
LIMITATION ON ACCESS TO CASH FLOW OF SUBSIDIARIES; HOLDING COMPANY STRUCTURE
As a holding company, Holding's ability to pay principal and interest on
the Series B Debentures is dependent upon the receipt of dividends from the
Company and any other future direct and indirect subsidiaries. Holding does not
have and may not in the future have, any material assets other than the capital
stock of the Company. The Company is a party to the New Credit Facility, the
Senior Subordinated Note Indenture, the IRB and certain other existing
indebtedness. The New Credit Facility and the Senior Subordinated Note
Indenture
14
<PAGE>
impose substantial restrictions on the Company's ability to pay dividends or
make loans to Holding. Any payment of dividends or making of loans by the
Company to Holding are subject to the satisfaction of certain financial
conditions set forth in the Senior Subordinated Note Indenture and the New
Credit Facility. The ability of the Company to comply with such conditions may
be affected by events that are beyond the control of Holding. The breach of any
such conditions could result in a default under the Senior Subordinated Note
Indenture and/or the New Credit Facility, and in the event of any such default,
the holders of the Senior Subordinated Notes or the lenders under the New Credit
Facility could elect to accelerate the maturity of all the Senior Subordinated
Notes or the loans under such facility. If the maturity of the Senior
Subordinated Notes or the loans under the New Credit Facility were to be
accelerated, all such outstanding debt would be, and other indebtedness of the
Company may be, required to be paid in full before the Company would be
permitted to distribute any assets or cash to Holding. In addition,
indebtedness outstanding under the New Credit Facility is secured by
substantially all of the assets of the Company and is guaranteed by Holding.
Holding's guarantee of the New Credit Facility is secured by a pledge of all of
the capital stock of the Company as well as any future subsidiaries of Holding.
There can be no assurance that the assets of Holding would be sufficient to
repay all of such outstanding debt and to meet its obligations under the
Indenture. Future borrowings by the Company can be expected to contain
restrictions or prohibitions on the payment of dividends by the Company to
Holding or the making of loans or advances by the Company to Holding. In
addition, under Virginia law, a company is permitted to make distributions
including dividends on its capital stock only if, after giving effect to such
distribution, the Company is able to pay its debts as they become due in the
usual course of business and the Company's total assets are greater than the sum
of its total liabilities, plus any amounts needed, if the Company were dissolved
at the time of the distribution, to satisfy preferential rights upon dissolution
to shareholders whose preferential rights are superior to those receiving the
distribution.
As a result of the holding company structure of Holding, the holders of the
Series B Debentures will be structurally junior to all creditors of the Company
or any future subsidiary of Holding, except to the extent that Holding is itself
recognized as a creditor of the Company or such future subsidiary, in which case
the claims of Holding would still be subordinate to any security in the assets
of the Company or such future subsidiary and any indebtedness of the Company or
such future subsidiary senior to that held by Holding. In the event of
insolvency, liquidation, reorganization, dissolution or other winding-up of the
Company or any future subsidiary of Holding, Holding will not receive any funds
available to pay to creditors of the Company or any future subsidiary of
Holding. As of April 25, 1998, the aggregate amount of indebtedness and other
obligations of the Company (including trade payables and other accrued
liabilities) would have been $593.8 million. In addition, the Company would
have had up to $250.0 million of undrawn commitments under the New Credit
Facility.
ORIGINAL ISSUE DISCOUNT; LIMITATIONS ON HOLDER'S CLAIMS
The Series B Debentures will be issued at a substantial original issue
discount from their principal amount at maturity. Consequently, purchasers of
the Series B Debentures will be required to include amounts in gross income for
federal income tax purposes in advance of receipt of the cash payments to which
the income is attributable. See "Certain Federal Income Tax Considerations" for
a more detailed discussion of the federal income tax consequences to the
purchasers of the Series B Debentures resulting from the purchase, ownership or
disposition thereof.
Under the Indenture, in the event of an acceleration of the maturity of the
Series B Debentures upon the occurrence of an Event of Default, the Holder of
the Debentures may be entitled to recover only the amount which may be declared
due and payable pursuant to the Indenture, which will be less than the principal
amount at maturity of such Series B Debentures. See "Description of Series B
Debentures--Events of Default and Remedies."
If a bankruptcy case is commenced by or against Holding under the
Bankruptcy Code (as defined herein), the claim of a holder of Series B
Debentures with respect to the principal amount thereof may be limited to an
amount equal to the sum of (i) the issue price of the Series B Debentures as set
forth on the cover page hereof and (ii) that portion of the original issue
discount (as determined on the basis of such issue price) which is not deemed to
constitute "unmature interest" for purposes of the Bankruptcy Code.
Accordingly, holders of the Series B Debentures under such circumstances may,
even if sufficient funds are available, receive a lesser amount than they would
be entitled to under the express terms of the Indenture. In addition, the same
rules as those used for the
15
<PAGE>
calculation of original issue discount under federal income tax law and,
accordingly, a holder might be required to recognize gain or loss in the event
of a distribution related to such a bankruptcy case.
RESTRICTIONS UNDER INSTRUMENTS GOVERNING INDEBTEDNESS
The New Credit Facility and/or the Senior Subordinated Note Indenture
contain, among other things, certain financial and other covenants, including
covenants requiring the Company to maintain certain financial ratios,
restricting the ability of the Company to incur indebtedness or to create or
suffer to exist certain liens and restricting the amount of capital expenditures
which it may incur in any fiscal year. Compliance with such provisions may
limit the ability of the Company to expand its business, and the ability of the
Company to comply with such provisions and to repay or refinance the New Credit
Facility and the Senior Subordinated Note Indenture may be affected by events
beyond its control. The indebtedness under the New Credit Facility is secured
by a first priority lien on substantially all of the assets of the Company now
owned or hereafter acquired and is guaranteed by a subsidiary of the Company.
Holding has also issued a guarantee of the Company's obligations under the New
Credit Facility, which guarantee is secured by a pledge by Holding of all of the
issued and outstanding capital stock of the Company. The New Credit Facility
matures prior to the maturity of the Series B Debentures. See "Description of
Other Indebtedness." A failure to make any required payment under the New Credit
Facility or the Senior Subordinated Note Indenture or a failure to comply with
any of the financial and operating covenants included in the New Credit Facility
or the Senior Subordinated Note Indenture would result in an event of default
thereunder, permitting the lenders to elect to accelerate the maturity of the
indebtedness thereunder. Any such acceleration could also result in the
acceleration of any other indebtedness of the Company. If the lenders under the
New Credit Facility or the holders of the Senior Subordinated Notes accelerate
the maturity of the indebtedness thereunder, there can be no assurance that the
Company will have sufficient resources to satisfy its obligations under the New
Credit Facility or the Senior Subordinated Note Indenture and its other
indebtedness. As a result of the holding company structure of Holding, the
holders of the Series B Debentures will be structurally junior to all creditors
of the Company and all future subsidiaries of Holding, except to the extent that
Holding is itself recognized as a creditor of the Company or any such future
subsidiary, in which case the claims of Holding would still be subordinate to
any security in the assets of the Company or such future subsidiary and any
indebtedness of the Company or such future subsidiary senior to that held by
Holding. In the event of insolvency, liquidation, reorganization, dissolution
or other winding-up of the Company or any future subsidiary, Holding will not
receive any funds available to pay to creditors of the Company or any future
subsidiary. See "--Limitation on Access to Cash Flow of Subsidiaries; Holding
Company Structure."
UNCERTAINTY RELATING TO ABILITY TO IMPLEMENT GROWTH STRATEGY
The Company intends to expand its base of stores as part of its growth
strategy, both by opening new stores and by acquisition. There can be no
assurance that this strategy will be successful. The actual number of new
stores to be opened and their success will be dependent on a number of factors,
including, among other things, the ability of the Company to manage such
expansion and hire and train qualified sales associates, the availability of
suitable store locations and the negotiation of acceptable lease terms for new
locations. There can be no assurance that the Company will be able to open and
operate such stores on a timely or profitable basis or that opening new stores
in markets already served by the Company will not adversely affect existing
store profitability or comparable store sales. Furthermore, the success of the
Company's acquisition strategy will depend on the extent to which it is able to
acquire, successfully absorb and profitably manage additional businesses, and no
assurance can be given that the Company's strategy will succeed. See "Business-
- -Store Location and Development Strategy."
COMPETITION
The retail sale of automotive parts and accessories is highly competitive.
The Company competes primarily with national and regional retail automotive
parts chains, wholesalers or jobber stores (some of which are associated with
national automotive parts distributors or associations), independent operators,
automobile dealers that supply original equipment manufacturer parts and mass
merchandisers that carry automotive replacement parts and
16
<PAGE>
accessories. Some of the Company's competitors are larger and have greater
financial, marketing and other resources than the Company. See "Business--
Competition."
DEPENDENCE ON VENDOR RELATIONSHIPS
The Company's business is dependent upon developing and maintaining close
relationships with its vendors and upon its ability to purchase products from
these vendors on favorable price and other terms. A disruption of these vendor
relationships could have a material adverse effect on the Company's business.
See "Business--Purchasing."
DEPENDENCE ON CERTAIN KEY PERSONNEL
The Company is dependent upon the services and experience of its executive
officers and senior management team and there can be no assurance that the
Company's business would not be affected if one or more of these individuals
left the Company. The Company has entered into an employment agreement with
Garnett Smith, the Chief Executive Officer of the Company. See "Management--
Executive Employment Contracts."
ECONOMIC AND WEATHER CONDITIONS
The Company's business is sensitive to the economic and weather conditions
of the regions in which it operates. In recent years, certain of these regions
have experienced economic recessions and extreme weather conditions.
Temperature extremes tend to enhance sales by causing a higher incidence of
parts failure and increasing sales of seasonal products. However, unusually
inclement weather can reduce sales by causing deferral of elective maintenance.
No prediction can be made as to future economic or weather conditions in the
regions in which the Company operates or the effect such conditions may have on
the business or results of operations of the Company.
CONTROL OF COMPANY
Through ownership of Holding Common Stock and an irrevocable proxy granted
to it by Ripplewood, FS&Co. controls approximately 79.7% of the outstanding
voting securities of Holding. As a result, FS&Co. has the ability to control
Holding's, and thus the Company's, management, policies and financing decisions.
See "Management" and "Principal Stockholders."
POSSIBLE INABILITY TO PURCHASE SERIES B DEBENTURES UPON CHANGE OF CONTROL
Upon a Change of Control (as defined in the Indenture), Holding will be
required to offer to repurchase all of the outstanding Series B Debentures at
101% of the principal amount thereof plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of purchase. There can be no
assurance that Holding will have sufficient funds available or will be permitted
by its other debt agreements to purchase the Series B Debentures upon the
occurrence of a Change of Control. In addition, a Change of Control may cause a
default under the New Credit Facility, the Senior Subordinated Notes and certain
other indebtedness of the Company, in which case the provisions of such debt
would require payment in full of all such indebtedness of the Company before it
could make any distributions to Holding to enable Holding to purchase the Series
B Debentures. See "--Limitation on Access to Cash Flow of Subsidiaries; Holding
Company Structure" and "Description of Series B Debentures--Repurchase at the
Option of Holders--Change of Control." The inability to purchase all of the
tendered Series B Debentures would constitute an event of default under the
Indenture which would, in turn, constitute a default under the New Credit
Facility and the Senior Subordinated Notes and could constitute a default under
other indebtedness of the Company.
17
<PAGE>
LACK OF A PUBLIC MARKET FOR THE SERIES B DEBENTURES
The Series B Debentures are being offered to the Holders of the Series A
Debentures. Prior to this Exchange Offer, there has been no public market for
the Series A Debentures. Holding does not intend to apply for listing of the
Series B Debentures on any securities exchange or for quotation through the
Nasdaq National Market. The Initial Purchasers have informed Holding that they
currently intend to make a market in the Series B Debentures. However, the
Initial Purchasers are not obligated to do so and any such market making may be
discontinued at any time without notice. Therefore, no assurance can be given
as to whether an active trading market will develop or be maintained for the
Series B Debentures. As the Series A Debentures were issued and the Series B
Debentures will be issued to a limited number of institutions who typically hold
similar securities for investment, Holding does not expect that an active public
market for the Series B Debentures will develop. In addition, resales by
certain holders of the Series A Debentures or the Series B Debentures of a
substantial percentage of the aggregate principal amount of such notes could
constrain the ability of any market maker to develop or maintain a market for
the Series B Debentures. To the extent that a market for the Series B
Debentures should develop, the market value of the Series B Debentures will
depend on prevailing interest rates, the market for similar securities and other
factors, including the financial condition, performance and prospects of
Holding. Such factors might cause the Series B Debentures to trade at a
discount from face value.
FRAUDULENT CONVEYANCE
The payments made in connection with the Recapitalization to the
stockholders of Holding, the repayment of indebtedness of the Company and
Holding and the related incurrence by Holding of indebtedness under the Series A
Debentures and the Series B Debentures may be subject to review under relevant
state and federal fraudulent conveyance laws, as well as other similar laws
regarding creditors' rights generally, if a bankruptcy case or lawsuit is
commenced by or on behalf of unpaid creditors of Holding. Under these laws, if
a court were to find that, after giving effect to the Recapitalization,
including the sale of the Series A Debentures and the application of the net
proceeds therefrom, either (a) Holding incurred such indebtedness with the
intent of hindering, delaying or defrauding creditors or contemplated insolvency
with a design to prefer one or more creditors to the exclusion in whole or in
part of others or (b) Holding received less than reasonably equivalent value or
consideration for incurring such indebtedness and (i) was insolvent or rendered
insolvent by reason of such transaction, (ii) was engaged in a business or
transaction for which the assets remaining with Holding constituted unreasonably
small capital or (iii) intended to incur, or believed that it would incur, debts
beyond its ability to pay such debts as they matured, such court may subordinate
such indebtedness to presently existing and future creditors of Holding, avoid
the issuance of such indebtedness and direct the repayment of any amounts paid
thereunder to Holding's other creditors or take other action detrimental to the
holders of such indebtedness. In that event, there can be no assurance that any
repayment on the Series B Debentures would ever be recovered by holders of the
Series B Debentures. There can be no assurance that a court would not
determine, regardless of whether Holding was solvent on the date the Series A
Debentures will be issued, that (i) the payments made in connection with the
Recapitalization constituted fraudulent transfers on another ground or (ii)
Holding did not receive fair consideration or reasonably equivalent value for
the incurrence of the indebtedness evidenced by the Series A Debentures and the
Series B Debentures.
The measure of insolvency for purposes of the foregoing considerations
varies depending upon the law of the jurisdiction which is being applied.
Generally, however, Holding would be considered insolvent if the sum of all its
liabilities, including contingent liabilities, were greater than the value of
all its property at a fair valuation, or if the present fair saleable value of
Holding's assets were less than the amount required to repay its probable
liabilities on its debts, including contingent liabilities, as they become
absolute and mature.
Based upon financial and other information currently available to it,
management of Holding believes that the Series A Debentures and the Series B
Debentures are being incurred for proper purposes and in good faith and that at
the time the Series A Debentures and the Series B Debentures are issued Holding
will be (i) neither insolvent nor rendered insolvent thereby, (ii) in possession
of sufficient capital to run its business effectively and (iii) incurring debts
within its ability to pay as the same mature or become due. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources." In reaching these conclusions,
18
<PAGE>
Holding has relied upon various valuations and estimates of future cash flow
that necessarily involve a number of assumptions and choices of methodology. No
assurance can be given, however, that the assumptions and methodologies chosen
by Holding would be adopted by a court or that a court would concur with
Holding's conclusions.
CONSEQUENCES TO NON-TENDERING HOLDERS OF SERIES A DEBENTURES
Upon consummation of the Exchange Offer, Holding will have no further
obligation to register the Series A Debentures. Thereafter, any Holder of
Series A Debentures who does not tender its Series A Debentures in the Exchange
Offer, including any Holder which is an "affiliate" (as that term is defined in
Rule 405 of the Securities Act) of Holding which cannot tender its Series A
Debentures in the Exchange Offer, will continue to hold restricted securities
which may not be offered, sold or otherwise transferred, pledged or hypothecated
except pursuant to Rule 144 and Rule 144A under the Securities Act or pursuant
to any other exemption from registration under the Securities Act relating to
the disposition of securities, provided that an opinion of counsel is furnished
to Holding that such an exemption is available.
FORWARD LOOKING STATEMENTS
Certain statements contained in this Prospectus, including, without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects," "pro forma," and words of similar import, constitute
"forward-looking statements." Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of Holding and the Company or the retail
industry to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions; Holding's and the Company's substantial leverage and debt service
obligations; restrictions on Holding's and the Company's ability to pursue its
business strategies imposed by restrictive loan covenants; changes in business
strategy or development plans; competition; the loss of key personnel; weather
conditions; and other factors referenced in this Prospectus, including, without
limitation, under the captions "Summary," "Risk Factors," "Unaudited Pro Forma
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business." Forward-looking statements
regarding revenues, EBITDA and EBITDAR are particularly subject to a variety of
assumptions, some or all of which may not be realized. Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward-looking statements. Holding disclaims any obligation to update
any such factors or to publicly announce the results of any revisions to any of
the forward-looking statements contained herein to reflect future events or
developments.
19
<PAGE>
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of Holding's obligations
under the Exchange Offer Registration Rights Agreement. Holding will not
receive any cash proceeds from the issuance of the Series B Debentures offered
in the Exchange Offer. In consideration for issuing the Series B Debentures as
contemplated in this Prospectus, Holding will receive in exchange Series A
Debentures in like principal amount, the form and terms of which are the same in
all material respects as the form and terms of the Series B Debentures except
that the Series B Debentures have been registered under the Securities Act and
do not contain transfer restrictions or terms with respect to the special
interest payments applicable to the Series A Debentures. The Series A
Debentures surrendered in exchange for Series B Debentures will be retired and
canceled and cannot be reissued. Accordingly, issuance of the Series B
Debentures will not result in any increase in the indebtedness of Holding.
Net proceeds from the Debentures Offering were approximately $60.0 million.
Such proceeds, together with borrowings of $125.0 million under the New Credit
Facility and the proceeds from the issuance of $200.0 million principal amount
of the Senior Subordinated Notes were distributed to Holding or used to fund the
Company's payment obligations in the Recapitalization. Holding used the
proceeds of such distribution, together with the Equity Investment and the
proceeds from the Debentures Offering, to fund its payment obligations in the
Recapitalization. See "Summary--The Recapitalization." In connection with the
Recapitalization, substantially all of Holding's existing funded debt
obligations were repaid. At January 3, 1998, the aggregate principal amount of
Holding's funded indebtedness which was repaid in connection with the
Recapitalization was $94.1 million at a weighted interest rate of approximately
6.2% per annum, maturing between May 31, 1998 and September 1, 2004.
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Holding as of April
25, 1998. See "Summary--The Recapitalization" and "Use of Proceeds." This table
should be read in conjunction with "Unaudited Pro Forma Consolidated Financial
Data" and the consolidated financial statements of Holding and the notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF
APRIL 25,
1998
------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Cash and cash equivalents............... $ 47,175(1)
=========
Debt:
Industrial Development Revenue Bonds... $ 10,000
New Credit Facility.................... 125,000
Notes Offering......................... 200,000
Debentures Offering.................... 60,249
---------
Total debt........................... 395,249
Stockholders' deficit................... (104,671)
---------
Total capitalization................... $ 290,578
=========
</TABLE>
_____________________
(1) Amount reflects unused proceeds from the Recapitalization that are available
for working capital needs. Subsequent to April 25, 1998, Holding made a
contribution to the Company of $8.3 million.
21
<PAGE>
THE EXCHANGE OFFER
PURPOSES OF THE EXCHANGE OFFER
The Series A Debentures were issued and sold by Holding on April 15, 1998
to Donaldson, Lufkin & Jenrette Securities Corporation and Chase Securities Inc.
(collectively, the "Initial Purchasers"), who subsequently resold the Series A
Debentures to (a) "qualified institutional buyers" (in reliance on Rule 144A
under the Securities Act) and (b) non-U.S. persons outside the United States in
reliance on Regulation S under the Securities Act. In connection with the
issuance and sale of the Series A Debentures, Holding and the Initial Purchasers
entered into the Exchange Offer Registration Rights Agreement pursuant to which
Holding agreed to use its best efforts to cause a registration statement with
respect to the Exchange Offer to become effective within 150 days of April 15,
1998, the date of issuance of the Series A Debentures. However, if the Exchange
Offer is not permitted by applicable law or, under certain circumstances, if the
holders shall so request, Holding will, at its own expense, (a) as promptly as
practicable, file a shelf registration statement covering resales of the Series
A Debentures (the "Shelf Registration Statement"), (b) use its best efforts to
cause the Shelf Registration Statement to be declared effective under the
Securities Act and (c) use its best efforts to keep effective the Shelf
Registration Statement until two years or 180 days, as the case may be, after
the Issue Date.
The Exchange Offer is being made by Holding to satisfy its obligations
pursuant to the Exchange Offer Registration Rights Agreement. The form and
terms of the Series B Debentures are the same as the form and terms of the
Series A Debentures in all material respects except that the Series B Debentures
have been registered under the Securities Act and hence do not include certain
rights to registration thereunder and do not contain transfer restrictions or
terms with respect to the special interest payments applicable to the Series A
Debentures. Once the Exchange Offer is consummated, Holding will have no
further obligations to register any of the Series A Debentures not tendered by
the Holders for exchange. See "Risk Factors--Consequences to Non-Tendering
Holders of Series A Debentures". A copy of the Exchange Offer Registration
Rights Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part.
Based on interpretations by the staff of the Commission set forth in
several no-action letters issued to third parties, Holding believes that Series
B Debentures issued pursuant to the Exchange Offer in exchange for Series A
Debentures may be offered for resale, resold and otherwise transferred by
holders thereof without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Series B Debentures are
acquired in the ordinary course of such holders' business and such holders have
no such arrangement with any person to participate in the distribution of such
Series B Debentures. However, Holding does not intend to request the Commission
to consider, and the Commission has not considered, the Exchange Offer in a no-
action letter and there can be no assurance that the Commission would make a
similar determination with respect to the Exchange Offer. However, any Holder
who is an "affiliate" of Holding or who intends to participate in the Exchange
Offer for the purpose of distributing the Series B Debentures (i) cannot rely on
the interpretation by the staff of the Commission set forth in the above
referenced no-action letters, (ii) cannot tender its Series A Debentures in the
Exchange Offer, and (iii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or
transfer of the Series A Debentures, unless such sale or transfer is made
pursuant to an exemption from such requirements. See "Risk Factors--
Consequences to Non-Tendering Holders of Series A Debentures".
In addition, each broker-dealer that receives Series B Debentures for its
own account in exchange for Series A Debentures, where such Series A Debentures
were acquired by such broker-dealer as a result of market-making activities or
other trading activities and not acquired directly from Holding, must
acknowledge that it will deliver a copy of this Prospectus in connection with
any resale of such Series B Debentures. See "Plan of Distribution".
Except as aforesaid, this Prospectus may not be used for an offer to
resell, resale or other transfer of Series B Debentures.
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<PAGE>
TERMS OF THE EXCHANGE OFFER
General
Upon the terms and subject to the conditions of the Exchange Offer set
forth in this Prospectus and in the Letter of Transmittal, Holding will accept
any and all Series A Debentures validly tendered and not withdrawn prior to 5:00
p.m., New York City time, on the Expiration Date. Holding will issue $1,000
principal amount at maturity of Series B Debentures in exchange for each $1,000
principal outstanding at maturity of Series A Debentures accepted in the
Exchange Offer. Series A Debentures may be tendered only in integral multiples
of $1,000 of principal amount at maturity.
As of April 15, 1998, there was approximately $112.0 million aggregate
principal amount at maturity of the Series A Debentures outstanding and one
registered Holder of Series A Debentures. This Prospectus, together with the
Letter of Transmittal, is being sent to such registered Holder as of
, 1998.
In connection with the issuance of the Series A Debentures, Holding
arranged for the Series A Debentures to be issued and transferable in book-entry
form through the facilities of DTC, acting as depository. The Series B
Debentures also will be issued and transferable in book-entry form through DTC.
See "Description of Series B Debentures--Form, Denomination and Book-Entry
Procedures."
Holding shall be deemed to have accepted validly tendered Series A
Debentures when, as and if Holding has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
Holders of Series A Debentures for the purpose of receiving the Series B
Debentures from Holding.
If any tendered Series A Debentures are not accepted for exchange because
of an invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Series A Debentures will be
returned, without expense, to the tendering Holder thereof as promptly as
practicable after the Expiration Date.
Holders of Series A Debentures who tender in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of Series
A Debentures pursuant to the Exchange Offer. Holding will pay the expenses,
other than certain applicable taxes, of the Exchange Offer. See "--Fees and
Expenses."
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean , 1998, unless Holding
in its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended.
In order to extend the Expiration Date, Holding will notify the Exchange
Agent and the record Holders of Series A Debentures of any extension by oral or
written notice, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date. Such notice may
state that Holding is extending the Exchange Offer for a specified period of
time or on a daily basis until 5:00 p.m., New York City time, on the date on
which a specified percentage of Series A Debentures are tendered.
Holding reserves the right to delay accepting any Series A Debentures, to
extend the Exchange Offer, to amend the Exchange Offer or to terminate the
Exchange Offer and not accept Series A Debentures not previously accepted if any
of the conditions set forth herein under "--Conditions" shall have occurred and
shall not have been waived by Holding by giving oral or written notice of such
delay, extension, amendment or termination to the Exchange Agent. Any such
delay in acceptance, extension, amendment or termination will be followed as
promptly as practicable by oral or written notice thereof. If the Exchange
Offer is amended in a manner determined by Holding to constitute a material
change, Holding will promptly disclose such amendment in a manner reasonably
calculated to inform the Holders of such amendment and Holding will extend the
Exchange Offer for a period of five to 10 business days, depending upon the
significance of the amendment and the manner of disclosure to Holders
23
<PAGE>
of the Series A Debentures, if the Exchange Offer would otherwise expire during
such five to 10 business day period.
Without limiting the manner in which Holding may choose to make public
announcement of any extension, amendment or termination of the Exchange Offer,
Holding shall have no obligation to publish, advertise, or otherwise communicate
any such public announcement, other than by making a timely release to the Dow
Jones News Service.
YIELD AND INTEREST ON THE SERIES B DEBENTURES
The yield and interest on the Series B Debentures is 12.875% (computed on a
semi-annual bond equivalent basis) calculated from April 15, 1998. The Series B
Debentures will accrete at a rate of 12.875% compounded semi-annually, to an
aggregate principal amount of $112.0 million by April 15, 2003. Cash interest
will not accrue on the Series B Debentures prior to April 15, 2003. Commencing
April 15, 2003, cash interest on the Series B Debentures will accrue and be
payable, at a rate of 12.875% per annum, semi-annually in arrears on each April
15 and October 15.
PROCEDURES FOR TENDERING
The tender to the Company of the Series A Debentures by a Holder thereof as
set forth below and the acceptance thereof by the Company will constitute a
binding agreement between the tendering Holder and the Company upon the terms
and subject to the conditions set forth in this Prospectus and in the Letter of
Transmittal. Except as set forth below, a Holder (which term, for purposes of
the Exchange Offer, includes any participant in the Book-Entry Transfer Facility
system whose name appears on a security position listing as a holder of such
Series A Debentures) who wishes to tender Series A Debentures for exchange
pursuant to the Exchange Offer must transmit to the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date either (i) a properly completed
and duly executed Letter of Transmittal or a facsimile thereof, including all
other documents required by such Letter of Transmittal, to the Exchange Agent at
the address set forth below under "Exchange Agent" or (ii) a computer-generated
message, transmitted by means of the Book-Entry Transfer Facility's ATOP system
and received by the Exchange Agent and forming a part of a Book-Entry
Confirmation, in which such Holder acknowledges and agrees to be bound by the
terms of the Letter of Transmittal. In addition, in order to deliver Series A
Debentures (i) certificates for such Series A Debentures must be received by the
Exchange Agent along with the Letter of Transmittal, (ii) a timely confirmation
by a book-entry transfer (a "Book-Entry Confirmation") of such Series A
Debentures into the Exchange Agent's account at the Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date or (iii) the Holder must comply with the guaranteed delivery
procedures described below. THE METHOD OF DELIVERY OF SERIES A DEBENTURES,
LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND
RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO
LETTERS OF TRANSMITTAL OR SERIES A DEBENTURES SHOULD BE SENT TO THE COMPANY.
Delivery of all documents must be made to the Exchange Agent at its address
set forth below. Holders may also request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect the above transactions
for such Holders.
ANY BENEFICIAL HOLDER WHOSE SERIES A DEBENTURES ARE REGISTERED IN THE NAME
OF ITS BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE AND WHO
WISHES TO TENDER SHOULD CONTACT SUCH REGISTERED HOLDER PROMPTLY AND INSTRUCT
SUCH REGISTERED HOLDER TO CONSENT AND/OR TENDER ON ITS BEHALF. IF SUCH
BENEFICIAL HOLDER WISHES TO TENDER ON ITS OWN BEHALF, SUCH BENEFICIAL HOLDER
MUST, PRIOR TO COMPLETING AND EXECUTING THE LETTER OF TRANSMITTAL AND DELIVERING
ITS SERIES A DEBENTURES, EITHER MAKE APPROPRIATE ARRANGEMENTS TO REGISTER
OWNERSHIP OF THE SERIES A DEBENTURES IN SUCH HOLDER'S NAME OR OBTAIN A PROPERLY
COMPLETED BOND POWER FROM THE REGISTERED HOLDER. THE TRANSFER OF RECORD
OWNERSHIP MAY TAKE CONSIDERABLE TIME.
24
<PAGE>
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Series A Debentures tendered pursuant thereto are tendered (i) by a
registered Holder who has not completed the box entitled "Special Payment
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures
on a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an office
or correspondent in the United States (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Series A Debentures listed therein, such Series A
Debentures must be endorsed or accompanied by appropriate bond powers signed as
the name of the registered Holder or Holders appears on the Series A Debentures.
If the Letter of Transmittal or any Series A Debentures or powers of
attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by Holding, evidence satisfactory to Holding of their authority to
so act must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Series A Debentures and withdrawal of
tendered Series A Debentures will be determined by Holding in its sole
discretion, which determination will be final and binding. Holding reserves the
absolute right to reject any and all Series A Debentures not properly tendered
or any Series A Debentures Holding's acceptance of which would, in the opinion
of counsel for Holding, be unlawful. Holding also reserves the right to waive
any defects, irregularities or conditions of tender as to particular Series A
Debentures. Holding's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in the Letter of Transmittal) will be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Series A Debentures must be cured within such time
as Holding shall determine. Neither Holding, the Exchange Agent nor any other
person shall be under any duty to give notification of defects or irregularities
with respect to tenders of Series A Debentures, nor shall any of them incur any
liability for failure to give such notification. Tenders of Series A Debentures
will not be deemed to have been made until such irregularities have been cured
or waived. Any Series A Debentures received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering Holders
of Series A Debentures, unless otherwise provided in the Letter of Transmittal,
as soon as practicable following the Expiration Date.
In addition, Holding reserves the right in its sole discretion to purchase
or make offers for any Series A Debentures that remain outstanding subsequent to
the Expiration Date or, as set forth under "--Conditions," to terminate the
Exchange Offer and, to the extent permitted by applicable law, purchase Series A
Debentures in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers could differ from the
terms of the Exchange Offer.
By tendering, each Holder will represent to Holding that, among other
things, the Series B Debentures acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of such Holder's business, that such
Holder has no arrangement with any person to participate in the distribution of
such Series B Debentures, and that such Holder is not an "affiliate", as defined
under Rule 405 of the Securities Act, of Holding. If the Holder is a broker-
dealer that will receive Series B Debentures for its own account in exchange for
Series A Debentures that were acquired as a result of market-making activities
or other trading activities and not acquired directly from Holding, such Holder
by tendering will acknowledge that it will deliver a prospectus in connection
with any resale of such Series B Debentures. See "Plan of Distribution."
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Series A Debentures and (i) whose Series A
Debentures are not immediately available, or (ii) who cannot deliver their
Series A Debentures, the Letter of Transmittal or any other required documents
to the Exchange Agent prior to the Expiration Date, may effect a tender if:
25
<PAGE>
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery) setting forth the
name and address of the Holder of the Series A Debentures, the certificate
number or numbers of such Series A Debentures and the principal amount of Series
A Debentures tendered, stating that the tender is being made thereby and
guaranteeing that, within five New York Stock Exchange trading days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof) together with
the certificate(s) representing the Series A Debentures to be tendered in proper
form for transfer (or a confirmation of a book-entry transfer into the Exchange
Agent's account at DTC of Series A Debentures delivered electronically) and any
other documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Series A Debentures in proper form for transfer (or confirmation of a book-entry
transfer into the Exchange Agent's account at DTC of Series A Debentures
delivered electronically) and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
Upon request of the Exchange Agent, a Notice of Guaranteed Delivery will be sent
to Holders who wish to tender their Series A Debentures according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Series A Debentures may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date. To withdraw a tender of Series A Debentures in the Exchange Offer, a
written or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must (i) specify
the name of the person having deposited the Series A Debentures to be withdrawn
(the "Depositor"), (ii) identify the Series A Debentures to be withdrawn
(including the certificate number or numbers and principal amount of such Series
A Debentures), (iii) be signed by the Holder in the same manner as the original
signature on the Letter of Transmittal by which such Series A Debentures were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Series
A Debentures register the transfer of such Series A Debentures into the name of
the person withdrawing the tender, and (iv) specify the name in which any such
Series A Debentures are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by Holding, whose
determination shall be final and binding on all parties. Any Series A
Debentures so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer and no Series B Debentures will be issued with
respect thereto unless the Series A Debentures so withdrawn are validly
retendered. Any Series A Debentures which have been tendered but which are not
accepted for payment will be returned to the Holder thereof without cost to such
Holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Series A Debentures may
be retendered by following one of the procedures described above under "--
Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, Holding will not be
required to accept for exchange, or exchange Series B Debentures for, any Series
A Debentures not theretofore accepted for exchange, and may terminate or amend
the Exchange Offer as provided herein before the acceptance of such Series A
Debentures, if any of the following conditions exist:
(a) the Exchange Offer, or the making of any exchange by a Holder, violates
applicable law or any applicable interpretation of the Commission; or
26
<PAGE>
(b) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the Exchange Offer which, in
the sole judgment of Holding, might impair the ability of Holding to proceed
with the Exchange Offer; or
(c) there shall have been adopted or enacted any law, statute, rule or
regulation which, in the sole judgment of Holding, might materially impair the
ability of Holding to proceed with the Exchange Offer.
If any such conditions exist, Holding may (i) refuse to accept any Series A
Debentures and return all tendered Series A Debentures to exchanging Holders,
(ii) extend the Exchange Offer and retain all Series A Debentures tendered prior
to the expiration of the Exchange Offer, subject, however, to the rights of
Holders to withdraw such Series A Debentures (see "--Withdrawal of Tenders") or
(iii) waive certain of such conditions with respect to the Exchange Offer and
accept all properly tendered Series A Debentures which have not been withdrawn
or revoked. If such waiver constitutes a material change to the Exchange Offer,
Holding will promptly disclose such waiver in a manner reasonably calculated to
inform Holders of Series A Debentures of such waiver.
The foregoing conditions are for the sole benefit of Holding and may be
asserted by Holding regardless of the circumstances giving rise to any such
condition or may be waived by Holding in whole or in part at any time and from
time to time in its sole discretion. The failure by Holding at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition to the foregoing conditions, if, because of any change in
applicable law or applicable interpretations thereof by the Commission, Holding
is not permitted to complete the Exchange Offer, then Holding shall file a Shelf
Registration Statement. Thereafter, Holding's obligation to consummate the
Exchange Offer shall be terminated.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier:
United States Trust Company of New York United States Trust Company of New York
P.O. Box 844 Cooper Station 770 Broadway, 13th Floor
New York, New York 10276-0844 Corporate Trust Operations Department
(registered or certified mail recommended) New York, New York 10003
By Hand: By Facsimile:
United States Trust Company of New York (212) 780-0592
111 Broadway (For Eligible Institutions Only)
Lower Level
New York, New York 10006 Confirm by telephone:
Attention: Corporate Trust Services (800) 548-6565
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by Holding. The principal
solicitation is being made by mail; however, additional solicitation may be made
by telegraph, telephone or in person by officers and regular employees of
Holding and its affiliates.
Holding will not make any payments to brokers, dealers or others soliciting
acceptances of the Exchange Offer. Holding, however, will pay the Exchange
Agent reasonable and customary fees for its services and will reimburse it for
its reasonable out-of-pocket expenses in connection therewith. Holding may also
pay brokerage
27
<PAGE>
houses and other custodians, nominees and fiduciaries the reasonable out-of-
pocket expenses incurred by them in forwarding copies of the Prospectus and
related documents to the beneficial owners of the Series A Debentures, and in
handling or forwarding tenders for exchange.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by Holding, are estimated in the aggregate to be approximately $100,000,
and include fees and expenses of the Exchange Agent and Trustee under the
Indenture and accounting and legal fees.
Holding will pay all transfer taxes, if any, applicable to the exchange of
Series A Debentures pursuant to the Exchange Offer. If, however, certificates
representing Series B Debentures or Series A Debentures for principal amounts
not tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered Holder
of the Series A Debentures tendered, or if tendered Series A Debentures are
registered in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Series A Debentures pursuant to the Exchange Offer, then the amount
of any such transfer taxes (whether imposed on the registered holder or any
other persons) will be payable by the tendering Holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering Holder.
ACCOUNTING TREATMENT
The Series B Debentures will be recorded at the same carrying value as the
Series A Debentures, which is face value as reflected in Holding's accounting
records on the date of the exchange. Accordingly, no gain or loss for
accounting purposes will be recognized upon consummation of the Exchange Offer.
The issuance costs incurred in connection with the Exchange Offer will be
capitalized and amortized over the term of the Series B Debentures.
28
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data (the "Pro
Forma Financial Data") has been prepared by Holding's management from the
consolidated financial statements of Holding and the notes thereto included
elsewhere in this Prospectus. The unaudited pro forma consolidated statements
of operations for the fiscal year ended January 3, 1998 and the sixteen weeks
ended April 25, 1998 reflect adjustments as if the Recapitalization had been
consummated and were effective as of the beginning of each respective period.
The unaudited pro forma statements of operations do not give effect to
nonrecurring expenses related to management bonuses and other expenses incurred
in connection with the Recapitalization. The pro forma adjustments, which are
based upon available information and upon certain assumptions that management
believes are reasonable, are described in the accompanying notes.
The financial effects of the Recapitalization as presented in the Pro Forma
Consolidated Financial Data are not necessarily indicative of Holding's results
of operations which would have been obtained had the Recapitalization actually
occurred on the dates described above, nor are they necessarily indicative of
the results of future operations. The Pro Forma Consolidated Financial Data
should be read in conjunction with the notes thereto, which are an integral part
thereof, the consolidated financial statements of Holding and the notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 3, 1998
----------------------------------------------------
HISTORICAL ADJUSTMENTS(1) PRO FORMA
--------------- ---------------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales...................................... $848,108 $ -- $848,108
Cost of sales.................................. 524,586 -- 524,586
-------- -------- --------
Gross profit................................... 323,522 -- 323,522
Selling, general and administrative expenses... 281,095 (3,056)(2) 278,039
-------- -------- --------
Operating income............................... 42,427 3,056 45,483
Total interest expense......................... 6,086 36,476 (3) 42,562
Other expenses, net............................ 321 222 (4) 99
-------- -------- --------
Income (loss) before provision for taxes....... 36,020 (33,198) 2,822
Provision (benefit) for income taxes........... 14,733 (13,020)(5) 1,713(6)
-------- -------- --------
Net income (loss).............................. $ 21,287 $(20,178) $ 1,109
======== ======== ========
OTHER DATA:
EBITDA(7)...................................... $ 64,228 $ 3,938 $ 68,166
EBITDA(8)..................................... 112,538 3,938 116,476
Pro forma cash interest expense(9)............. 31,938
PRO FORMA CREDIT RATIOS:
Ratio of EBITDA to cash interest expense(9).... 2.13x
Ratio of EBITDA to total interest expense(3)... 1.60x
Ratio of earnings to fixed charges(10)......... 1.05x
</TABLE>
(Footnotes on subsequent page)
29
<PAGE>
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED APRIL 25, 1998
---------------------------------------------------------------
HISTORICAL ADJUSTMENTS(1) PRO FORMA
---------------- --------------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................................ $288,963 $ -- $288,963
Cost of sales............................................ 176,377 -- 176,377
-------- -------- --------
Gross profit............................................. 112,586 -- 112,586
Selling, general and administrative expenses............. 99,286 (845)(2) 98,441
Expenses associated with the recapitalization............ 14,005 (14,005)(11) --
-------- -------- --------
Income (loss) from operations............................ (705) 14,850 14,145
Total interest expense................................... 3,341 10,288 (3) 13,629
Other income (expense)................................... (4) 62 (4) 58
-------- -------- --------
Income (loss) before provision for taxes................. (4,050) 4,624 574
(Provision) benefit for income taxes..................... 1,698 (1,919)(5) (221)(6)
-------- -------- --------
Net income (loss)........................................ $ (2,352) $ 2,705 $ 353
======== ======== ========
OTHER DATA:
EBITDA(7)................................................ $ $ $ 21,631
EBITDAR(8)............................................... 39,048
Pro forma cash interest expense(9)....................... 10,416
PRO FORMA CREDIT RATIOS:
Ratio of EBITDA to cash interest expense(9).............. 2.08x
Ratio of EBIDTA to total interest expense(3)............. 1.59x
Ratio of earnings to fixed charges(10)................... 1.03x
</TABLE>
(Footnotes on following page)
30
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(1) Excludes non-recurring expenses incurred in connection with the
Recapitalization in the sixteen weeks ended April 25, 1998 which include:
(i) management bonuses of $11.5 million and (ii) other transaction expenses
incurred of $2.5 million.
(2) Reflects the elimination of $3.1 million in fiscal 1997 and $0.8 million in
the sixteen weeks ended April 25, 1998 of expenses primarily related to
compensation and other related benefits of the Company's Chairman, who
prior to the Recapitalization was Holding's principal stockholder, that
were eliminated after the Recapitalization.
(3) Gives effect to the increase in estimated interest expense from the use of
borrowings to finance the Recapitalization:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED SIXTEEN WEEKS
JANUARY 3, ENDED
1998 APRIL 25, 1998
--------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Interest and commitment fees on unused borrowings related to the New
Credit Facility, Senior Subordinated Notes and Series A
Debentures(a)............................................................. $39,914 $11,162
Amortization of debt issuance costs related to the New Credit Facility,
Senior Subordinated Notes and Series A Debentures......................... 2,648 743
Less: Interest expense in historical statement of operations related to
debt extinguished in connection with the Recapitalization................. (6,086) (1,617)
------- -------
$36,476 $10,288
======= =======
</TABLE>
______________________________
(a) Reflects (i) pro forma interest expense calculated using an interest rate of
8.15% per annum on the New Credit Facility, 10.25% per annum on the Senior
Subordinated Notes and 12.875% per annum on the Series A Debentures and (ii)
commitment fees on unused borrowings related to the New Credit Facility
using a rate of 0.5% per annum.
(4) Represents interest income on the loans to management for purchase of common
stock at an annual rate of 8.5%.
(5) Estimated income tax effects of the pro forma adjustments at an effective
tax rate of 40%.
(6) The effective rate reflected in the pro forma provision (benefit) for
income taxes differs from the statutory rate primarily due to nondeductible
interest expense and other permanent differences.
(7) EBITDA represents operating income plus depreciation and amortization
included in operating income. While EBITDA is not intended to represent cash
flow from operations as defined by GAAP and should not be considered as a
substitute for net income as a indicator of operating performance or as an
alternative to cash flow (as measured by GAAP) as a measure of liquidity,
Holding has included it herein to provide additional information with
respect to Holding's ability to meet its future debt service, capital
expenditure and working capital requirements. Holding's method for
calculating EBITDA may differ from similarly titled measures reported by
other companies. Pro forma EBITDA represents EBITDA, as defined above, plus
management's estimate of expenses primarily related to compensation and
other benefits of the Company's Chairman, who prior to the Recapitalization
was Holding's principal stockholder, that will not be incurred after the
Recapitalization, non-recurring management bonuses and other expenses
incurred in connection with the Recapitalization and other unusual expenses.
31
<PAGE>
The computation for pro forma EBITDA is set forth as follows:
<TABLE>
<CAPTION>
FISCAL
YEAR
ENDED SIXTEEN WEEKS
JANUARY 3, ENDED
1998 APRIL 25, 1998
-------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Historical EBITDA............................. $64,228 $ 6,781
Private company expenses(a)................... 3,056 845
Unusual medical claim(b)...................... 882 --
Non-recurring Recapitalization expenses (c)... -- 14,005
------- -------
Pro forma EBITDA $68,166 $21,631
======= =======
</TABLE>
(a) Reflects management's estimate of expenses primarily related to
compensation and other benefits of the Company's Chairman, who prior to
the Recapitalization was Holding's principal stockholder, that were
eliminated after the Recapitalization.
(b) Represents unusual medical claim that exceeded Holding's stop loss
insurance coverage, net of related increased insurance costs.
(c) Represents non-recurring management bonuses and other expenses incurred
in connection with the Recapitalization.
(8) EBITDAR represents EBITDA plus operating lease expense. Because the
proportion of stores leased versus owned varies among industry competitors,
the Company believes that EBITDAR permits a meaningful comparison of
operating performance among industry competitors. The Company leases
substantially all of its stores.
(9) Cash interest expense represents total interest expense excluding interest
in respect to the Series A Debentures and amortization of deferred debt
issuance costs.
(10) For purposes of computing the pro forma ratio of earnings to fixed charges,
earnings represents income before income taxes plus fixed charges. Fixed
charges consist of total interest expense (including amortization of
deferred debt issuance costs), and one-third of lease expense, which
management believes is representative of the interest component of lease
expense.
(11) Represents non-recurring expenses incurred in connection with the
Recapitalization which include: (i) management bonuses of $11.5 million
and (ii) other expenses incurred of $2.5 million.
32
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
------------------------------------
The following table sets forth selected consolidated statement of
operations, balance sheet and other operating data of Holding. The selected
consolidated financial data for each of the five fiscal years during the period
ended January 3, 1998 are derived from the audited financial statements of
Holding which have been audited by Arthur Andersen LLP. The selected
consolidated financial data for the sixteen weeks ended April 19, 1997 and April
25, 1998 are derived from financial statements that are unaudited and include,
in the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary to fairly present the data for such periods,
and are not necessarily indicative of the results expected for a full fiscal
year or for any future period. The data presented below should be read in
conjunction with the consolidated financial statements of Holding and the notes
thereto included herein, the other financial information included herein and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
FISCAL YEAR(1)
-------------------------------------------------------------------------------------
1993 1994 1995 1996 1997
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................ $365,241 $482,347 $602,559 $705,983 $848,108
Cost of sales........................ 227,750 297,444 369,962 437,615 524,586
Selling, general and
administrative expenses(2).......... 117,856 155,583 196,289 228,226 281,095
Expenses associated with the
Recapitalization.................... -- -- -- -- --
Operating income (loss).............. 19,635 29,320 36,308 40,142 42,427
Interest expense..................... 1,304 2,797 5,028 4,891 6,086
Other income (expense)............... 316 10,709 (1,155) 187 (321)
Income (loss) before income
taxes............................... 18,647 37,232 30,125 35,438 36,020
Income tax expense (benefit)......... 7,087 13,526 12,122 14,174 14,733
Net income (loss) (3)................ 11,560 23,706 18,003 21,264 21,287
OTHER DATA:
EBITDA(4)............................ $ 28,830 $ 42,568 $ 51,107 $ 57,641 $ 64,228
EBITDAR(5)........................... 44,669 64,770 82,291 96,249 112,538
Capital expenditures................. 25,316 25,781 42,939 44,264 48,864
Ratio of earnings to fixed
charges(6).......................... 3.83x 4.65x 2.95x 3.00x 2.62x
Total store square footage
(000s) (at period end)(7)........... 2,408 3,150 3,939 4,710 5,857
Percentage increase in
comparable store net
sales(8)............................ 17.3% 9.5% 1.7% 1.1% 5.1%
Net cash provided by (used
in) operating activities............ 7,510 (5,255) 23,128 28,018 42,415
Net cash used in investing
activities.......................... (25,275) (15,111) (40,144) (44,205) (48,799)
Net cash provided by (used
in) financing activities............ 19,460 18,809 23,643 11,132 6,954
Stores open at end of period......... 352 437 536 649 814
BALANCE SHEET DATA:
Net working capital(9)............... $ 54,345 $ 84,745 $ 97,572 $112,875 $114,581
Total assets......................... 196,812 237,712 295,088 394,395 461,832
Total debt (including current
maturities)......................... 54,119 68,500 93,251 105,861 111,096
Stockholders' equity (deficit)....... 59,536 83,180 101,121 122,323 143,548
</TABLE>
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED
---------------------------
APRIL 19, APRIL 25,
1997 1998
--------- ----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................ $239,151 $ 288,963
Cost of sales........................ 146,860 176,377
Selling, general and
administrative expenses(2).......... 82,034 99,286
Expenses associated with the
Recapitalization.................... -- 14,005
Operating income (loss).............. 10,257 (705)
Interest expense..................... 1,996 3,341
Other income (expense)............... (101) (4)
Income (loss) before income
taxes............................... 8,160 (4,050)
Income tax expense (benefit)......... 3,338 (1,698)
Net income (loss) (3)................ 4,822 (2,352)
OTHER DATA:
EBITDA(4)............................ $ 16,552 $ 6,781
EBITDAR(5)........................... 30,222 24,198
Capital expenditures................. 9,658 15,813
Ratio of earnings to fixed
charges(6)........ 2.25x --
Total store square footage
(000s) (at period end)(7)........... 4,895 6,180
Percentage increase in
comparable store net
sales(8)............................ 10.4% 3.9%
Net cash provided by (used
in) operating activities............ 11,684 18,211
Net cash used in investing
activities.......................... (9,599) (9,647)
Net cash provided by (used
in) financing activities............ (2,647) 23,148
Stores open at end of period......... 675 863
BALANCE SHEET DATA:
Net working capital(9)............... $ 98,472
Total assets......................... 575,357
Total debt (including current
maturities)......................... 395,249
Stockholders' equity (deficit)....... (104,671)
</TABLE>
33
<PAGE>
______________________
(1) Holding's fiscal year consists of 52 or 53 weeks ending on the Saturday
nearest to December 31. All fiscal years presented are 52 weeks except for
fiscal 1997, which consists of 53 weeks. Holding's first fiscal quarter
consists of 16 weeks.
(2) Fiscal 1997 amount includes an unusual medical claim that exceeded Holding's
stop loss insurance coverage. Holding has increased its stop loss coverage
effective January 1, 1998 to a level that would provide insurance coverage
for a medical claim of this magnitude. The pre-tax amount of this claim,
net of related increased insurance costs, was $0.9 million.
(3) Fiscal 1994 includes a net after-tax gain of $6.7 million on the sale of
equity securities of TBC Corporation, a distributor of automotive products
in which the Company held a minority equity ownership interest.
(4) EBITDA represents operating income plus depreciation and amortization
included in operating income. While EBITDA is not intended to represent
cash flow from operations as defined by GAAP and should not be considered as
a substitute for net income as an indicator of operating performance or as
an alternative to cash flow (as measured by GAAP) as a measure of liquidity,
Holding has included it herein to provide additional information with
respect to Holding's ability to meet its future debt service, capital
expenditure and working capital requirements. Holding's method for
calculating EBITDA may differ from similarly titled measures reported by
other companies.
(5) EBITDAR represents EBITDA plus operating lease expense. Because the
proportion of stores leased versus owned varies among industry competitors,
Holding believes that EBITDAR permits a meaningful comparison of operating
performance among industry competitors. Holding leases substantially all of
its stores.
(6) For purposes of computing the ratio of earnings to fixed charges, earnings
represents income (loss) before income taxes plus fixed charges. Fixed
charges consist of interest expense (including amortization of deferred debt
issuance costs) and one-third of lease expense, which management believes is
representative of the interest component of lease expense. The ratio of
earnings to fixed charges ratio has not been computed for the sixteen weeks
ended April 25, 1998 since earnings were not sufficient to cover fixed
charges. The coverage deficiency was $4,050.
(7) Total store square footage is based on Holding's actual store formats and
includes normal selling, office, stockroom and receiving space.
(8) Comparable store net sales data is calculated based on the change in net
sales of all stores opened as of the beginning of the preceding fiscal year.
Net stores become part of the comparable store base on the first day of
their second full fiscal year in operation. Relocations are included in
comparable store net sales from the date of opening. Increases for fiscal
1997 have been adjusted to exclude the effect of the fifty-third week.
(9) Net working capital represents total current assets excluding cash, cash
equivalents and marketable securities, less total current liabilities
excluding bank overdrafts, notes payable and current maturities of long-term
debt.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the consolidated financial
statements of Holding, the notes thereto and other data and information
appearing elsewhere in this Prospectus. Holding's fiscal year ends on the
Saturday nearest December 31. As used in this section, fiscal 1997 represents
the 53 weeks ended January 3, 1998; fiscal 1996 represents the 52 weeks ended
December 28, 1996; and fiscal 1995 represents the 52 weeks ended December 30,
1995. Holding's first quarter consists of 16 weeks.
GENERAL
The Company is the second largest retailer of automotive parts and
accessories in the United States with 863 stores in 16 states as of April 25,
1998. Based on store count, the Company believes it is the largest automotive
retailer in a majority of its markets.
The Company was formed in 1929 when the Company's founders purchased three
stores from Pep Boys and was acquired by Arthur Taubman in 1932. Nicholas F.
Taubman, Arthur Taubman's son and Holding's Chairman, assumed control of the
Company in 1969. In the 1980s, the Company sharpened its marketing focus to
target sales of automotive parts to DIY customers and accelerated its growth
strategy. As part of its growth strategy, the Company commissioned new store
designs with more efficient merchandising and inventory management, thereby
rationalizing the SKU count in each store. In addition, the Company's
distribution center was refurbished and upgraded to support planned expansion.
The Company has achieved significant growth through a focused store
expansion strategy of opening stores in new contiguous and selected existing
markets. Since accelerating its store expansion plan in 1992, the Company has
grown from the eighth largest to the second largest U.S. specialty retailer of
automotive parts, increasing its store count from 223 to 863.
In 1996, the Company made the decision to aggressively expand its sales to
the DIFM market by implementing a commercial delivery program, which is now in
place at 468 stores. Due to its success in rapidly building its commercial
delivery program, the Company will continue to expand this program, including
adding approximately 25 stores to the program in the remainder of 1998. The
Company believes it has significant competitive advantages in servicing the DIFM
segment because it has the distribution capacity and sophisticated information
systems necessary to efficiently stock, advertise and deliver a broad inventory
selection of brand name and quality private label parts.
The Company has also invested heavily in store, logistical and management
information systems. The Company has reengineered its POS system, implemented a
new store level inventory management system, installed a satellite
communications network, upgraded host systems and built additional distribution
centers. With these technological enhancements and the opening of a fourth
distribution center completed by the end of 1998, the Company will be able to
serve over 1,600 stores, satisfying expected store requirements in the
foreseeable future.
EFFECT OF THE RECAPITALIZATION
As a result of the Recapitalization, Holding has incurred approximately
$385.0 million in long-term debt and approximately $22.9 million in fees and
expenses, a portion of which was charged to operating and administrative
expenses during the fiscal quarter in which the Recapitalization was
consummated. The Recapitalization was reported as a recapitalization for
financial accounting purposes.
35
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the statement of operations data for Holding
expressed as a percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIXTEEN WEEKS ENDED
------------------------------------ --------------------
DECEMBER 30, DECEMBER 28, JANUARY 3, APRIL 19, APRIL 25,
1995 1996 1998 1997 1998
------------ ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales................................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................................ 61.4 62.0 61.9 61.4 61.0
----- ----- ----- ----- -----
Gross profit............................................. 38.6 38.0 38.1 38.6 39.0
Selling, general and administrative expenses............. 32.6 32.3 33.1 34.3 34.4
Expenses associated with recapitalization................ -- -- -- -- 4.8
----- ----- ----- ----- -----
Operating profit......................................... 6.0 5.7 5.0 4.3 (.2)
Interest expense......................................... 0.8 0.7 0.7 0.8 1.2
Other expense, net....................................... 0.2 0.0 0.0 0.1 --
Income tax expense (benefit)............................. 2.0 2.0 1.7 1.4 (0.6)
----- ----- ----- ----- -----
Income (loss)............................................ 3.0% 3.0% 2.5% 2.0% (0.8)%
===== ===== ===== ===== =====
</TABLE>
Net sales consists primarily of comparable store net sales, last year store
net sales, and new store net sales. New stores become part of the comparable
store base on the first day of their second full fiscal year in operation.
Holding's cost of goods sold includes merchandise costs and warehouse and
distribution expenses. Gross profit as a percentage of net sales may be
affected by variations in Holding's product mix, price changes in response to
competitive factors and fluctuations in merchandise costs and vendor programs.
Selling, general and administrative expenses are comprised of store
payroll, store occupancy, net advertising expenses, other store expenses and
general and administrative expenses, including salaries and related benefits of
corporate employees, administrative office expenses, data processing,
professional expenses and other related expenses.
Sixteen Weeks Ended April 25, 1998 Compared to Sixteen Weeks Ended April 19,
1997
Net sales for the sixteen weeks ended April 25, 1998 increased by $49.8
million, or 20.8%, over net sales, for the comparable sixteen weeks ended April
19, 1997. This increase was due to an increase in comparable store net sales of
3.9%, or $9.2 million, an increase in net sales from stores opened in fiscal
1997 of $35.5 million, the contribution of $5.9 million in net sales from stores
opened in fiscal 1998, and a decrease in miscellaneous net sales of $ .8
million. Net sales to commercial customers increased by 31.5% to $25.9 million
and by 19.5% to DIY customers. During the sixteen weeks ended April 25, 1998,
Holding opened 50 new stores, relocated 2 stores, remodeled 16 stores, and
closed one store. As of April 25, 1998, Holding operated 863 stores as compared
to 675 stores at April 19, 1997.
Gross profit for the sixteen weeks ended April 25, 1998 was $112.6 million,
or 39.0% of net sales, compared with $92.3 million, or 38.6% of net sales, for
the sixteen weeks ended April 19, 1997. The increase in the gross profit
percentage was primarily due to decreased warehouse and delivery expenses.
Selling, general and administrative expenses, for the sixteen weeks ended
April 25, 1998, increased by $17.3 million, as compared to the sixteen weeks
ended April 19, 1997, and, as a percentage of net sales, increased from 34.3% to
34.4%.
As part of the Recapitalization, $14.0 million in expenses were incurred
which related to the Recapitalization. This expense consisted of $11.5 million
of bonuses paid to certain employees for past
36
<PAGE>
performances, $0.2 million in related employment taxes and $2.3 million for non-
recurring expenses which consisted primarily of professional fees.
Operating profit decreased from $10.3 million, or 4.3% of net sales to a
loss of $0.7 million, or (0.2%) of net sales for the comparable time period due
to the expenses incurred with the Recapitalization. Excluding these expenses,
operating profit increased by 29.1% to $13.3 million, or, 4.6% of net sales, for
the sixteen weeks ended April 25, 1998, compared to the sixteen weeks ended
April 19, 1997, due to the factors cited above.
Interest expense, for the sixteen weeks ended April 25, 1998, was $3.3
million compared to $2.0 million, for the sixteen weeks ended April 19, 1997.
An income tax benefit of $1.7 million for the sixteen weeks ended April 25,
1998 was recorded, as compared to an expense of $3.3 million, for the sixteen
weeks ended April 19, 1997. The increase in the effective tax rate from 40.9%
for the sixteen weeks ended April 19, 1997 to 41.9% for the sixteen weeks ended
April 25, 1998 is the result of the changes made to the Company's structure
because of the Recapitalization.
As a result of the above factors, Holding incurred a net loss of $2.4
million, for the sixteen weeks ended April 25, 1998, as compared to net income
of $4.8 million, for the sixteen weeks ended April 19, 1997. As a percentage of
sales, the net loss for the sixteen weeks ended April 25, 1998 was (0.8%) as
compared to net income of 2.0%, for the sixteen weeks ended April 19, 1997.
Fiscal Year Ended January 3, 1998 Compared to Fiscal Year Ended December 28,
1996
Net sales for fiscal 1997 increased by $142.1 million, or 20.1%, over net
sales for fiscal 1996. This increase was due to an increase in comparable store
sales (adjusted to exclude the fifty-third week of 1997 which contributed total
sales of $15.6 million) of 5.1%, or $32.6 million, an increase in net sales from
stores opened in fiscal 1996 of $54.8 million, the contribution of $44.0 million
in net sales from stores opened in fiscal 1997, and a decrease in miscellaneous
net sales of $4.9 million. Comparable store net sales were enhanced by the
commercial delivery program and by increased average sales per customer. In
fiscal 1997, Holding opened 170 stores and also relocated 15 stores and
remodeled 27 stores. By fiscal year end 1997, Holding had 814 stores, as
compared to 649 stores at the end of fiscal 1996.
Gross profit for fiscal 1997 was $323.5 million, or 38.1% of net sales,
compared with $268.4 million, or 38.0% of net sales, for fiscal 1996. The
increase in the gross profit percentage was primarily due to decreased warehouse
and delivery expenses (5.68% of net sales in fiscal 1997 compared to 5.78% of
net sales in fiscal 1996) which resulted from the implementation of the
distribution center management system ("DCMS") and more efficient material
handling equipment in certain distribution centers. In addition, Holding was
able to offset lower gross profit margins in its commercial delivery business
with improved gross profit margins in its DIY business. Holding believes that
as its store count grows, it will achieve greater operating leverage from its
distribution centers, which management believes will support 1,600 stores by the
end of fiscal 1998.
Selling, general and administrative expenses for fiscal 1997 increased by
$52.9 million as compared to fiscal 1996 and, as a percentage of net sales,
increased from 32.3% to 33.1%. This increase as a percentage of net sales was
primarily due to the higher operating costs as a percentage of net sales of the
greater number of new stores that were in the early stage of maturation in
fiscal 1997, particularly the 58 stores opened in the fourth quarter of 1997.
In addition, the increase was partially attributed to increases in reserves for
self-insured medical and worker compensation plans.
Interest expense for fiscal 1997 was $6.1 million compared to $4.9 million
in fiscal 1996. Interest expense was affected by higher rates and increased
borrowings in fiscal 1997.
Income tax expense for fiscal 1997 was $14.7 million as compared to $14.2
million for fiscal 1996, with effective tax rates of 40.9% and 40.0%,
respectively. This increase was primarily due to increasing tax reserves.
37
<PAGE>
As a result of the above factors, net income of $21.3 million was recorded
in fiscal 1997 as compared to $21.3 million for fiscal 1996. As a percentage of
sales, net income for fiscal 1997 was 2.5% as compared to 3.0% for fiscal 1996.
Fiscal Year Ended December 28, 1996 Compared to Fiscal Year Ended December 30,
1995
Net sales for fiscal 1996 increased by $103.4 million, or 17.2%, over net
sales for fiscal 1995. This increase was due to an increase in comparable sales
of 1.1%, or $6.2 million, an increase in net sales from stores opened in fiscal
1995 of $39.1 million, the contribution of $53.9 million in net sales from
stores opened in fiscal 1996, and an increase in miscellaneous net sales of $4.2
million. Comparable store net sales were enhanced by the roll-out of Holding's
commercial delivery program in the second half of fiscal 1996. However, this
increase was negatively impacted by cannibalization of net sales of existing
stores by net sales of new Holding stores and competitive new store openings.
Holding believes that although "in market" openings cannibalize sales in
existing stores, these openings serve to increase overall market share and
leverage fixed expenses. Holding opened 115 new stores in fiscal 1996 and also
relocated three stores and remodeled 35 stores. By fiscal year end 1996,
Holding had 649 stores as compared to 536 stores at the end of fiscal 1995.
Gross profit for fiscal 1996 was $268.4 million, or 38.0% of net sales,
compared with $232.6 million, or 38.6% of net sales, during fiscal 1995. The
decrease in the gross profit percentage was primarily due to increased warehouse
and delivery expenses (5.78% of net sales in fiscal 1996 compared to 5.25% of
net sales in fiscal 1995) and volatility in the freon market. Warehouse and
delivery expenses increased due to opening a new distribution center and
increasing service levels to stores which prior to implementation of the DCMS
required significant amounts of incremental labor expense. See "Business--
Management Information Systems."
Selling, general and administrative expenses for fiscal 1996 increased by
$31.9 million as compared to fiscal 1995 and, as a percentage of net sales,
decreased from 32.6% to 32.3%. The decrease as a percentage of net sales was
primarily due to increased vendor support for advertising and marketing.
Additionally, in fiscal 1995, Holding spent considerable resources in developing
and rolling out its reengineered POS system and satellite communication network.
Interest expense for fiscal 1996 was $4.9 million compared to $5.0 million
in fiscal 1995. Interest was affected by lower interest rates in fiscal 1996,
but higher average debt balances compared to fiscal 1995.
Income tax expense for fiscal 1996 was $14.2 million as compared to $12.1
million for fiscal 1995, with effective tax rates of 40.0% and 40.2%,
respectively.
As a result of the above factors, net income of $21.3 million was recorded
in fiscal 1996 as compared to $18.0 million for fiscal 1995. As a percent of
sales, net income for fiscal 1996 was 3.0% as compared to 3.0% for fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
Holding's primary capital requirements have been the funding of its
continued store expansion program, store relocations and remodels, inventory
requirements, the construction and upgrading of distribution centers and the
development and implementation of proprietary information systems. From 1995 to
1997, Holding opened 389 stores, constructed a new distribution center,
completed approximately 80% of another new distribution center and expanded its
Roanoke distribution center. Holding has financed its growth through a
combination of internally generated funds and borrowings. Net cash provided by
operating activities was $18.2 million in the sixteen weeks ended April 25,
1998, $42.5 million in fiscal 1997, $28.0 million in fiscal 1996, and $23.1
million in fiscal 1995.
Holding's new stores require capital expenditures of approximately $120,000
per store and an inventory investment of approximately $400,000 per store. A
substantial portion of these inventories are financed through vendor payables.
Pre-opening expenses, consisting primarily of store set-up costs and training of
new store employees, average approximately $25,000 per store and are expensed
when incurred.
38
<PAGE>
Historically, Holding has negotiated extended payment terms from suppliers
to finance inventory growth, and Holding believes that it will be able to
continue financing much of its inventory growth through such extended payment
terms after the Recapitalization. Holding anticipates that inventory levels
will continue to increase primarily as a result of new store openings and
increased SKU levels.
In fiscal 1995, net cash provided by operating activities was $23.1
million. Of this amount, $18.0 million was due to net income. Depreciation and
amortization provided an additional $14.8 million of funds and $9.7 million was
used for working capital. Net cash used for investing activities was $40.1
million and was comprised primarily of capital expenditures. Net cash provided
by financing activities was $23.6 million and was comprised primarily of net
borrowings.
In fiscal 1996, net cash provided by operating activities was $28.0
million. Of this amount, $21.3 million was due to net income. Depreciation and
amortization provided an additional $17.5 million of funds and $10.8 million was
used for working capital. Net cash used for investing activities was $44.2
million and was comprised primarily of capital expenditures. Net cash provided
by financing activities was $11.1 million and was comprised primarily of net
borrowings.
In fiscal 1997, net cash provided by operating activities was $42.5
million. Of this amount, $21.3 million was due to net income. Depreciation and
amortization provided an additional $21.8 million of funds and $0.6 million was
used for working capital. Net cash used for investing activities was $48.8
million and was comprised of capital expenditures. Net cash provided by
financing activities was $7.0 million and was comprised primarily of payments on
borrowings.
For the sixteen weeks ended April 25, 1998, net cash provided by operating
activities was $18.2 million, which consisted primarily of net working capital
of $12.8 million, depreciation and amortization of $7.8 million, and a net loss
of $2.4 million. Net cash used for investing activities was $9.6 million and
consisted primarily of $15.8 million for capital expenditures, offset by
proceeds of $4.1 million from the sale of a corporate airplane and $2.0 million
from the sale of investments. Net cash provided by financing activities was
$23.1 million and was primarily the result of the Recapitalization. See
"Summary--The Recapitalization."
Holding believes it will have sufficient liquidity to fund its debt service
obligations and implement its growth strategy over the next several years.
Holding and the Company have outstanding indebtedness consisting of $60.0
million of Series A Debentures, $200.0 million of Senior Subordinated Notes,
borrowings of $125.0 million under the New Credit Facility and the IRB. The
Senior Subordinated Notes bear interest at a rate of 10.25%, payable
semiannually, and require no principal repayments until maturity. See
"Description of Other Indebtedness." The $10.0 million principal amount IRB
bears interest at a variable rate and requires no principal payments until
maturity in November 2002. In addition to its operating cash flow, the Company
has access to a total of $250.0 million through the New Credit Facility. The
New Credit Facility provides for (i) a $125.0 million Tranche B term loan, which
was made at the closing of the Recapitalization; (ii) a revolver with maximum
borrowings of approximately $125.0 million, a minimal amount of which was drawn
(including in connection with the replacement of outstanding letters of credit
in the amount of approximately $2.0 million) in connection with the
Recapitalization; and (iii) a $125.0 million delayed draw term loan, $50.0
million of which is available to the Company through October 15, 1999 and $75.0
million of which is available to the Company through April 15, 2001. The term
loan facilities, other than the Tranche B term loan, will mature on the sixth
anniversary of initial borrowing, and the Tranche B term loan will mature on the
eighth anniversary of initial borrowing. Annual principal payments on the term
loan facilities prior to the sixth anniversary of initial borrowing will be
nominal; thereafter, required principal payments will be approximately $149.0
million in 2004, $60.0 million in 2005 and $30.0 million in 2006, assuming the
term loan facilities have been fully borrowed. The revolving loan facility will
mature on the sixth anniversary of initial borrowing. None of the delayed draw
term loans have been drawn in connection with the Recapitalization. The loans
under the New Credit Facility are secured by a first priority security interest
in substantially all tangible and intangible assets of the Company. Amounts
available to the Company under the revolver and delayed draw term loans are
subject to a borrowing base formula which is based on certain percentages of the
Company's inventories. The Company intends to use borrowings under the revolver
and delayed draw term loans for store expansion and funding of working capital.
See "Description of Other Indebtedness."
39
<PAGE>
As a holding company, Holding relies on dividends from the Company as its
primary source of liquidity. Holding does not have and in the future may not
have any assets other than the capital stock of the Company. The ability of the
Company to pay cash dividends to Holding when required is restricted by law and
the terms of the Company's debt instruments, including the New Credit Facility
and the Senior Subordinated Notes. No assurance can be made that the Company
will be able to pay cash dividends to Holding when required on the Series B
Debentures. See "Risk Factors--Limitation on Access to Cash Flow from
Subsidiaries; Holding Company Structure."
QUARTERLY RESULTS AND SEASONALITY
Holding's business is somewhat seasonal in nature, with the highest sales
occurring in the spring and summer months. In addition, Holding's business is
affected by weather conditions. While unusually heavy precipitation tends to
soften sales as elective maintenance is deferred during such periods, extremely
hot and cold weather tends to enhance sales by causing parts to fail.
The following table sets forth certain quarterly unaudited operating data
of Holding for fiscal 1996 and fiscal 1997. The first quarter consists of 16
weeks and the other three quarters consist of 12 weeks. The unaudited quarterly
information includes all adjustments which management considers necessary for a
fair presentation of the information shown. The data presented below should be
read in conjunction with the consolidated financial statements, including the
related notes thereto included herein and the other financial information
included herein.
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1997
---------------------------------------- -----------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales................. $191,817 $174,717 $177,274 $162,175 $239,151 $196,729 $206,409 $205,819
Gross Profit.............. 75,555 65,735 63,975 63,103 92,291 75,391 77,717 78,123
Operating Income.......... 8,854 12,777 8,572 9,939 10,257 11,947 10,311 9,912
Net Income................ 4,380 7,084 4,520 5,280 4,822 6,133 5,335 4,997
EBITDA.................... 14,315 17,051 12,772 13,503 16,552 16,915 15,376 15,385
</TABLE>
YEAR 2000 STRATEGY
A significant percentage of the software that runs most of the
computers in the United States relies on two-digit date codes to perform
computations and decision-making functions. Commencing on January 1, 2000,
these computer programs may fail from an inability to interpret date codes
properly, misinterpreting "00" as the year 1900 rather than 2000. Holding is in
the process of identifying all necessary software changes to ensure that it does
not experience any loss of critical business functionality due to the Year 2000
issue. Holding has appointed an internal Year 2000 project manager and adopted
a three phase approach of assessment, correction and testing. The scope of the
project includes all internal software, hardware, operating systems, and
assessment of risk to the business from vendors and other partners' Year 2000
issues. Holding believes that this formal assessment (including prioritization
by business risk), correction (including conversions to new software), and
testing of necessary changes will minimize the business risk of Year 2000 from
internal systems. Although Holding has not yet completed its Year 2000 project,
Holding does not believe that the Year 2000 issue will cause any systems
problems that could have a material adverse effect on the operation of Holding.
Holding plans on completing its Year 2000 conversion not later than June 30,
1999.
40
<PAGE>
BUSINESS
GENERAL
The Company is the second largest specialty retailer of automotive parts
and accessories in the United States and, as of April 25, 1998, had 863 stores
in 16 states operating under the "Advance Auto Parts" name. The Company has
achieved significant growth through a focused store expansion strategy of
opening stores in new contiguous and selected existing markets. Since
accelerating its store expansion plan in 1992, the Company has grown from the
eighth largest to the second largest U.S. specialty retailer of automotive
parts, increasing its store count from 223 to 863. From fiscal 1992 through
fiscal 1997, the Company increased sales and pro forma EBITDA by a compound
annual growth rate of 29.3% and 28.4%, respectively. In addition, the Company
has aggressively implemented its commercial delivery program to penetrate the
DIFM segment of the automotive aftermarket. The Company, which is the largest
automotive retailer in a majority of its markets based on store count, has
expanded from its original geographic base of North Carolina, South Carolina,
Tennessee and Virginia to also operate in Alabama, Arkansas, Florida, Georgia,
Indiana, Kentucky, Maryland, Michigan, Mississippi, Ohio, Pennsylvania and West
Virginia. For fiscal 1997, net sales and pro forma EBITDA were $848.1 million
and $68.2 million, respectively.
The Company believes that it has successfully established customer loyalty
in its markets by providing high levels of customer service, by offering an
extensive selection of brand name and quality private label products at
competitive prices and by creating strong name recognition, all of which are
reinforced by targeted regional advertising. In addition, the Company believes
that its size provides numerous competitive advantages over smaller retail
chains and independent operators, which make up a majority of its competitors.
These advantages include: (i) greater product availability, (ii) purchasing
economies, (iii) economies of scale with respect to advertising, distribution
and warehousing, and (iv) a greater number of convenient locations with longer
store hours. The Company has expanded on these advantages by investing heavily
in employee training and information systems, which are designed to support the
Company's commitment to superior customer service.
The automotive aftermarket is a highly fragmented industry with the top 10
retail chains accounting for approximately 10% of the industry's approximately
$78.0 billion in annual sales. The Company believes that the industry is
consolidating as national and regional specialty retail chains gain market share
at the expense of smaller independent operators and less specialized mass
merchandisers. The Company primarily serves the approximately $34.0 billion
retail DIY segment of the automotive aftermarket, which the Company believes has
historically been characterized by stable, recession-resistant demand. In
addition, in 1996, the Company implemented a commercial delivery program to
capitalize on the approximately $44.0 billion commercial or DIFM segment of the
automotive aftermarket. The Company has aggressively implemented this program
in 468 stores and expects to add approximately 25 stores to the program in 1998.
The Company serves its commercial delivery customers from its existing store
base, which allows the Company to leverage its existing fixed costs and in-store
personnel with minimal capital outlay.
AUTOMOTIVE AFTERMARKET INDUSTRY
The automotive aftermarket industry includes batteries, replacement parts,
accessories and chemicals for cars and trucks. According to industry estimates,
the size of the automotive aftermarket for replacement parts, maintenance items
and accessories is approximately $78.0 billion per year. The market is
generally segregated into two major segments based upon the end-user customer
base: the DIY segment and the DIFM segment. The DIY portion of this market is
estimated to be $34.0 billion per year and the DIFM segment to be $44.0 billion
per year. The Company believes that the automotive aftermarket for batteries
and replacement parts, maintenance items and accessories is growing due to
several factors, including: (i) increasing size and age of the country's
automotive fleet; (ii) increasing number of miles driven annually per vehicle;
(iii) higher cost of new cars as compared to historical costs; (iv) higher cost
of replacement parts as a result of technological changes in recent makes and
models of vehicles; (v) increasing labor costs associated with replacement
parts, installation and maintenance; (vi) increasing need for refurbishing and
tuning of vehicles primarily due to the popularity of leasing; and (vii)
proliferation of parts due to increased vehicle diversity.
41
<PAGE>
The automotive aftermarket distribution channels are highly fragmented in
both the DIFM and DIY segments. However, the Company believes that the industry
is consolidating as national and regional specialty retail chains gain market
share at the expense of small independent operators and less specialized mass
merchandisers. Automotive specialty retailing chains, such as the Company,
enjoy competitive advantages in purchasing, distribution, advertising and
marketing compared to most small independent retailers, regional chains and mass
merchandisers. The increase in recent years in the variety of domestic and
imported vehicle makes and models has made it difficult for smaller independent
retailers and less specialized mass merchandise chains to maintain an inventory
selection broad enough to meet customer demands. The Company believes that
availability, convenience, quality and price continue to be the key attributes
attracting both DIY and DIFM customers. Automotive specialty retail chains,
such as the Company, are in a favorable competitive position because they have
the distribution capacity and sophisticated information systems necessary to
efficiently stock, advertise and deliver a broad selection of brand name and
quality private label products to all market segments.
OPERATING STRATEGY
The Company's operating strategy focuses on serving its customers and
capitalizing on its position as a leading automotive aftermarket retailer. The
Company's key operating objectives are to:
Provide Superior Customer Service. The Company believes that its customers
place significant value on technical knowledge and service. Due to increased
vehicle diversity and automotive parts proliferation, customers increasingly
rely on well-trained sales associates to offer knowledgeable assistance in
product selection and use. To serve this need, Company employees participate in
continuous training programs, including formal classroom workshops, seminars and
ASE certification to build technical, managerial and customer service skills.
In addition, the Company has customer service measurement systems and
recognition programs for division managers, store managers, sales associates and
other employees to measure and encourage overall customer satisfaction.
Offer Broad Selection of Quality Products. The Company offers a broad
selection of brand name and quality private label automotive parts and other
products designed to cover a wide range of vehicles. At the end of fiscal 1997,
substantially all of the Company's stores offered between 15,000 to 16,000 in-
store SKUs supplemented by approximately 36,000 SKUs available on a next-day
delivery basis to substantially all of its stores through the Company's PDQ(R)
system. The Company is currently implementing an SKU expansion strategy such
that, by the end of 1998, the Company will offer to its customers on a same day
basis a range of 20,000 to 21,000 SKUs in substantially all of its stores and
approximately 100,000 SKUs through its PDQ(R) system. The store SKU expansion
will be supported by (i) the roll-out of "hub" stores with approximately 4,000
additional SKUs, which will generally be available on an immediate or same day
basis to other area stores, and (ii) daily restocking of these additional SKUs.
In addition, the Company is expanding the PDQ(R) system with the opening of a
master PDQ(R) facility which will initially provide approximately 70,000 SKUs
and will have the capacity to offer up to 200,000 SKUs. The majority of the
expanded SKUs will be replacement parts which generally have higher gross
margins than accessories and other products. The Company believes that the SKU
expansion program will be an important competitive advantage, particularly with
respect to the commercial delivery program.
Capitalize on Strong Vendor Relationships and Merchandising Expertise. The
Company has consistently been able to negotiate lower product costs and improved
purchasing terms due to its ability to successfully grow its store base and
existing business. These favorable purchasing relationships enable the Company
to employ an everyday low price strategy with an emphasis on being a price
leader in replacement parts. The Company purchases from over 200 different
vendors with no single vendor accounting for 10% or more of purchases. The
Company's merchandising staff focuses on offering customers a broad selection of
products displayed in a manner designed to enhance sales. The Company
continually measures store productivity and is able to rapidly roll out sales
enhancing displays or other merchandising changes to all of its stores.
Employ Advanced Information Technology and Logistics Systems. Since
1992, the Company has invested significantly in its information technology and
logistics systems to facilitate its rapid growth by enhancing customer service,
increasing in-stock SKUs and providing for a broad product selection with same
day or next day delivery. As a result, use of these systems has helped to
increase the Company's average customer sale from $10.86 in fiscal 1992 to
$14.28 in fiscal 1997. In addition, these systems facilitate rapid expansion of
the Company's store base
42
<PAGE>
by improving operating efficiencies. The Company has nearly completed
converting its distribution centers from a labor intensive system to a
technologically advanced, fully integrated system with real time software and
modern material handling equipment. With these technological enhancements and
the opening of a fourth distribution center completed by the end of 1998, the
Company will be able to service over 1,600 stores, satisfying expected store
requirements for the foreseeable future.
GROWTH STRATEGY
As the Company pursues its expansion plan, management believes it will
continue to benefit from greater purchasing economies and an increased ability
to leverage advertising and logistics expenses. The Company will continue to
focus on the following key areas in implementing its growth strategy.
Continue New Store Growth. The Company's new store growth strategy is
focused on penetrating targeted new geographic areas with multiple store
openings, while continuing to open additional stores in selected existing
territories to increase its market share. The Company believes that the highly
fragmented nature of the retail automotive aftermarket industry allows it to
quickly establish itself in new markets and to increase its market penetration
in existing markets. The Company opened 170 stores in 1997, 50 stores in 1998
and plans to open approximately 125 stores in the remainder of fiscal 1998. To
further support its growth, the Company expects to begin television advertising
on a national basis in late 1998. The Company believes that its proven ability
to effectively select new markets and store locations and quickly open new
stores will allow it to double its store base in approximately five years.
Pursue Acquisitions. To augment its store growth strategy, the Company
intends to continue to pursue growth opportunities through selected acquisitions
when such acquisitions provide a quicker and more economic alternative to new
store openings. The fragmented nature of the automotive aftermarket industry
creates significant acquisition opportunities in existing and new markets. The
Company believes it can increase revenues and profitability of acquired stores
by leveraging its established infrastructure and improving stocking levels,
merchandising and customer service. Since 1994, acquisitions have accounted for
approximately 10% of the Company's new store openings.
Increase Commercial Sales. In 1996, the Company focused its marketing
efforts on expanding sales to the DIFM segment of the automotive aftermarket,
which the Company believes represents approximately 56% of the automotive
aftermarket. Since 1996, the Company has added its commercial delivery program
to 468 stores. Due to its success in rapidly building its commercial sales
program, which currently represents approximately 10% of sales, the Company will
continue to expand this program, including adding approximately 25 stores in the
remainder of 1998. The Company serves its commercial delivery customers through
its existing store base which allows the Company to effectively leverage its
store-level costs. Commercial delivery customers order parts via a telephone
call to a Company store, and orders are delivered usually in less than an hour
in a Company truck. The Company's experience and market research indicate that
its broad selection of quality parts at competitive prices, knowledgeable sales
assistance, quick, accurate delivery, and the availability of credit are
important competitive advantages in serving the commercial delivery customer.
Grow Same Store Sales. The Company believes that it can grow its same
store sales by (i) expanding product availability at the store level and through
the Company's PDQ(R) distribution system; (ii) continuing to implement its
commercial delivery program (as described above); and (iii) increasing name
recognition. The Company believes that expanding its product offerings through
increased SKU availability will enhance sales by (a) decreasing the likelihood
of a lost sale due to not stocking an item and (b) attracting customers,
particularly commercial delivery customers, who require hard to find replacement
parts and brand names. In addition, the Company believes that its market
penetration strategy and regional advertising will continue to build broad name
recognition and increase sales.
43
<PAGE>
STORE LOCATION AND DEVELOPMENT STRATEGY
The Company's new market expansion strategy is focused on new markets that
are contiguous to existing markets. These new markets can be efficiently served
by the Company's existing distribution and operational infrastructure and
supported by its existing managerial resources and brand recognition. The
Company conducts extensive analyses to evaluate and prioritize potential new
markets. Key criteria reviewed include the availability of quality locations
necessary to reach critical mass in a market, competitive factors, the
availability of labor and the ability to serve a market efficiently from
existing distribution centers.
As part of its store growth program, the Company has developed a
comprehensive strategy for selecting new store sites. The Company's in-house
real estate department conducts extensive market research in identifying and
evaluating, among other considerations, competition, population diversity and
income and selected automotive purchases per household. The time frame required
for developing a new store site typically ranges from six to twelve months from
the initial visit through store opening.
In addition to opening new stores, the Company will continue to develop new
markets by making selective acquisitions which allow it to penetrate markets in
a timely and cost-effective manner without adding additional retail square
footage to such markets.
The following table illustrates the Company's store expansion program from 223
stores in 1992 to 814 stores in 1997, reflecting a 24.1% compounded annual
growth rate.
<TABLE>
<CAPTION>
FISCAL YEARS
--------------------------------------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Beginning stores............................................ 223 273 352 437 536 649
New stores openings......................................... 51 81 90 104 115 170
Closed stores............................................... (1) (2) (5) (5) (2) (5)
---- ---- ---- ---- ---- ----
Ending stores............................................... 273 352 437 536 649 814
Acquired stores (included in new store openings)............ 1 -- -- 16 2 22
Remodeled stores............................................ 19 61 52 6 35 27
Relocated stores............................................ 6 8 6 18 3 15
Percentage of new, relocated or remodeled stores within
last five years............................................ 97%
Number of states doing business in.......................... 7 8 9 9 10 14
Stores with commercial delivery program..................... -- -- -- -- 213 421
</TABLE>
MARKETING AND ADVERTISING
The Company has an extensive marketing and advertising program designed to
promote its competitive prices, broad product offerings, and commitment to
customer service. The Company uses a combination of print, radio and television
advertising and in-store promotional displays to reinforce the Company's image
and name recognition. Television advertising is targeted on a regional basis to
sports programming and radio advertising is primarily aired during peak drive
times. The Company utilizes several sports celebrities in its regional
advertising campaigns, including Lynn Swann, Bobby Allison, Hank Aaron, Archie
Griffin, Gene Stallings, Pat Dye and Sterling Marlin. The Company is a sponsor
of major sporting events and teams such as NASCAR, the Southern Conference
Basketball Tournament and the Pittsburgh Steelers.
44
<PAGE>
The Company has recently implemented a proprietary credit card program for
its commercial delivery program customers. The Company believes that this
program will increase brand awareness and customer loyalty and will be an
important marketing tool and competitive advantage in the commercial delivery
business.
In addition, the Company has recently developed a new marketing program to
support store openings. This plan is customized for each store opening and
includes a minimum of 12 weeks of grand opening promotions including television,
print, radio broadcasts, giveaways and celebrity appearances and promotions.
The Company believes that this plan has been successful in accelerating
awareness and customer traffic in its new stores. The plan will continue to be
utilized for all store openings.
STORE OPERATIONS
The retail store is the focal point of the Company's operations. Although
the Company is more than 68 years old, its stores and retail presentations have
been built, relocated or remodeled, on average, within the last five years. The
Company's stores generally are located in or adjacent to good visibility, high
traffic strip shopping centers. Stores generally range in size from 5,000 to
10,000 square feet, averaging approximately 7,200 square feet, and currently
offer between 15,000 and 16,000 SKUs. The Company's stores are divided into six
districts which are supervised by a District Vice President or Assistant Vice
President. Reporting to district management are Division Managers who have
direct responsibilities for their stores. A typical division consists of 14 to
18 stores. Depending on store size and sales volume, each store is staffed by 8
to 30 employees under the leadership of a store manager. Stores generally are
open seven days a week from 8am to 8pm.
The Company's stores are currently located as follows:
Location At April 25, 1998
-------- -----------------
North Carolina 155
Virginia 120
Georgia 111
Tennessee 93
South Carolina 90
Kentucky 56
Ohio 56
West Virginia 54
Alabama 51
Pennsylvania 50
Michigan 13
Indiana 7
Mississippi 3
Maryland 2
Florida 1
Arkansas 1
---
Total 863
MANAGEMENT INFORMATION SYSTEMS
In fiscal 1993, the Company began building a technology infrastructure to
support its store growth strategy. This infrastructure is composed of software
and hardware designed to integrate store, distribution and vendor services into
a seamless customer service network. Stores, host computers and distribution
centers are linked via a satellite and a leased line communications center.
45
<PAGE>
STORE BASED INFORMATION SYSTEMS
The Company's store based information systems, which are designed to
improve the efficiency of its operations and enhance customer service, are
comprised of Point-of-Sale ("POS"), Electronic Parts Catalogs ("EPC") and Store
Level Inventory Management ("SLIM") systems and a satellite communications
network. These systems are tightly integrated and together provide real time,
comprehensive information to store personnel, resulting in improved customer
service levels and in-stock availability.
Point-of-Sale: The Company's POS system was originally installed in 1981,
enhanced over the years and reengineered in 1995. This system has improved
store productivity and customer service by streamlining store procedures. The
POS system gathers sales and gross profit data by SKU on a daily basis. This
information is used to formulate the Company's pricing, marketing and
merchandising strategies as well as to rapidly replenish inventory. The POS
system and automated reordering have been instrumental in increasing store in-
stock position. The Company believes that the automation of the reorder process
has decreased the time and labor required for store inventory management.
Additionally, the POS system maintains a customer purchase and warranty history
database which is used for targeted marketing programs.
Electronic Parts Catalog: The EPC system is a software based system that
identifies the application, location and availability of over 1.5 million parts
enabling sales associates to assist customers in parts selection and ordering
based on the year, model, engine type and application needed. The EPC system
displays an identified part and its inventory status, and if the part is not
available at the store, its availability through PDQ/(R)/. The EPC system also
displays related parts for sales associates to recommend to a customer, leading
to increased average customer sales. The integration of this system with the
POS system improves customer service by reducing time spent at the cash register
and fully automating the sales process between the parts counter and the POS
register. Additionally, this system will allow sales associates to order parts
electronically with immediate confirmation of price, availability and delivery.
Information about a customer's automobile can be entered into a permanent
customer database that can be accessed immediately whenever the customer visits
or phones the store.
Store Level Inventory Management System: The SLIM system, which provides
real-time inventory tracking at the store level, was implemented in September
1997. With SLIM, store personnel can check the quantity of on-hand inventory
for any SKU, automatically process returns and defective merchandise, designate
SKUs for cycle counts and track merchandise transfers. With this system, the
Company is able to achieve an average store level inventory in-stock position in
excess of 98%.
Satellite Communications Network: In 1995, the Company established a
satellite communications network linking all of its stores with its corporate
office. The satellite network enables the Company to efficiently obtain from
and deliver to its stores all file transfers, including price changes, sales
information and interactive transactions such as electronic parts ordering. The
system also broadcasts common files to all stores to update the EPC system.
Additionally, the satellite network significantly increases the speed of credit
card and check authorization transactions.
LOGISTICS AND PURCHASING INFORMATION SYSTEMS
The Company has installed its Distribution Center Management System
("DCMS") in the Roanoke, Virginia and Jeffersonville, Ohio distribution centers
in 1996 and plans to install it in the Gadsden, Alabama and Thomson, Georgia
distribution centers in 1998. Upon full implementation, the Company will have
converted its distribution centers from a manual, labor intensive, paper-based
system to a technologically advanced, fully integrated real-time software
management system. Receiving and storage management functions are enhanced by
system-directed putaway and radio frequency technology and by advance vendor
shipping notices. This system allows merchandise to be selected through a
paperless system which utilizes "pick to light," radio frequency and carousel
material handling technology and then moves merchandise to the shipping dock via
conveyor and an automated sortation system. The DCMS, together with new
material handling equipment, significantly reduces warehouse and distribution
costs while improving efficiency. Quantifiable improvements have included an
increase in inventory fill rate from 93% to 97% with a significantly reduced
inventory level and reduction in average receipt putaway time
46
<PAGE>
from over 48 hours to less than 12 hours and an over 6% reduction in payroll per
store serviced. Using this technology the Company will be able to service 1,600
stores from its four distribution centers.
The E3 Replenishment System, which was implemented in 1994, monitors the
Company's distribution center and PDQ/(R)/ warehouse inventory levels and orders
additional products when appropriate. In addition, the system tracks sales
trends by SKU, allowing the Company to adjust future orders to evolving demand.
This system, together with DCMS and material handling equipment, allowed the
Company to decrease its average distribution backup inventory per store by 22%
in fiscal 1997.
PURCHASING
Merchandise is selected and purchased for all stores by personnel at the
Company's corporate headquarters in Roanoke, Virginia. In fiscal 1997, the
Company purchased from over 200 vendors, with no single vendor accounting for
10% or more of purchases.
The Company's purchasing team is led by a group of five senior
professionals, with an average of over 18 years of automotive purchasing
experience. This group currently sources products throughout the world and
focuses on reducing product acquisition costs at all levels without sacrificing
quality. This purchasing team has been able to leverage freight and handling
costs through the use of efficient purchasing patterns and strong vendor
relationships. To monitor current market trends, buyers spend two days per month
visiting and working in retail stores and distribution centers.
The Company's purchasing strategy involves negotiating multi-year
agreements with certain vendors based upon its expansion plans. By negotiating
with a larger purchasing power base and with the proven credibility of meeting
growth objectives year after year, the Company is able to achieve percentage
discounts and other favorable terms on purchases.
MERCHANDISING
The Company's merchandising effort is focused on building market share by
providing a broad selection of brand name and quality private label products at
everyday low prices. The Company offers these products at conveniently located
and attractively designed stores, supported by highly trained, efficient and
courteous customer service personnel.
The Company's objective is to carry a broad selection of brand name
products, including Fram-Bendix-Autolite, Fel-Pro Incorporated, Federal-Mogul
Corporation and AC Delco, that generate customer traffic and have strong appeal
to its commercial delivery customers. In addition, the Company stocks a wide
selection of high quality private label products that appeal to value conscious
customers. Sales of replacement parts account for approximately 65% of the
Company's sales and generate higher gross profit margins than maintenance items
or general accessories. The Company believes that its percentage of sales of
replacement parts will increase in the future due primarily to an increased SKU
count in the replacement parts category and increased sales to commercial
delivery customers.
The Company determines its product mix based on a merchandising program
designed to identify the optimal inventory mix at each individual store based on
that store's historical sales. The Company believes that it can continue to
improve store sales, gross profit margin and inventory turnover by further
tailoring individual store inventory mix based on historical sales patterns.
WAREHOUSE AND DISTRIBUTION
The Company currently operates three main distribution facilities located
in Roanoke, Virginia, Gadsden, Alabama and Jeffersonville, Ohio. A fourth
distribution center is currently under construction in Thomson, Georgia and is
expected to open in late 1998. On average, each distribution center is able to
serve approximately 400 stores.
47
<PAGE>
All distribution centers are equipped with technologically advanced
material handling equipment, including carousels, "pick-to-light" systems, radio
frequency technology and automated sortation systems. The Roanoke, Virginia and
Jeffersonville, Ohio distribution centers operate with an advanced paperless
software system. These systems and equipment significantly reduce warehouse and
distribution costs, while providing the Company with sufficient capacity to meet
the requirement of its growth plans for the foreseeable future. The
distribution centers consistently maintain approximately 97% order fill on all
items and approximately 99% order fill on key items.
In addition, the Company believes it has a competitive advantage by
offering over 36,000 SKUs on a next day basis to substantially all of its stores
via its four PDQ/(R)/ warehouses. Stores place orders to these facilities by
phone, and ordered parts are delivered to the store the next day through the
Company's dedicated PDQ/(R)/ trucking fleet. During 1998, the Company plans to
open a new PDQ/(R)/ warehouse that will stock approximately 100,000 SKUs
(expandable up to 200,000 SKUs) of harder to find automotive parts and
accessories. This facility will be known as the "master PDQ(R)" warehouse and
will utilize existing PDQ(R) distribution infrastructure to provide next day
service to substantially all the Company's stores. In addition, with the
opening of the master PDQ(R) warehouse, the Company will replace the phone
ordering system currently utilized by the PDQ(R) program with an on-line
ordering system, which the Company expects will reduce labor costs and enhance
customer service.
The following table sets forth certain information relating to the
Company's main distribution facilities:
<TABLE>
<CAPTION>
OPENING SIZE
DISTRIBUTION FACILITY DATE AREA SERVED (SQ. FT.)
- ------------------------------------------ ------- ----------- ---------
<S> <C> <C> <C>
MAIN DISTRIBUTION CENTERS
Roanoke, Virginia........................ 1988 Mid-Atlantic 440,000
Gadsden, Alabama......................... 1994 South 240,000
Jeffersonville, Ohio..................... 1996 Mid West 383,000
Thomson, Georgia (1)..................... late 1998 Southeast 383,000
PDQ(R) WAREHOUSES
Roanoke, Virginia........................ 1983 Mid-Atlantic 50,400
Smithfield, North Carolina............... 1991 Southeast 42,000
South,
Thomson, Georgia (2)..................... 1998 Southeast 50,000
Jeffersonville, Ohio (2)................. 1996 Midwest 50,000
MASTER PDQ(R) WAREHOUSE
Andersonville, Tennessee................. 1998 All 66,000
</TABLE>
________________
(1) The Company is currently constructing this facility and contemplates its
opening in late 1998.
(2) This facility is located within the main distribution center.
EMPLOYEES
As of April 30, 1998, the Company employed approximately 7,600 full-time
employees and 4,900 part-time employees. Approximately 84% of the Company's
workforce is employed in store level operations, 12% in distribution and 4% in
the Company's corporate headquarters.
The Company expends substantial resources in the recruiting and training of
employees. In addition, management has established a number of empowerment
programs for employees, such as employee task forces and regular meetings, to
promote employee recognition and address customer service issues. Management
believes that these efforts have provided the Company with a well-trained, loyal
workforce which is committed to high levels of customer service. The Company is
not party to any collective bargaining agreements. The Company has never
experienced any labor disruption and believes that its labor relations are good.
48
<PAGE>
FACILITIES
The following table sets forth certain information concerning the Company's
principal facilities:
<TABLE>
<CAPTION>
SQUARE NATURE OF
PRIMARY USE LOCATION FOOTAGE OCCUPANCY
- ---------------------------------------------------- ------------------ ------- ---------
<S> <C> <C> <C>
Corporate headquarters................................ Roanoke, Virginia 49,000 Leased (1)
Distribution center................................... Roanoke, Virginia 440,000 Leased (2)
Distribution center................................... Gadsden, Alabama 240,000 Owned
Distribution center and regional PDQ/(R)/ Warehouse... Jeffersonville, Ohio 383,000 Owned
Distribution center and regional PDQ/(R)/ Warehouse... Thomson, Georgia 383,000 Leased (3)
Regional PDQ/(R)/ Warehouse........................... Salem, Virginia 50,400 Leased
Regional PDQ/(R)/ Warehouse........................... Smithfield, North Carolina 42,000 Leased
Master PDQ/(R)/ Warehouse............................. Andersonville, Tennessee 66,000 Leased
</TABLE>
____________________
(1) This facility is owned by Ki, L.C., a Virginia limited liability company
owned by two trusts for the benefit of a child of Nicholas F. Taubman. See
"Certain Transactions."
(2) This facility is owned by Nicholas F. Taubman. See "Certain Transactions."
(3) The construction of this facility was financed by a $10.0 million IRB
issuance from the Development Authority of McDuffie County of the State of
Georgia, from which the Company leases the facility. The Company has an
option to purchase this facility for $10.00 at the end of five years or upon
prepayment of the outstanding bonds.
At April 25, 1998, all but one of the Company's 863 stores were leased.
The expiration dates (including renewal options) of the store leases are
summarized as follows:
<TABLE>
<CAPTION>
YEARS STORES (1)
----------- --------------
<S> <C>
1998-2000 38
2001-2005 86
2006-2010 147
2011-2020 586
2021-2030 5
</TABLE>
____________________
(1) Of these stores, 26 are owned by affiliates of the Company. See "Certain
Transactions."
COMPETITION
The Company competes in both the DIY and DIFM segments of the automotive
aftermarket. Although the number of competitors and the level of competition
vary by market area, both segments are highly fragmented and generally very
competitive. The Company competes primarily with national and regional retail
automotive parts chains (such as AutoZone, Inc., Trak Auto Corporation, The Pep
Boys--Manny, Moe & Jack, Parts America, Western Auto Supply Company and Discount
Auto Parts, Inc.), wholesalers or jobber stores (some of which are associated
with national automotive parts distributors or associations, such as NAPA),
independent operators, automobile dealers and mass merchandisers that carry
automotive replacement parts, maintenance items and accessories (such as Wal-
Mart Stores, Inc.). The Company believes that chains of automotive parts
stores, such as the Company, with multiple locations in regional markets, have
competitive advantages in customer service, marketing, inventory selection,
purchasing and distribution as compared to independent retailers and jobbers
that are not part of a chain or associated with other retailers or jobbers. The
Company believes that, as a result of these
49
<PAGE>
advantages, national and regional chains have been gaining market share in
recent years at the expense of independent retailers and jobbers.
The principal competitive factors that affect the Company's business are
store location, customer service and product selection, availability, quality
and price. While the Company believes that it competes effectively in its
various geographic areas, certain competitors have larger sales volumes, have
greater financial and management resources and have been operating longer in
certain geographic areas.
TRADENAMES, SERVICE MARKS AND TRADEMARKS
The Company owns and has registrations for the trade name "Advance Auto
Parts" and the trademark "PDQ(R)" with the United States Patent and Trademark
Office for use in connection with the automotive parts retailing business. In
addition, the Company owns and has registered a number of trademarks with
respect to its private label products. The Company believes that its various
tradenames, service marks and trademarks are important to its merchandising
strategy, but that its business is not otherwise dependent on any particular
service mark, tradename or trademark. There are no infringing uses known by the
Company that materially affect the use of such marks. However, in connection
with a decision in a recent lawsuit, the Company is restricted from opening
stores under the "Advance Auto Parts" name in Jefferson County, Kentucky. See
"--Legal Proceedings."
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local laws and
governmental regulations relating to the operation of its business, including
those governing recycling of batteries and used lubricants, and regarding
ownership and operation of real property. The Company handles hazardous
materials during its operations, and its customers may also use hazardous
materials on the Company's properties or bring hazardous materials or used oil
onto the Company's properties. The Company currently provides collection and
recycling programs for spent automotive batteries and used lubricants at certain
of its stores as a service to its customers pursuant to agreements with third
party vendors. Pursuant to these agreements, the spent batteries and used
lubricants are collected by Company employees, deposited into vendor-supplied
containers/pallets and stored by the Company until collected by the third-party
vendors for recycling or proper disposal. Persons who arrange for the disposal,
treatment, or other handling of hazardous or toxic substances may be liable for
the costs of removal or remediation at any affected disposal, treatment or other
site affected by such substances. The Company's agreements with such vendors
are designed to limit its potential liability under applicable environmental
laws and regulations for any harm caused by the vendors' activities, whether
such harm occurs on or off the Company's properties, by providing for
indemnification of the Company against liability that it may incur in connection
with various elements of the program, including the disposal of such items.
The Company owns and leases property. Under various environmental laws and
regulations, a current or previous owner or operator of real property may be
liable for the cost of removal or remediation of hazardous or toxic substances
on, under, or in such property. Such laws often impose joint and several
liability and may be imposed without regard to whether the owner or operator
knew of, or was responsible for, the release of such hazardous or toxic
substances. Certain other environmental laws and common law principles also
could be used to impose liability for releases of hazardous materials into the
environment or work place, and third parties may seek recovery from owners or
operators of real properties for personal injury or property damage associated
with exposure to released hazardous substances. Compliance with such laws and
regulations has not had a material impact on its operations to date, but there
can be no assurance that future compliance with such laws and regulations will
not have a material adverse effect on the Company or its operations.
LEGAL PROCEEDINGS
In November 1997, a plaintiff, on behalf of himself and others similarly
situated, filed a class action complaint and motion of class certification
against the Company in the circuit court for Jefferson County, Tennessee,
alleging misconduct in the sale of automotive batteries. The complaint seeks
compensatory and punitive damages. The case is in the very early stages of
discovery; however, management believes that there is no merit to the complaint,
nor to the motion for class certification and, accordingly, plans a vigorous
defense.
50
<PAGE>
An appeal has been taken in connection with the November 1996 and October
1997 decisions in a federal district court restricting the Company from opening
stores under the "Advance Auto Parts" name in a single county in Kentucky. In
addition, the court granted summary judgment in favor of the Company in
connection with various infringement and unfair competition claims brought by
the appellant. The appellant is seeking to overturn parts of the court's
decisions regarding the appellant's inability to cancel two of the Company's
trademark registrations and to obtain relief on the infringement and unfair
competition claims.
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business. The damages claimed against the
Company in some of these litigations are substantial. Although the amount of
liability that may result from these matters cannot be ascertained, the Company
does not currently believe that, in the aggregate they will result in
liabilities material to the Company's consolidated financial condition, results
of operations or cash flow.
51
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND MEMBERS OF THE BOARD OF DIRECTORS
The following table sets forth certain information regarding the directors
and executive officers of Holding and the Company following the
Recapitalization:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Nicholas F. Taubman...... 63 Chairman of the Board and Director of Holding and the
Company
Garnett E. Smith......... 58 President and Chief Executive Officer and Director of Holding
and the Company
Carroll R. Tilley, Jr.... 48 Executive Vice President and General Manager of Holding and
the Company
J. O'Neil Leftwich....... 36 Senior Vice President and Chief Financial Officer, Secretary and
Treasurer of Holding and the Company
Paul W. Klasing.......... 38 Senior Vice President, Merchandising of the Company
David R. Reid............ 35 Senior Vice President, Real Estate and Store Support of the
Company
S. Lynn Stevens.......... 49 Senior Vice President, Information Services of the Company
Jimmie L. Wade........... 44 Senior Vice President, Logistics of the Company
Anthony R. Weatherly..... 38 Senior Vice President, Store Operations of the Company
Kenneth A. Wirth, Jr..... 39 Senior Vice President, Sales of the Company
Joe H. Vaughn, Jr........ 37 Vice President, Finance of the Company and Assistant Secretary
and Assistant Treasurer of Holding and the Company
Mark J. Doran............ 34 Director of Holding and the Company
John M. Roth............. 39 Director of Holding and the Company
J. Frederick Simmons..... 42 Director of Holding and the Company
Ronald P. Spogli......... 50 Director of Holding and the Company
Timothy C. Collins....... 41 Director of Holding and the Company
</TABLE>
Mr. Taubman, Chairman of the Board of Holding and the Company, joined the
Company in 1956. Mr. Taubman has served as Chairman of the Company since
January 1985 and as Chief Executive Officer of the Company from January 1985 to
July 1997. From 1969 to 1984, Mr. Taubman served as President of the Company.
In addition, Mr. Taubman has served as Chairman of Holding since May 1992, the
year it was formed, as Chief Executive Officer of Holding from May 1992 to March
1998, and as Secretary and Treasurer of Holding from May 1992 to February 1998.
Mr. Taubman has served on numerous business, arts and civic boards.
Mr. Smith, President and Chief Executive Officer and a Director of Holding
and the Company, joined the Company in November 1959 and is responsible for
overall management and operations of the Company. Mr. Smith served as President
and Chief Operating Officer of the Company from January 1985 until July 1997 at
which time he became Chief Executive Officer. Mr. Smith has also served in
numerous other positions including Executive Vice President and General Manager,
Vice President of Purchasing, Buyer and Store Manager. In addition, Mr. Smith
has served as President of Holding since May 1992, as Chief Operating Officer of
Holding from May 1992 to March 1998, and as Chief Executive Officer since March
1998.
Mr. Tilley, Executive Vice President and General Manager, joined the
Company in June 1984. Mr. Tilley has served as Vice President and Senior Vice
President of Purchasing, Advertising and Marketing and was promoted to his
present position in July 1997. Mr. Tilley's responsibilities include
merchandising, marketing, logistics, inventory management and store operations.
52
<PAGE>
Mr. Leftwich, Senior Vice President and Chief Financial Officer, Secretary
and Treasurer, joined the Company in September 1984. Mr. Leftwich was appointed
Chief Financial Officer of the Company in January 1994, Senior Vice President in
July 1997 and Secretary and Treasurer in February 1998. Mr. Leftwich has also
served in numerous other positions with the Company. Mr. Leftwich is
responsible for financial, human resources and loss prevention functions and is
a certified public accountant. In addition, Mr. Leftwich became Senior Vice
President and Chief Financial Officer, Secretary and Treasurer of Holding in
February 1998, prior to which he served as Assistant Secretary and Assistant
Treasurer.
Mr. Klasing, Senior Vice President, Merchandising, joined the Company in
April 1995. Mr. Klasing is responsible for purchasing, quality control and
pricing. From 1981 to 1992, Mr. Klasing worked for Kragen Auto Parts (now CSK
Automotive) and from 1992 to 1995 for Montgomery Ward/Auto Express in various
positions.
Mr. Reid, Senior Vice President, Real Estate and Store Support, joined the
Company in October 1984. Mr. Reid is responsible for store real estate site
selections, store visual presentation and design and property management. From
1994 to 1995, Mr. Reid was Assistant Vice President, Store Support for the
Company. Mr. Reid has also served in training and store operations as Store
Manager and Division Manager.
Ms. Stevens, Senior Vice President, Information Services, joined the
Company in July 1979. Ms. Stevens is responsible for systems development,
computer services and technology. Ms. Stevens has held several management
positions in Information Services, most recently as Vice President, Systems
Development.
Mr. Wade, Senior Vice President, Logistics, joined the Company in February
1994. Mr. Wade is responsible for logistics, distribution, transportation and
inventory management functions. From 1987 to 1993, Mr. Wade was Vice President,
Finance and Operations, for S.H. Heironimus, and from 1979 to 1987, he was Vice
President--Finance of American Motor Inns. Mr. Wade is a certified public
accountant.
Mr. Weatherly, Senior Vice President, Store Operations, joined the Company
in August 1981. Mr. Weatherly is responsible for district, division, and store
operations. Mr. Weatherly has held numerous other operational positions
including District Assistant Vice President, Zone Manager, Division Manager and
Store Manager.
Mr. Wirth, Senior Vice President, Sales, joined the Company in September
1982. Mr. Wirth is responsible for the Company's largest product category,
batteries, as well as new store sales coordination, commercial sales and
training. From June 1992 to January 1998, Mr. Wirth served as Senior Vice
President, Store Operations and prior to that held numerous other operational
positions including Zone Manager, Division Manager and Store Manager.
Mr. Vaughn, Vice President, Finance, Assistant Secretary and Assistant
Treasurer, joined the Company in May 1995. Mr. Vaughn was appointed Vice
President, Finance of the Company in October 1997 and Assistant Secretary and
Assistant Treasurer of Holding and the Company in April 1998. Mr. Vaughn is
responsible for accounting, treasury, and risk management functions. From 1983
to 1989, Mr. Vaughn worked for KPMG Peat Marwick, from 1989 to 1992, he worked
for Dominion Bank, and from 1992 to 1995, he worked for Ferguson Andrews &
Associates. Mr. Vaughn is a certified public accountant.
Mr. Doran, Director, became a member of the Board in connection with the
Recapitalization. Mr. Doran joined FS&Co. in 1988 and became a principal in
January 1998. Mr. Doran is also a director of AFC Enterprises, Inc.
Mr. Roth, Director, became a member of the Board in connection with the
Recapitalization. Mr. Roth joined FS&Co. in March 1988 and became a principal
in March 1993. Mr. Roth is also a director of AFC Enterprises, Inc., Calmar
Inc. and EnviroSource, Inc.
Mr. Simmons, Director, became a member of the Board in connection with the
Recapitalization. Mr. Simmons joined FS&Co. in 1986 and became a principal in
January 1991. Mr. Simmons is also a director of Buttrey Food and Drug Stores
Company and EnviroSource, Inc.
53
<PAGE>
Mr. Spogli, Director, is a founding principal of FS&Co., which was founded
in 1983. Mr. Spogli became a member of the Board in connection with
Recapitalization. Mr. Spogli is the Chairman of the Board and Director of
EnviroSource, Inc. Mr. Spogli is also a director of AFC Enterprises, Inc.,
Buttrey Food and Drug Stores Company and Calmar Inc.
Mr. Collins, Director, became a member of the Board in connection with the
Recapitilization. Mr. Collins is Senior Managing Director and Chief Executive
Officer of Ripplewood Holdings L.L.C., a private investment firm formed by him
in October 1995. From February 1990 to October 1995, Mr. Collins was a Senior
Managing Director of the New York office of Onex Corporation, an Ontario
corporation listed on the Toronto and Montreal Stock Exchanges. Mr. Collins is
also a director of Scotsman Industries, Inc. and Dayton Superior Corporation.
Directors of the Company are elected annually and hold office until the
next annual meeting of stockholders or until their successors are duly elected
and qualified.
Executive Officers are elected by, and serve at the discretion of, the
Board of Directors. The Company has entered into employment agreements with
certain of its executive officers. See "--Executive Employment Contracts."
EXECUTIVE COMPENSATION
The following table sets forth information with respect to compensation for
fiscal 1997 of the Chief Executive Officer and the four other most highly
compensated executive officers who were serving as executive officers at the end
of the last completed fiscal year and an individual for whom disclosure would
have been provided but for the fact that the individual was not serving as an
executive officer at the end of the last completed fiscal year (collectively,
the "Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------------------------
FISCAL OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) COMPENSATION(2)
- -------------------------------------------------- ------ -------- ---------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Nicholas F. Taubman............................... 1997 $462,488 $2,112,172 $ -- $7,500
Chairman of the Board
Garnett E. Smith.................................. 1997 $453,580 $ 471,553 $ -- $7,500
President and Chief Executive Officer
Carroll R. Tilley, Jr............................. 1997 $219,014 $ 110,429 $ -- $7,500
Executive Vice President and General
Manager
J. O'Neil Leftwich................................ 1997 $153,825 $ 42,500 $ -- $7,500
Senior Vice President and Chief Financial
Officer, Secretary and Treasurer
Kenneth A. Wirth, Jr.............................. 1997 $106,460 $ 75,900 $ -- $7,500
Senior Vice President, Store Operations
Robert R. Irby(3)................................. 1997 $195,000 $ 42,215 $ -- $7,500
</TABLE>
______________________
(1) While certain officers received perquisites, such perquisites do not exceed
the lesser of $50,000 or 10% of each officer's respective salaries and
bonuses.
(2) Consists of matching contributions under the Company's 401(k) savings plan.
(3) Mr. Irby served as Senior Vice President, Information Services from July
1993 to December 1997 when he retired from the Company.
54
<PAGE>
EXECUTIVE EMPLOYMENT CONTRACTS
Mr. Smith has entered into an employment and non-competition agreement with
the Company. The agreement has a term of three years, and renews automatically
each year thereafter unless terminated by the Company or Mr. Smith. Mr. Smith
receives a base salary in an amount and on substantially the same terms and
conditions as was being paid by the Company prior to the Recapitalization and an
annual cash bonus based on the Company's achievement of performance targets
established by the Board of Directors. The bonus to be paid upon achievement of
targets will be consistent in amount with the bonuses paid to Mr. Smith by the
Company historically. In the event Mr. Smith is terminated without cause, or
terminates his employment for "good reason" as defined in the employment
agreement, he will receive salary through the later of the end of the term of
employment or one year from the effective date of termination, less any amounts
earned in other employment. Mr. Smith has agreed not to compete with the
Company, to preserve its confidential information, not to recruit or employ
employees of the Company to or in other businesses, and not to solicit customers
or suppliers of the Company for competitors.
Messrs. Leftwich, Tilley and Wirth and certain other members of management
of the Company have entered into employment agreements with the Company. Such
agreements contain severance provisions that provide for base salary for the
remainder of the term of the agreement upon termination of employment or one
year, unless the termination is due to death, disability or retirement, by the
Company for "cause" (as defined in the agreements) or by the employee other than
for "good reason" (as defined in the agreements). The term of Messrs.
Leftwich's Tilley's and Wirth's and eleven other management members' agreements
is two years; the remainder of such agreements have one-year terms.
CONSULTING AGREEMENT
Mr. Taubman has entered into a consulting and non-competition agreement
with Holding and the Company. The agreement, which has a term of three years,
requires Holding or the Company to pay consulting fees in an amount of $300,000
per annum, plus an annual bonus of at least $300,000 based upon the achievement
of targeted performance goals established by the Board of Directors. Mr.
Taubman has agreed not to compete with the Company, to preserve its confidential
information, not to recruit or employ employees of the Company to or in other
businesses, and not to solicit customers or suppliers of the Company for
competitors. Pursuant to the consulting agreement, Holding and Mr. Taubman have
entered into an indemnity agreement whereby Holding will indemnify Mr. Taubman
for actions taken as an officer or director of or consultant to Holding or the
Company to the fullest extent permitted by law. The amount of time Mr. Taubman
must devote to his consultation duties declines throughout the term of the
agreement.
COMPENSATION OF DIRECTORS
Directors of the Company receive no compensation as directors. Directors
are reimbursed for their reasonable expenses in attending meetings and
performing duties as directors.
BENEFIT PLANS
401(k) Plan. The Company sponsors a 401(k) employee retirement savings
plan for eligible employees. Employees must be at least 21 years of age and
have completed one year of service working at least 1,000 hours to be eligible
to participate in the 401(k) plan. Employees may contribute up to 15% of their
annual compensation and contributions are matched by the Company on the basis of
75% of the first 5% contributed. In addition, the Company can elect to make
profit sharing contributions, allocated among participants as a percentage of
compensation. Company contributions become fully vested after two years of
service. Contribution expense for the Company was $2,335,000, $2,779,000 and
$3,196,000 for fiscal 1995, 1996 and 1997, respectively.
55
<PAGE>
Postretirement Plan. The Company provides certain health care and life
insurance benefits for eligible retired employees. The accrued postretirement
benefit cost was $211,000, $456,000 and $843,000 for fiscal 1995, 1996 and 1997,
respectively.
STOCK SUBSCRIPTION PLANS
Holding has adopted Stock Subscription Plans (the "Stock Subscription
Plans") pursuant to which certain directors, officers, key employees and
consultants of the Company have purchased 803,800 shares, or approximately 6.4%,
of the outstanding Holding Common Stock at the same price as FS&Co.'s purchase
of its shares. $2,615,000 of the purchase price for such shares was paid by
delivery of full recourse promissory notes bearing interest at the prime rate
and due five years from the Recapitalization, secured by all of the stock each
such executive owns in Holding. Messrs. Smith, Leftwich, Tilley and Wirth
purchased 250,000 shares, 50,000 shares, 150,000 shares and 20,000 shares,
respectively. For these individuals, $0, $250,000, $750,000, and $106,000 of
their purchase price, respectively, was financed through the delivery of
promissory notes on the terms described above. The agreements entered into in
connection with the Stock Subscription Plans provide for restrictions on
transferability, and acquired shares are subject to a right of first refusal and
a repurchase right at stated prices in favor of Holding and co-sale rights in
favor of the executive if FS&Co. sells its shares to a third party. The
agreements also include an obligation to sell at the request of FS&Co. These
rights (but not the restrictions on transferability) will terminate upon an
Initial Public Offering, as defined in agreements entered into under the Stock
Subscription Plans.
STOCK OPTION PLANS
Holding has adopted stock option plans (the "Option Plans"), under which
Holding made initial grants of approximately 6.4% of Holding Common Stock.
Under the Option Plans, Messrs. Smith, Leftwich, Tilley and Wirth were granted
the right to purchase 362,500, 72,500, 145,000 and 25,000 shares, respectively,
on the terms described below. Each Option Plan participant will enter into an
option agreement (an "Option Agreement") with Holding. The Option Plans and
each outstanding option thereunder are subject to termination in the event of a
change in control of Holding or other extraordinary transactions, as more fully
described in the Option Plans. In addition, all options granted pursuant to the
Option Plans will terminate 90 days after termination of employment (unless
termination was for cause, in which event an option will terminate immediately)
or 180 days in the event of termination due to death or disability. Shares
received upon exercise of options are subject to both a right of first refusal
and a repurchase right at stated prices in favor of Holding, and co-sale rights
in favor of the optionee. These rights will terminate upon an Initial Public
Offering, as defined in the Option Agreements, by Holding. Shares received upon
exercise of options, as well as all outstanding options, are also subject to
obligations to sell at the request of FS&Co. All options will terminate on the
seventh anniversary of the Option Agreement under which they were granted if not
exercised prior thereto.
Three different types of options may be granted pursuant to the Option
Plans. Fixed Price Service Options will vest over a three-year period in three
equal annual installments beginning in fiscal 1999. Performance Options will be
earned in installments based upon satisfaction of certain performance targets
for the four-year period ending in fiscal 2001. Variable Price Service Options
will vest in equal annual installments over a two year period beginning in 1999,
and have an exercise price that increases over time.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of the Company determines the compensation of
the Executive Officers. During fiscal 1997, Messrs. Taubman and Smith
participated in Board of Director deliberations regarding the compensation of
the Company's Executive Officers.
56
<PAGE>
CERTAIN TRANSACTIONS
AFFILIATED LEASES
The Company leases its Roanoke, Virginia distribution center, an
office/warehouse, a warehouse, 26 of its stores and three former stores from
Nicholas F. Taubman or members of his immediate family, and its corporate
headquarters from Ki, L.C., a Virginia limited liability company owned by two
trusts for the benefit of a child of Mr. Taubman. Rents for the affiliated
leases may be slightly higher than rents for non-affiliated leases, and certain
terms of the affiliate leases may be more favorable to the landlord than those
contained in leases with non-affiliates. All affiliate leases are on a triple
net basis. Lease expense for leases with affiliates has been $2,735,000,
$3,076,000 and $3,171,000 for fiscal 1995, 1996 and 1997, respectively.
STOCKHOLDERS AGREEMENT
Mr. Taubman and the Taubman Trust (the "Existing Stockholders"), FS&Co.,
Ripplewood and Holding have entered into a Stockholders' Agreement (the
"Stockholders' Agreement"). Under the Stockholders' Agreement, FS&Co.,
Ripplewood and the Existing Stockholders have the right to purchase their pro
rata share of certain new issuances of capital stock by Holding. In addition,
the Stockholders' Agreement provides for restrictions on the transferability of
the shares of Holding Common Stock of the Existing Stockholders and Ripplewood
for a period of two years following consummation of the Recapitalization and,
thereafter, for the following three-year period any transfers (other than sales
pursuant to a registered public offering or pursuant to Rule 144 under the
Securities Act) are subject to a right of first offer in favor of FS&Co. or its
designee, provided that Ripplewood's obligation to make a first offer extends
indefinitely. In addition, the Stockholders' Agreement provides that upon
transfers by FS&Co. of its shares of Holding Common Stock (excluding limited
transfers in the first year following the Recapitalization or transfers to
affiliates of FS&Co.), the Existing Stockholders and Ripplewood will have the
right to participate in such sales on a pro rata basis. If FS&Co. sells all of
its holdings of Holding Common Stock, Ripplewood and the Existing Stockholders
will be obligated to sell all of their shares of Holding Common Stock at the
request of FS&Co.
The Stockholders' Agreement further provides that FS&Co. will vote at each
annual meeting of Holding to elect Mr. Taubman or his nominee to the Board of
Directors of Holding, and the Existing Stockholders will likewise vote to elect
nominees of FS&Co. Ripplewood has granted FS&Co. an irrevocable proxy to vote
Ripplewood's stock in Holding on all matters, expiring upon an initial public
offering by Holding, but FS&Co. will nominate one director designated by
Ripplewood. The Ripplewood director will agree to vote with the FS&Co.
directors on all matters prior to an initial public offering by Holding.
Pursuant to the Stockholders' Agreement, Mr. Taubman has certain approval rights
with respect to major corporate transactions.
OPTIONS GRANTED TO THE EXISTING STOCKHOLDERS
In connection with the Merger, Holding has entered into an Option Agreement
with Mr. Taubman and the Taubman Trust whereby each of them has been granted
options to purchase 250,000 shares of Holding Common Stock. The options have an
initial exercise price of $10.00, with the exercise price increasing by $2.00 on
each anniversary of the Recapitalization. Both the exercise price and the
number of shares which may be purchased pursuant to the options are subject to
certain adjustments. The options will expire if not exercised by the seventh
anniversary of the Recapitalization. Shares received upon exercise of all or
any part of the option by the Existing Stockholders will be subject to the
Stockholders' Agreement.
SALE OF AIRPLANE
In connection with the Recapitalization, Mr. Taubman has purchased an
airplane from the Company for $4.1 million, a price equal to the approximate net
book value of the airplane.
57
<PAGE>
REGISTRATION RIGHTS AGREEMENT
Pursuant to the Stockholders Agreement, Holding has agreed, beginning 180
days after consummation of an initial public offering by Holding, that upon the
request of FS&Co. and the Existing Stockholders it will register under the
Securities Act and applicable state securities laws the sale of Holding Common
Stock owned by FS&Co. and the Existing Stockholders and as to which registration
has been requested. Holding has granted unlimited piggy-back registration
rights to FS&Co., Ripplewood and the Existing Stockholders, three demand
registrations to FS&Co, and two demand registrations to the Existing
Stockholders, and one demand registration to Ripplewood. Holding's obligation
is subject to certain limitations relating to the minimum amount required for
registration, the timing of registrations and other similar matters. Holding is
obligated to pay any registration expenses incidental to such registrations,
excluding underwriters' commissions and discounts.
MANAGEMENT EQUITY PLANS
See "Management--Stock Subscription Plans" and "--Stock Option Plans."
INDEMNIFICATION AGREEMENTS
In connection with the Recapitalization, the Company has entered into
indemnification agreements with each of the directors of the Company.
CERTAIN PAYMENTS IN CONNECTION WITH THE RECAPITALIZATION
In connection with the Recapitalization, a portion of the common stock and
all of the preferred stock of Holding were converted into the right to receive
in the aggregate approximately $351.0 million in cash and certain options to
purchase shares of Holding Common Stock. In addition, FS&Co. and an affiliate
of Ripplewood have received collectively a $5.0 million fee for arranging the
financing, performing advisory and consulting services, and negotiating the
Recapitalization. In connection with the Recapitalization, certain employees of
the Company, including the Executive Officers, have received an aggregate of
approximately $11.5 million in bonuses.
58
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of May 1, 1998, with
respect to the beneficial ownership of Holding Common Stock by (i) each person
who beneficially owns more than 5% of such shares, (ii) each of the Executive
Officers named in the Summary Compensation Table, (iii) each member of the Board
of Directors of Holding and (iv) all Executive Officers and Directors of Holding
as a group.
<TABLE>
<CAPTION>
AMOUNT OF
BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP OF CLASS
---------- --------
<S> <C> <C>
Freeman Spogli & Co. Incorporated(1)........................ 10,050,000 79.7%
Mark J. Doran(1).......................................... -- --
John M. Roth(1)........................................... -- --
J. Frederick Simmons(1)................................... -- --
Ronald P. Spogli(1)....................................... -- --
Ripplewood Partners, L.P. and affiliates(2)................. 2,000,000 15.9%
Timothy C. Collins(2)..................................... -- --
Nicholas F. Taubman(3)...................................... 1,250,000 9.7%
Arthur Taubman Trust dated July 13, 1964(4)................. 1,000,000 7.8%
Garnett E. Smith............................................ 250,000 2.0%
Carroll R. Tilley, Jr....................................... 150,000 1.2%
J. O'Neil Leftwich.......................................... 50,000 *
Paul W. Klasing............................................. 20,000 *
David R. Reid............................................... 20,000 *
S. Lynn Stevens............................................. 20,000 *
Jimmie L. Wade.............................................. 25,000 *
Anthony R. Weatherley....................................... 20,000 *
Kenneth A. Wirth, Jr........................................ 20,000 *
Joe H. Vaughn, Jr........................................... 10,000 *
All directors and officers as a group (16 individuals)(5)... 11,885,000(5) 92.5%
</TABLE>
- -------------
*Less than 1%
(1) 8,050,000 shares of Holding Common Stock are held of record by FS Equity
Partners IV, L.P. ("FSEP IV"). As general partner of FSEP IV, FS Capital
Partners LLC ("FS Capital") has the sole power to vote and dispose of the
shares owned by FSEP IV. Messrs. Doran, Roth, Simmons and Spogli and
Bradford M. Freeman, Todd W. Halloran, Jon D. Ralph, Charles P. Rullman and
William M. Wardlaw are the sole managing members of FS Capital, and Messrs.
Doran, Freeman, Halloran, Ralph, Roth, Rullman, Simmons, Spogli and Wardlaw
are the sole directors, officers and shareholders of Freeman Spogli & Co.
Incorporated, and as such may be deemed to be the beneficial owners of the
shares of Holding Common Stock and rights to acquire Holding Common Stock
owned by FSEP IV. FS&Co. and its named officers and directors have, in
addition, sole power to vote 2,000,000 shares of Holding Common Stock owned
of record by Ripplewood Partners, L.P. (the "Ripplewood Partners") and
Ripplewood Advance Auto Parts Employee Fund I L.L.C. (the "Ripplewood
Fund") pursuant to an irrevocable proxy delivered to FS&Co. under the terms
of the Stockholders Agreement. Such irrevocable proxy will expire upon an
initial public offering by Holding. FS&Co. neither has shared nor sole
power to dispose of shares held by Ripplewood Partners or Ripplewood Fund.
The business address of Freeman Spogli & Co. Incorporated, FSEP IV, FS
Capital, and Messrs. Freeman, Spogli, Wardlaw, Simmons, Roth, Rullman and
Doran is 11100 Santa Monica Boulevard, Suite 1900, Los Angeles, California
90025.
(2) 1,911,000 shares of Holding Common Stock are held of record by Ripplewood
Partners, and 89,000 shares of Holding Common Stock are held of record by
Ripplewood Fund. Ripplewood Holdings, L.L.C. is the sole general partner
of Ripplewood Partners and the sole managing member of Ripplewood Fund and,
therefore, has the sole power to dispose of the shares owned by Ripplewood
Partners or Ripplewood Fund. Until an initial public offering by Holding,
pursuant to the Stockholders' Agreement and an irrevocable proxy required
by the terms thereof, FS&Co. has sole voting power over 2,000,000 shares of
Holding
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Common Stock held by Ripplewood Partners and Ripplewood Fund. Mr. Collins
is the Senior Managing Director and Chief Executive Officer of Ripplewood
Holdings L.L.C. and as such may be deemed to be the beneficial owner of the
shares of Holding Common Stock and the rights to acquire Holding Common
Stock owned by Ripplewood Partners and Ripplewood Fund. The business
address of Ripplewood Holdings L.L.C., Ripplewood Partners, Ripplewood
Fund, and Mr. Collins is 1 Rockefeller Plaza, 32nd Floor, New York, New
York 10020.
(3) Includes 250,000 shares subject to immediately exercisable options. The
stockholder's business address is 5673 Airport Road, Roanoke, Virginia
24012.
(4) Includes 250,000 shares subject to immediately exercisable options. The
trustees of the Arthur Taubman Trust dated July 13, 1964 are Eugenia
Taubman, who is the spouse of Nicholas F. Taubman, and Grace W. Taubman,
who is his mother. The business address of the trust is 5673 Airport Road,
Roanoke, Virginia 24012.
(5) Includes 585,000 shares which have been acquired by management pursuant to
stock subscription plans, including Messrs. Smith, Tilley, Leftwich and
Wirth.
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DESCRIPTION OF OTHER INDEBTEDNESS
SENIOR SUBORDINATED NOTES
The Senior Subordinated Notes have been issued in an aggregate principal
amount of $200.0 million and will mature on April 15, 2008. The Senior
Subordinated Notes have been issued under an indenture dated as April 15, 1998
(the "Senior Subordinated Note Indenture") among the Company, as issuer, each of
the Company's direct and indirect subsidiaries, as guarantors, and United States
Trust Company of New York, as trustee, and constitute senior subordinated
unsecured obligations of the Company. Cash interest on the Senior Subordinated
Notes accrues at the rate of 10.25% per annum and is payable semi-annually in
arrears on each April 15 and October 15 of each year, commencing October 15,
1998, to the holders of record on the immediately preceding April 1 and October
1, respectively.
On or after April 15, 2003, the Senior Subordinated Notes may be redeemed
at the option of the Company, in whole at any time or in part from time to time,
at a redemption price equal to the applicable percentage of the principal amount
thereof set forth below, plus accrued and unpaid interest and liquidated
damages, if any, thereon to the redemption date, if redeemed during the twelve-
month period commencing on April 15 in the years set forth below:
REDEMPTION
YEAR PRICE
2003......................................... 105.125%
2004......................................... 103.417%
2005......................................... 101.708%
2006 and thereafter.......................... 100.000%
Notwithstanding the foregoing, at any time on or prior to April 15, 2001,
the Company may use the net proceeds of one or more Equity Offerings (as defined
therein) to redeem up to 35% of the Senior Subordinated Notes at a redemption
price equal to 110.25% of the principal amount thereof plus accrued and unpaid
interest and liquidated damages, if any, thereon to the redemption date;
provided, however, that after any such redemption the aggregate principal amount
of the Senior Subordinated Notes outstanding must equal at least 65% of the
aggregate principal amount of the Senior Subordinated Notes originally issued.
In the event of a Change of Control (as defined in the Senior Subordinated
Note Indenture), each holder of Senior Subordinated Notes has the right to
require the repurchase of such holder's Senior Subordinated Notes at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the purchase date.
The Senior Subordinated Note Indenture contains covenants that, among other
things, limit the ability of the Company to enter into certain mergers or
consolidations or incur certain liens and of the Company and its Restricted
Subsidiaries to create or incur additional indebtedness and issue preferred
stock, pay dividends or certain other distributions and engage in certain
transactions with affiliates. Under certain circumstances, the Company will be
required to make an offer to purchase Senior Subordinated Notes at a price equal
to 100% of the principal amount thereof, plus accrued interest to the date of
purchase with the proceeds of certain Asset Sales (as defined in the Senior
Subordinated Note Indenture). The Senior Subordinated Note Indenture contains
certain customary events of default, which include the failure to pay interest
and principal, the failure to comply with certain covenants in the Senior
Subordinated Notes or such Indenture, a default under certain indebtedness, the
imposition of certain final judgments or invalidity of a guarantee of a
Significant Subsidiary and certain events occurring under bankruptcy laws. See
"Risk Factors--Limitation on Access to Cash Flow of Subsidiaries; Holding
Company Structure."
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THE NEW CREDIT FACILITY
The Company has entered into the New Credit Facility with The Chase
Manhattan Bank, as administrative agent, DLJ Capital Funding, Inc., as
syndication agent, First Union National Bank, as documentation agent, and Chase
Securities Inc., as advisor and arranger. Pursuant to the New Credit Facility,
a syndicate of lenders ("Lenders") has agreed to lend to the Company up to
$375.0 million in the form of senior secured credit facilities, consisting of
(i) a $50.0 million senior secured delayed draw term loan facility (the "Delayed
Draw Facility I"), (ii) a $75.0 million senior secured delayed draw term loan
facility (the "Delayed Draw Facility II" and, together with the Delayed Draw
Facility I, the "Delayed Draw Facilities"), (iii) a $125.0 million Tranche B
senior secured term loan facility (the "Tranche B Facility"), and (iv) a $125.0
million senior secured revolving credit facility (the "Revolving Facility").
The Revolving Facility has a letter of credit sublimit of $25.0 million.
Amounts available under the Delayed Draw Facilities and the Revolving Facility
are subject to a borrowing base formula equal to a specified percentage of the
Company's eligible inventory.
Use of Proceeds; Maturity. Proceeds of the Tranche B Facility, together
with a portion of the net proceeds of the issuance of the Series A Notes, have
been used (a) to pay the Company Distribution, (b) to repay all principal,
interest, fees and other amounts outstanding under the existing credit
agreements, (c) to repay certain other existing indebtedness, (d) to fund loans
in an aggregate principal amount not in excess of $3.0 million to existing
management of Holding or the Company and (e) to pay the fees and expenses of
Recapitalization. Borrowings under the Delayed Draw Facility I and the Delayed
Draw Facility II will be made during the first 18 months and first three years,
respectively, after the closing of the Recapitalization. Proceeds of the
Delayed Draw Facility I, the Delayed Draw Facility II, and the Revolving
Facility (including the letters of credit) are available for general corporate
purposes. Both Delayed Draw Facilities will mature on the sixth anniversary of
the closing and provide for nominal annual amortization prior to maturity. The
Tranche B Facility will mature on the eighth anniversary of the closing. These
term facilities provide for nominal annual amortization in the first five years
and amortization of $120.5 million in the sixth anniversary year, $60.0 million
in the seventh anniversary year and $60.0 million in the eighth anniversary
year. The Revolving Facility will mature on the sixth anniversary of the
closing.
Prepayment; Reduction of Commitments. Borrowings under the New Credit
Facility are required to be prepaid, subject to certain exceptions, with (a) 50%
of Excess Cash Flow (as defined), (b) 100% of the net cash proceeds of all asset
sales or other dispositions of property by the Company and its subsidiaries
(including certain insurance and condemnation proceeds), subject to certain
exceptions (including exceptions for (i) reinvestment of certain asset sale
proceeds within 270 days of such sale and (ii) certain sale-leaseback
transactions), (c) 100% of the net proceeds of issuances of debt obligations of
the Company and its subsidiaries, and (d) 100% of the net proceeds of issuance
of equity of the Company and its subsidiaries.
Voluntary prepayments and voluntary reductions of the unutilized portion of
the Revolving Facility commitments are permitted in whole or in part, at the
option of the Company, in minimum principal amounts to be agreed upon, without
premium or penalty, subject to reimbursement of the Lenders' redeployment costs
in the case of prepayment of eurodollar borrowings other than on the last day of
the relevant interest period. Voluntary prepayments under the Delayed Draw
Facilities and Tranche B Facility are (a) allocated among those facilities on a
pro rata basis and (b) within each such facility, applied to the installments
under the amortization schedule within the following 12 months under such
facility, and all remaining amounts are applied in the inverse order of maturity
to the remaining amortization payments under such facility.
Interest. Until the delivery to the Lenders of the Company's consolidated
financial statements for the first four fiscal quarters after the closing of the
Recapitalization, the interest rates under the Delayed Draw Facilities and the
Revolving Facility are based, at the option of the Company, on either a
eurodollar rate plus 2.25% per annum or a base rate plus 1.25% per annum. From
and after the delivery of such consolidated financial statements, the interest
rates under the Delayed Draw Facilities and the Revolving Facility will be
determined by reference to a pricing grid that will provide for reductions in
the applicable interest rate margins based on the Company's trailing Total Debt
to EBITDA ratio. The initial margins will be 2.25% and 1.25% for eurodollar and
base rate borrowings, respectively, and can step down to 1.75% and 0.75%,
respectively, if the Company's Total Debt to EBITDA ratio is less than or equal
to 4.00 to 1.00. The interest rate under the Tranche B Facility is based, at
the
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option of the Company, on a eurodollar rate plus 2.5% or a base rate plus 1.5%.
A commitment fee of 0.50% per annum will be charged on the unused portion of the
New Credit Facility.
Collateral and Guarantees. The New Credit Facility is guaranteed by
Holding and all of its existing and future domestic subsidiaries, except one
subsidiary of the Company to which all of the Company's inventory delivery
vehicles will be transferred in connection with the New Credit Facility. The
New Credit Facility is secured by a first priority lien on substantially all,
subject to certain exceptions, of the properties and assets of Holding, the
Company and each existing or future domestic subsidiary, and the guarantors now
owned or acquired later.
Covenants. The New Credit Facility contains covenants restricting the
ability of the Company and its subsidiaries to, among others, (i) declare
dividends or redeem or repurchase capital stock, (ii) prepay, redeem or purchase
debt, (iii) incur liens or engage in sale-leaseback transactions, (iv) make
loans and investments, (v) incur additional debt (including hedging
arrangements), (vi) make capital expenditures, (vii) engage in mergers,
acquisitions and asset sales, (viii) engage in transactions with affiliates,
(ix) change the nature of the business conducted by the Company and its
subsidiaries, (x) change the passive holding company status of Holding, and (xi)
amend existing debt agreements. The Company is required to comply with
financial covenants with respect to (a) a maximum leverage ratio, (b) a minimum
interest coverage ratio, and (c) a minimum retained cash earnings test.
Events of Default. Events of default under the New Credit Facility include
but are not limited to (i) the Company's failure to pay principal when due or
interest after a grace period, (ii) the Company's material breach of any
covenant, representation or warranty contained in the loan documents, (iii)
customary cross-default and cross-acceleration provisions, (iv) certain events
of bankruptcy, insolvency or dissolution of the Company or its subsidiaries, (v)
certain judgments against Holding, the Company, the Company's subsidiaries, or
their assets, (vi) the actual or asserted invalidity of security documents or
guarantees of Holding, the Company or the Company's subsidiaries, and (vii) a
Change in Control (as defined) of Holding.
The preceding discussion of certain of the provisions of the New Credit
Facility is not intended to be exhaustive and is qualified in its entirety by
reference to the provisions of the New Credit Facility.
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DESCRIPTION OF SERIES B DEBENTURES
GENERAL
The Series A Debentures were, and the Series B Debentures will be, issued
under an Indenture dated as of April 15, 1998 (the "Indenture") among Holding,
the Guarantor and United States Trust Company of New York, as trustee (the
"Trustee"), a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. Upon the effectiveness of this
Registration Statement filed under the Securities Act with respect to the Series
B Debentures, the Indenture will be subject to and governed by the Trust
Indenture Act of 1939, as amended (the "TIA"). The terms of the Series B
Debentures include those stated in the Indenture and those made part of the
Indenture by reference to the TIA. The Series B Debentures are subject to all
such terms, and Holders of Series B Debentures are referred to the Indenture and
the TIA for a statement thereof. The following summary of the material
provisions of the Indenture does not purport to be complete and is qualified in
its entirety by reference to the Indenture, including the definitions therein of
certain terms used below. Copies of the form of Indenture and Registration
Rights Agreement are available as set forth below under "--Additional
Information." The definitions of certain terms used in the following summary
are set forth below under "--Certain Definitions." For purposes of this
summary, the term "Holding" refers only to Advance Holding Corporation and not
to any of its Subsidiaries.
The Series B Debentures will be general unsecured obligations of Holding
and will be pari passu in right of payment to all current and future
unsubordinated Indebtedness of Holding and senior in right of payment to all
subordinated Indebtedness of Holding. As of April 25, 1998, Holding had $60.0
million of Indebtedness (all of which would have been attributable to the Series
B Debentures) and Holding's Subsidiaries had $593.8 million of liabilities
outstanding including Indebtedness under the Senior Subordinated Notes and the
New Credit Facility and including trade payables and other accrued liabilities.
The operations of Holding are conducted entirely through its Subsidiaries
and, therefore, Holding is substantially dependent upon the cash flow of its
Subsidiaries to meet its obligations, including its obligations under the Series
B Debentures. See "Risk Factors--Limitation on Access to Cash Flow of
Subsidiaries; Holding Company Structure." The New Credit Facility and the Senior
Subordinated Notes will restrict the Company from paying any dividends or making
any other distributions to Holding. The ability of the Company to comply with
the conditions in the New Credit Facility and the Senior Subordinated Notes may
be affected by certain events that are beyond Holding's control. The Series B
Debentures will be effectively subordinated to all Indebtedness and other
liabilities (including, without limitation, to the Company's obligations under
the New Credit Facility and the Senior Subordinated Notes) of its Subsidiary.
Any right of Holding to receive assets of any of its Subsidiaries upon such
Subsidiary's liquidation or reorganization (and the consequent right of Holders
of the Series B Debentures to participate in those assets) will be effectively
subordinated to the claims of that Subsidiary's creditors except to the extent
that Holding itself is recognized as a creditor of such Subsidiary, in which
case the claims of Holding would still be subordinate to the claims of such
creditors who hold security in the assets of such Subsidiary and to the claims
of such creditors who hold Indebtedness of such Subsidiary senior to that held
by Holding. See "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock."
As of the Issue Date, all of Holding's Subsidiaries will be Restricted
Subsidiaries. However, under certain circumstances, Holding will be able to
designate current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Series B Debentures will be limited in aggregate principal to $112.0
million and will mature on April 15, 2009. The Series B Debentures will be
issued at a substantial discount from their principal amount at maturity to
generate gross proceeds of approximately $60.0 million. Until April 15, 2003,
no interest will accrue on the Series B Debentures, but the Accreted Value will
increase (representing amortization of original issue discount) between the date
of original issuance and April 15, 2003, on a semi-annual bond equivalent basis
using a 360-day
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year comprised of twelve 30-day months, such that the Accreted Value shall be
equal to the full principal amount at maturity of the Series B Debentures on
April 15, 2003. Beginning on April 15, 2003, interest on the Series B
Debentures will accrue at the rate of 12.875% per annum and will be payable
semi-annually in arrears on April 15 and October 15, commencing on April 15,
2003, to Holders of record on the immediately preceding April 1 and October 1,
respectively. Interest on the Series B Debentures will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from April 15, 2003.
Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. Principal, premium, if any, and interest and Liquidated
Damages on the Series B Debentures will be payable at the office or agency of
Holding maintained for such purpose within the City and State of New York or, at
the option of Holding, payment of principal, premium, interest, and Liquidated
Damages may be made by check mailed to the Holders of the Series B Debentures at
their respective addresses set forth in the register of Holders of Series B
Debentures; provided that all payments of principal, premium, interest and
Liquidated Damages with respect to Series B Debentures represented by one or
more permanent Global Series B Debentures (as defined below) will be required to
be made by wire transfer of immediately available funds to the accounts of the
Depository Trust Company or any successor thereto. Until otherwise designated
by Holding, Holding's office or agency in New York will be the office of the
Trustee maintained for such purpose. The Series B Debentures will be issued in
denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
Except as described below with the proceeds of an Equity Offering, the Series B
Debentures will not be redeemable at Holding's option prior to April 15, 2003.
Thereafter, the Series B Debentures will be subject to redemption at any time at
the option of Holding, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages,
if any, thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on April 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003.................................. 106.438%
2004.................................. 104.292%
2005.................................. 102.146%
2006 and thereafter................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to April 15, 2001,
Holding may (but shall not have the obligation to) redeem, on one or more
occasions, up to an aggregate of 35% of the principal amount of Series B
Debentures originally issued at a redemption price equal to 112.875% of the
Accreted Value thereof, plus Liquidated Damages, if any, thereon to the
redemption date, with the net proceeds of one or more Equity Offerings; provided
that, in each case, at least 65% of the aggregate principal amount at maturity
of the Series B Debentures originally issued remains outstanding immediately
after the occurrence of such redemption; and provided further, that such
redemption shall occur within 90 days of the date of the closing of such Equity
Offering.
MANDATORY REDEMPTION
Holding is not required to make mandatory redemption or sinking fund
payments with respect to the Series B Debentures.
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REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Series B
Debentures will have the right to require Holding to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Series B
Debentures pursuant to the offer described below (the "Change of Control Offer")
at an offer price in cash equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest and Liquidated Damages, if any, thereon
to the date of purchase or, in the case of repurchases of Series B Debentures
prior to April 15, 2003 at a purchase price equal to 101% of the Accreted Value
thereof as of the date of repurchase (the "Change of Control Payment"). Within
30 days following any Change of Control, Holding will mail a notice to each
Holder describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Series B Debentures on the date specified in
such notice, which date shall be no earlier than 30 days (or such shorter time
period as may be permitted under applicable law, rules and regulations) and no
later than 60 days from the date such notice is mailed (the "Change of Control
Payment Date"), pursuant to the procedures required by the Indenture and
described in such notice. Holding will comply with the requirements of Rule
14e-l under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Series B Debentures as a result of a Change of
Control. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the Indenture relating to such
Change of Control Offer, Holding will comply with the applicable securities laws
and regulations and shall not be deemed to have breached its obligations
described in the Indenture by virtue thereof.
On the Change of Control Payment Date, Holding will, to the extent lawful,
(1) accept for payment all Series B Debentures or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Series
B Debentures or portions thereof so tendered and (3) deliver or cause to be
delivered to the Trustee the Series B Debentures so accepted together with an
Officers' Certificate stating the aggregate principal amount of Series B
Debentures or portions thereof being purchased by Holding. The Paying Agent
will promptly mail to each Holder of Series B Debentures so tendered the Change
of Control Payment for such Series B Debentures, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Series B Debenture equal in principal amount to any unpurchased portion of
the Series B Debentures surrendered, if any; provided that each such new Series
B Debenture will be in a principal amount of $1,000 or an integral multiple
thereof. Holding will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Series B Debentures to require
that Holding repurchase or redeem the Series B Debentures in the event of a
takeover, recapitalization or similar transaction.
The New Credit Facility and the Senior Subordinated Notes restrict the
Company from paying any dividends or making any other distributions to Holding.
If Holding is unable to obtain dividends from the Company sufficient to permit
the repurchase of the Series B Debentures or does not refinance such
Indebtedness, Holding will likely not have the financial resources to purchase
Series B Debentures. In any event, there can be no assurance that Holding's
Subsidiaries will have the resources available to pay any such dividend or make
any such distribution. Prior to complying with the provisions of the preceding
paragraphs, but in any event within 90 days following a Change of Control,
Holding will either repay all outstanding Indebtedness of its Subsidiaries or
obtain the requisite consents, if any, under the New Credit Facility and the
Senior Subordinated Notes to permit the repurchase of the Series B Debentures
required by this covenant. Holding will not be required to purchase any Series
B Debentures until it has complied with the preceding sentence, but Holding's
failure to make a Change of Control Offer when required or to purchase tendered
Series B Debentures when tendered would constitute an Event of Default under the
Indenture. See "Risk Factors--Limitation on Access to Cash Flow of
Subsidiaries; Holding Company Structure."
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Holding will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by Holding and
purchases all Series B Debentures validly tendered and not withdrawn under such
Change of Control Offer.
Asset Sales
The Indenture will provide that Holding will not, and will not permit any
of its Restricted Subsidiaries to, engage in or consummate an Asset Sale unless
(i) Holding (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined by the Board of
Directors in good faith, whose determination shall be conclusive evidence
thereof and shall be evidenced by a resolution of the Board of Directors set
forth in an Officers' Certificate delivered to the Trustee) (ii) at least 75% of
the consideration therefor received by Holding or such Restricted Subsidiary is
in the form of cash or Cash Equivalents other than in the case where Holding or
such Restricted Subsidiary is undertaking a Permitted Asset Swap; provided that
the amount of (x) any liabilities (as shown on Holding's or such Restricted
Subsidiary's most recent balance sheet), of Holding or any Restricted Subsidiary
(other than contingent liabilities and liabilities that are by their terms
subordinated to the Series B Debentures) that are assumed by the transferee of
any such assets pursuant to a customary agreement that releases Holding or such
Restricted Subsidiary from further liability and (y) any securities, notes or
other obligations received by Holding or any such Restricted Subsidiary from
such transferee that are converted within 15 days by Holding or such Restricted
Subsidiary into cash (to extent of the cash received) shall be deemed to be cash
for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
Holding or its Restricted Subsidiaries may, at its option, apply such Net
Proceeds (a) to repay Indebtedness of a Restricted Subsidiary of Holding, or (b)
to the investment in, or the making of a capital expenditure or the acquisition
of other property or assets in each case used or useable in a Permitted
Business, or Capital Stock of any Person primarily engaged in a Permitted
Business if, as a result of the investment in or acquisition by Holding or any
Restricted Subsidiary thereof, such Person becomes a Restricted Subsidiary, or
(c) a combination of the uses described in clauses (a) and (b). Pending the
final application of any such Net Proceeds, Holding or its Restricted
Subsidiaries may temporarily reduce Indebtedness of a Restricted Subsidiary of
Holding or otherwise invest such Net Proceeds in any manner that is not
prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph within
the 360-day period after receipt of such Net Proceeds will be deemed to
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $10.0 million, Holding will be required to make an offer to all Holders
of Series B Debentures and, to the extent required by the terms of any Pari
Passu Indebtedness to all holders of such Pari Passu Indebtedness (an "Asset
Sale Offer"), to purchase the maximum principal amount of Series B Debentures
and any such Pari Passu Indebtedness that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date of purchase (or, in the case of repurchases of Series B
Debentures prior to April 15, 2003, at a purchase price equal to 100% of the
Accreted Value thereof plus Liquidated Damages, as of the date of repurchase),
in accordance with the procedures set forth in the Indenture or such Pari Passu
Indebtedness, as applicable. To the extent that the aggregate principal amount
at maturity of Series B Debentures (or Accreted Value, as the case may be) and
any such Pari Passu Indebtedness tendered pursuant to an Asset Sale Offer is
less than the Excess Proceeds, Holding or its Restricted Subsidiaries may use
any remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount at maturity (or Accreted Value, as the case may be) of Series B
Debentures and any such Pari Passu Indebtedness surrendered by holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Series B
Debentures to be purchased on a pro rata basis. Upon completion of such Asset
Sale Offer, the amount of Excess Proceeds shall be reset at zero. Holding's
ability to repurchase the Series B Debentures will be subject to the covenants
contained in the New Credit Facility or any additional or successor bank
facility.
The New Credit Facility and the Senior Subordinated Notes restrict the
Company from paying any dividends or making any other distributions to Holding.
If Holding is unable to obtain dividends from the Company sufficient to permit
the repurchase of the Series B Debentures or does not refinance such
Indebtedness, Holding will likely not have the financial resources to purchase
Series B Debentures. In any event, there can be no assurance
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that Holding's Subsidiaries will have the resources available to pay any such
dividend or make any such distribution. Holding's failure to make an Asset Sale
Offer when required or to purchase tendered Series B Debentures when tendered
would constitute an Event of Default under the Indenture. See "Risk Factors--
Limitation on Access to Cash Flow of Subsidiaries; Holding Company Structure."
SELECTION AND NOTICE
If less than all of the Series B Debentures are to be redeemed or
repurchased in an offer to purchase at any time, selection of Series B
Debentures for redemption or repurchase will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Series B Debentures are listed, or, if the Series B
Debentures are not so listed, on a pro rata basis, by lot or by such other
method as the Trustee deems fair and appropriate; provided that no Series B
Debentures of $1,000 or less shall be redeemed or repurchased in part. Notices
of redemption may not be conditional. Notices of redemption or repurchase shall
be mailed by first class mail at least 30 but not more than 60 days before the
redemption date or repurchase date to each Holder of Series B Debentures to be
redeemed or repurchased at its registered address. If any Series B Debenture is
to be redeemed or repurchased in part only, the notice of redemption or
repurchase that relates to such Series B Debentures shall state the portion of
the principal amount thereof to be redeemed or repurchased. A new Series B
Debenture in principal amount equal to the unredeemed or unrepurchased portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Series B Debenture. On and after the redemption or repurchase
date, interest and Liquidated Damages will cease to accrue on Series B
Debentures or portions of them called for redemption or repurchase.
CERTAIN COVENANTS
Restricted Payments
The Indenture will provide that Holding will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of Holding's
or any of its Restricted Subsidiaries' Equity Interests (including, without
limitation, any such dividend, distribution or other payment made as a payment
in connection with any merger or consolidation involving Holding), other than
dividends or distributions payable in Equity Interests (other than Disqualified
Stock) of Holding or dividends or distributions payable to Holding or any Wholly
Owned Subsidiary of Holding; (ii) purchase, redeem or otherwise acquire or
retire for value (including, without limitation, any such purchase, redemption
or other acquisition or retirement for value made as a payment in connection
with any merger or consolidation involving Holding) any Equity Interests of
Holding or any Restricted Subsidiary (other than any such Equity Interests owned
by Holding or any Restricted Subsidiary of Holding); (iii) make any principal
payment on or with respect to, or purchase, redeem, defease or otherwise acquire
or retire for value any Indebtedness that is subordinated to the Series B
Debentures, except a payment of principal at Stated Maturity in the applicable
amounts so required; or (iv) make any Restricted Investment (all such payments
and other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and immediately
after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(b) Holding would, at the time of such Restricted Payment and after giving
pro forma effect thereto as if such Restricted Payment had been made at the
beginning of the applicable four-quarter period, have been permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant described below
under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock;" and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by Holding and its Restricted Subsidiaries after
the Issue Date (excluding Restricted Payments permitted by clauses
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(ii), (iii), (v), (vi) and (viii) of the next succeeding paragraph), is less
than the sum (without duplication) of (i) 50% of the Consolidated Net Income of
Holding for the period (taken as one accounting period) from the beginning of
the first fiscal quarter commencing after the Issue Date to the end of Holding's
most recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated Net
Income for such period is a deficit, less 100% of such deficit), plus (ii) 100%
of the aggregate net cash proceeds received by Holding from the issue or sale
subsequent to the Issue Date of Equity Interests of Holding (other than
Disqualified Stock) or of Disqualified Stock or debt securities of Holding that
have been converted into or exchanged for such Equity Interests (other than
Equity Interests (or Disqualified Stock or convertible debt securities) sold to
a Restricted Subsidiary of Holding and other than Disqualified Stock or
convertible debt securities that have been converted into Disqualified Stock),
plus (iii) with respect to any Restricted Investment that was made after the
Issue Date (A) to the extent that such Restricted Investment is sold for cash or
otherwise liquidated or repaid for cash, the amount of cash proceeds received
with respect to such Restricted Investments and (B), without duplication of any
amount included in Consolidated Net Income, 100% of any cash dividends or other
cash distributions received in respect of such Restricted Investment, plus (iv)
to the extent not otherwise included in clause (iii) above, 100% of the net cash
proceeds realized upon the sale of any Unrestricted Subsidiary (less the amount
of any reserve established for purchase price adjustments and less the maximum
amount of any indemnification or similar contingent obligation for the benefit
of the purchaser, any of its Affiliates or any other third party in such sale,
in each case as adjusted for any permanent reduction in any such amount on or
after the date of such sale, other than by virtue of a payment made to such
Person following the Issue Date), plus (v) upon the redesignation of an
Unrestricted Subsidiary as a Restricted Subsidiary, the lesser of (x) the fair
market value of such Subsidiary or (y) the aggregate amount of all Investments
made in such Subsidiary subsequent to the Issue Date by Holding and its
Restricted Subsidiaries, plus (vi) $10.0 million.
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the Indenture;
(ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of Holding or
any Restricted Subsidiary in exchange for, or in an amount not in excess of the
net cash proceeds of the substantially concurrent sale (other than to a
Restricted Subsidiary of Holding) of, other Equity Interests of Holding (other
than any Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition, and any Net Income resulting therefrom, shall
be excluded from clauses (c)(i) and (c)(ii) of the preceding paragraph;
(iii) the defeasance, redemption, repurchase, retirement or other
acquisition of subordinated Indebtedness in exchange for, or in an amount not in
excess of the net cash proceeds from, an incurrence of Permitted Refinancing
Indebtedness;
(iv) so long as no Default or Event of Default shall have occurred and is
continuing, the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of Holding or any Restricted Subsidiary of
Holding, held by any member of Holding's (or any of its subsidiaries')
management, employees, directors or consultants pursuant to any management,
employee, director or consultant equity subscription agreement or stock option
agreement; provided that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed the sum of (A)
$3 million and (B) the aggregate cash proceeds received by Holding from any
issuance of Equity Interests by Holding to members of management, employees,
directors or consultants of Holding and its subsidiaries (provided that the cash
proceeds referred to in this clause (B) shall be excluded from clause (c)(ii) of
the preceding paragraph); provided, further, that Management Notes may be
forgiven or returned without regard to the limitation set forth above and the
forgiveness or return thereof shall not be treated as Restricted Payments for
purposes of determining compliance with such limitation;
(v) the payment of any dividend (or the making of a similar distribution
or redemption) by a Restricted Subsidiary of Holding to the holders of its
common Equity Interests on a pro rata basis;
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(vi) payments required (A) to be made under the Tax Sharing Agreement or
(B) distributions made by Holding on the date of the Indenture, the proceeds of
which are utilized solely to consummate the Recapitalization;
(vii) so long as no Default or Event of Default has occurred and is
continuing, the declaration and payment of dividends to holders of any class or
series of Disqualified Stock of Holding or any Restricted Subsidiary issued
after the date of the Indenture in accordance with the covenant described below
under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock"; and
(viii) the purchase or redemption of subordinated indebtedness pursuant to
a change of control of provision contained in the indenture or other governing
instrument relating thereto; provided, however, that (A) no offer or purchase
obligation may be triggered in respect of such Indebtedness unless a
corresponding obligation also arises for the Series B Debentures and (B) in all
events, no repurchase or redemption of such Indebtedness may be consummated
unless and until Holding shall have satisfied all repurchase obligations with
respect to any required purchase offer made with respect to the Series B
Debentures.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default or an
Event of Default. For purposes of making such determination, all outstanding
Investments by Holding and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the greater of (i) the net book value of such Investments at the time
of such designation and (ii) the fair market value of such Investments at the
time of such designation. Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by Holding or such Restricted Subsidiary,
as the case may be, pursuant to the Restricted Payment. The fair market value
of any non-cash Restricted Payment shall be determined by the Board of Directors
whose resolution with respect thereto shall be delivered to the Trustee, such
determination to be based upon a fairness opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if such
fair market value exceeds $10.0 million. Not later than the date of making any
Restricted Payment, Holding shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this covenant were computed,
together with a copy of any fairness opinion or appraisal if required by the
Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture will provide that Holding will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that Holding will not issue any
Disqualified Stock and will not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock or Disqualified Stock other than to Holding
or another Restricted Subsidiary; provided, however, that Holding or any of its
Restricted Subsidiaries may incur Indebtedness (including Acquired Debt) or
issue shares of Disqualified Stock if (i) the Fixed Charge Coverage Ratio for
Holding's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued would
have been at least 1.75 to 1.0 commencing on the Issue Date and at any time
thereafter, determined on a pro forma basis (including a pro forma application
of the net proceeds therefrom), as if the additional Indebtedness had been
incurred, or the Disqualified Stock had been issued or in the case of any
Restricted Subsidiary, such preferred stock had been issued, as the case may be,
at the beginning of such four-quarter period and (ii) no Default or Event of
Default will have occurred or be continuing or would occur as a consequence
thereof, provided further, that prior to the second anniversary of the Issue
Date the Company and its Restricted Subsidiaries may incur Indebtedness
permitted to be incurred pursuant to the Senior Subordinated Note Indenture.
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The Indenture will also provide that Holding will not incur any
Indebtedness that is contractually subordinated in right of payment to any other
Indebtedness of Holding unless such Indebtedness is also contractually
subordinated in right of payment to the Series B Debentures on substantially
identical terms; provided, however, that no Indebtedness of Holding shall be
deemed to be contractually subordinated in right of payment to any other
Indebtedness of Holding solely by virtue of being unsecured.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by Holding and the Restricted Subsidiaries of
Indebtedness under the Credit Facilities and any Guarantees thereof; provided
that the aggregate principal amount of all Indebtedness (with letters of credit
being deemed to have a principal amount equal to the maximum potential liability
of Holding and the Restricted Subsidiaries for reimbursement of drawings that
may be made thereunder) outstanding under all Credit Facilities after giving
effect to such incurrence, including all Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred pursuant to this clause (i), does
not exceed at any time (A) with respect to the term loan portion of such Credit
Facilities, $125 million in an aggregate principal amount and (B) with respect
to the revolving credit facility and deferred term loan portion of such Credit
Facilities, an aggregate principal amount equal to the greater of fifty percent
of the amount of inventory shown on the consolidated balance sheet of Holding
for the then most recently ended fiscal quarter and $250 million less, in the
case of clause (A) or (B), the aggregate principal of all principal payments
thereunder constituting permanent reductions of such Indebtedness pursuant to
such Credit Facilities or in accordance with the covenant described under "--
Repurchase at the Option of Holders--Asset Sales;"
(ii) the incurrence by Holding of Indebtedness represented by the Series B
Debentures and the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness represented by the Senior Subordinated Notes and any guarantee
thereof;
(iii) the incurrence by Holding or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings or
other obligations, in each case incurred for the purpose of financing all or any
part of the acquisition cost or cost of construction, remodeling or improvements
of assets or property used in the business of Holding or any Restricted
Subsidiary, in an aggregate principal amount not to exceed $25.0 million at any
time outstanding;
(iv) other Indebtedness of Holding and its Restricted Subsidiaries
outstanding on the Issue Date;
(v) the incurrence by Holding or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which
are used to refund, refinance or replace Indebtedness (other than intercompany
Indebtedness) that was permitted by the Indenture to exist or be incurred;
(vi) the incurrence by Holding or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among Holding and any of its Wholly Owned
Subsidiaries or between or among any Wholly Owned Subsidiaries; provided that
(A) any subsequent issuance or transfer of Equity Interests that results in any
such Indebtedness being held by a Person other than a Wholly Owned Subsidiary
and (B) any sale or other transfer of any such Indebtedness to a Person that is
not either Holding or a Wholly Owned Subsidiary will be deemed, in each case, to
constitute an incurrence of such Indebtedness by Holding or such Restricted
Subsidiary, as the case may be;
(vii) the incurrence by Holding or any Restricted Subsidiary of Hedging
Obligations that are incurred for the purpose of fixing or hedging (i) interest
rate risk with respect to any floating rate Indebtedness that is permitted by
the terms of the Indenture to be outstanding or (ii) the value of foreign
currencies purchased or received by Holding or any Restricted Subsidiary in the
ordinary course of business;
(viii) Indebtedness incurred in respect of workers' compensation claims,
self-insurance obligations, performance, surety and similar bonds and completion
guarantees provided by Holding or a Restricted Subsidiary in the ordinary course
of business;
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(ix) Indebtedness arising from guarantees of Indebtedness of Holding or any
Restricted Subsidiary or the agreements of Holding or a Restricted Subsidiary
providing for indemnification, adjustment of purchase price or similar
obligations, in each case, incurred or assumed in connection with the
disposition of any business, assets or Capital Stock of a Restricted Subsidiary,
or other guarantees of Indebtedness incurred by any person acquiring all or any
portion of such business, assets or Capital Stock of a Restricted Subsidiary for
the purpose of financing such acquisition, provided that the maximum aggregate
liability in respect of all such Indebtedness shall at no time exceed 25% of the
gross proceeds (with proceeds other than cash or Cash Equivalents being valued
at the fair market value thereof as determined by the Board of Directors of
Holding in good faith) actually received by Holding and its Restricted
Subsidiaries in connection with such disposition;
(x) the guarantee by Holding or any Restricted Subsidiary of Indebtedness
of Holding or a Restricted Subsidiary that was permitted to be incurred by
another provision of this covenant;
(xi) the incurrence by Holding or any of its Restricted Subsidiaries of
Acquired Debt in an aggregate principal amount at any time outstanding not to
exceed $10.0 million;
(xii) Indebtedness incurred in connection with a Qualified Receivables
Transaction except to the extent that such Indebtedness is recourse to Holding
or any other Restricted Subsidiary of Holding; and
(xiii) the incurrence by Holding or any Restricted Subsidiary of additional
Indebtedness in an aggregate principal amount (or accreted value, as applicable)
at any time outstanding, including all Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred pursuant to this clause (xiii),
not to exceed $25.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xiii) above or is
entitled to be incurred pursuant to the first paragraph of this covenant,
Holding shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest, the accretion of accreted
value and the payment of interest in the form of additional Indebtedness will
not be deemed to be an incurrence of Indebtedness for purposes of this covenant.
Liens
The Indenture will provide that Holding will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom for purposes of securing Indebtedness, except Permitted Liens, unless
the Obligations due under the Indenture and the Series B Debentures are secured
by a Lien on such property, assets or proceeds on an equal and ratable basis (or
on a senior basis, in the case of Indebtedness subordinate in right of payment
to the Series B Debentures), with the Obligations so secured, so long as such
Obligations are secured.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture will provide that Holding will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to Holding or any of its Restricted Subsidiaries (1) on its
Capital Stock or (2) with respect to any other interest or participation in, or
measured by, its profits, or (b) pay any Indebtedness owed to Holding or any of
its Restricted Subsidiaries, (ii) make loans or advances to Holding or any of
its Restricted Subsidiaries or (iii) transfer any of its properties or assets to
Holding or any of its Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (a) the New Credit Facility; (b) the
Senior Subordinated Notes and the Senior Subordinated Note Indenture under which
the same are issued, as in effect as of the date of the Indenture, and any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are no more restrictive with respect to such
dividend and other payment restrictions
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than those contained in the New Credit Facility or the Senior Subordinated
Notes, as the case may be, as in effect on the date of the Indenture, (c) the
Indenture and the Series B Debentures, (d) applicable law or any applicable
rule, regulation or order, (e) any agreement or instrument governing
Indebtedness or Capital Stock of a Person acquired by Holding or any of its
Restricted Subsidiaries as in effect at the time of such acquisition (except to
the extent such agreement or instrument was created or entered into in
connection with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of such Person, so
acquired, (f) by reason of customary non-assignment provisions in leases,
licenses, encumbrances, contracts or similar assets entered into or acquired in
the ordinary course of business and consistent with industry practices, (g)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (f) above on
the property so acquired, (h) Permitted Refinancing Indebtedness, provided that
the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced; (i) contracts for the
sale of assets containing customary restrictions with respect to a Restricted
Subsidiary pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Restricted Subsidiary and (j) customary restrictions in security agreements or
mortgages securing Indebtedness of Holding or a Restricted Subsidiary to the
extent such restrictions restrict the transfer of the property subject to such
security agreements and mortgages.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries
The Indenture will provide that Holding will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, transfer, convey,
lease, sell or otherwise dispose of any shares (other than directors' qualifying
shares) of Capital Stock of a Restricted Subsidiary to any Person, except (i) to
Holding or a Wholly Owned Subsidiary or (ii) in a transfer, conveyance, lease,
sale or other disposition of all the Capital Stock of such Restricted Subsidiary
owned by the Company or another Restricted Subsidiary; provided, that in
connection with any such transfer, conveyance, lease, sale or other disposition
of Capital Stock Holding or any such Restricted Subsidiary complies with the
covenant described under "--Repurchase at the Option of Holders--Asset Sales";
provided, further that the foregoing shall not restrict (a) any Lien on Capital
Stock of a Restricted Subsidiary that is not otherwise prohibited under the
Indenture or (b) any transfer, sale or other disposition of Capital Stock
pursuant to a foreclosure of any such Lien or similar exercise of remedies in
respect thereof.
Merger, Consolidation or Sale of Assets
The Indenture will provide that Holding may not consolidate or merge with
or into (whether or not Holding is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another Person
unless (i) Holding is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than Holding) or to which
such sale, assignment, transfer, lease, conveyance or other disposition shall
have been made is a corporation or limited liability company organized or
existing under the laws of the United States, any state thereof or the District
of Columbia; (ii) the Person formed by or surviving any such consolidation or
merger (if other than Holding) or the Person to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made assumes
all the obligations of Holding under the Series B Debentures and the Indenture
pursuant to a supplemental indenture in a form reasonably satisfactory to the
Trustee; (iii) immediately prior to and immediately after such transaction no
Default or Event of Default exists; and (iv) except in the case of a merger of
Holding with or into a Wholly Owned Subsidiary of Holding, Holding or the entity
or Person formed by or surviving any such consolidation or merger (if other than
Holding), or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made will at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant described above under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock". For
purposes of this covenant, the sale, lease, conveyance, assignment, transfer, or
other disposition of all or substantially all of the properties and assets of
one or more Subsidiaries of Holding, which properties and assets, if held by
Holding instead of such Subsidiaries, would constitute all or substantially all
of the properties and assets of Holding on a consolidated basis, shall be deemed
to be the transfer of all or substantially
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all of the properties and assets of Holding. The foregoing clause (iv) will not
prohibit (a) a merger between Holding and a Wholly Owned Subsidiary of Holding
or (b) a merger between Holding and an Affiliate incorporated solely for the
purpose of reincorporating Holding in another State of United States so long as,
in the case of each clause (a) and (b), the amount of Indebtedness of Holding
and its Restricted Subsidiaries is not increased thereby.
Transactions with Affiliates
The Indenture will provide that Holding will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to or Investment in, or
sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) the terms of such Affiliate Transaction are fair and
reasonable to Holding or such Restricted Subsidiary, as the case may be, and are
at least as favorable as the terms which could be obtained by Holding or such
Restricted Subsidiary, as the case may be, in a comparable transaction made on
an arm's-length basis between unaffiliated parties and (ii) Holding delivers to
the Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $2.0
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10.0 million, an opinion as to the
fairness to the Holders of such Affiliate Transaction from a financial point of
view issued by an accounting, appraisal or investment banking firm of national
standing; provided that the following shall not be deemed Affiliate
Transactions: (v) certain leases and other arrangements of the Company in effect
on the Issue Date and specified in a Schedule to the Indenture, (w) any
employment agreements, stock option or other compensation agreements or plans
(and the payment of amounts or the issuance of securities thereunder) and other
reasonable fees, compensation, benefits and indemnities paid or entered into by
Holding or any of its Restricted Subsidiaries in the ordinary course of business
of Holding or such Restricted Subsidiary to or with the officers, directors or
employees of Holding or its Restricted Subsidiaries, (x) transactions between or
among Holding and/or its Restricted Subsidiaries and (y) Restricted Payments
(other than Restricted Investments) that are permitted by the provisions of the
Indenture described above under the caption "--Restricted Payments" and (z)
sales of Capital Stock (other than Disqualified Stock) of Holding, when such
sales are exclusively for cash.
Business Activities
The Indenture will provide that Holding will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, engage to a substantial extent
in any business activity other than Permitted Businesses.
Reports
The Indenture will provide that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Series B Debentures are outstanding, Holding will furnish to the
Holders of Series B Debentures (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if Holding were required to file such Forms,
including a "Management's Discussion and Analysis of Financial Condition and
Results of Operations" that describes the financial condition and results of
operations of Holding and its consolidated Subsidiaries and, with respect to the
annual information only, a report thereon by Holding's certified independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if Holding were required to file such reports, in
each case within the time periods set forth in the Commission's rules and
regulations. In addition, whether or not required by the rules and regulations
of the Commission, at any time after the consummation of the Exchange Offer
contemplated by the Registration Rights Agreement, Holding will file a copy of
all such information and reports with the Commission for public availability
within the time periods set forth in the Commission's rules and regulations
(unless the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request. In
addition, at all times that the Commission does not accept the filings provided
for in the preceding sentence, Holding has agreed that, for so long as any
Series B Debentures remain outstanding, they will furnish to the Holders and to
securities analysts and
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prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Series B Debentures; (ii)
default in payment when due of the principal of or premium, if any, on the
Series B Debentures; (iii) failure by Holding or any of its Restricted
Subsidiaries for 30 days after notice by the Trustee or by the Holders of at
least 25% in principal amount of Series B Debentures then outstanding to comply
with the provisions described under the captions "--Repurchase at the Option of
Holders--Change of Control" or "--Asset Sales," or "--Certain Covenants--
Restricted Payments" or "--Incurrence of Indebtedness and Issuance of Preferred
Stock;" (iv) failure by Holding or any of its Restricted Subsidiaries for 60
days after notice by the Trustee or by the Holders of at least 25% in principal
amount of Series B Debentures then outstanding to comply with any of its other
agreements in the Indenture or the Series B Debentures; (v) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by Holding
or any of its Restricted Subsidiaries (or the payment of which is guaranteed by
Holding or any of its Restricted Subsidiaries) whether such Indebtedness or
guarantee now exists, or is created after the date of the Indenture, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness at final maturity (a "Payment Default") or (b)
results in the acceleration of such Indebtedness prior to its stated maturity
and, in each case, the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$20.0 million or more in the case of clause (a) or (b); (vi) failure by Holding
or any of its Restricted Subsidiaries to pay final judgments aggregating in
excess of $20.0 million (net of any amounts with respect to which a reputable
and creditworthy insurance company has acknowledged liability in writing), which
judgments are not paid, discharged or stayed for a period of 60 days; and (vii)
certain events of bankruptcy or insolvency with respect to Holding or any of its
Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Series B
Debentures may declare all the Series B Debentures to be due and payable
immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising
from certain events of bankruptcy or insolvency, with respect to Holding, all
outstanding Series B Debentures will become due and payable without further
action or notice. Upon any acceleration of maturity of the Series B Debentures,
all principal of and accrued interest and Liquidated Damages, if any, on (if on
or after April 15, 2003) or Accreted Value of and Liquidated Damages, if any, on
(if prior to April 15, 2003) the Series B Debentures shall be due and payable
immediately. Holders of the Series B Debentures may not enforce the Indenture
or the Series B Debentures except as provided in the Indenture. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Series B Debentures may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from Holders of the Series B
Debentures notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal or interest) if
it determines that withholding notice is in their interest. In the event of a
declaration of acceleration of the Series B Debentures because an Event of
Default has occurred and is continuing as a result of the acceleration of any
Indebtedness described in clause (v) of the preceding paragraph, the declaration
of acceleration of the Series B Debentures shall be automatically annulled if
the holders of any Indebtedness described in clause (v) of the preceding
paragraph have rescinded the declaration of acceleration in respect of such
Indebtedness within 30 days of the date of such declaration and if (a) the
annulment of the acceleration of Series B Debentures would not conflict with any
judgment or decree of a court of competent jurisdiction and (b) all existing
Events of Default, except nonpayment of principal or interest on the Series B
Debentures that became due solely because of the acceleration of the Series B
Debentures, have been cured or waived.
The Holders of a majority in aggregate principal amount of the Series B
Debentures then outstanding by notice to the Trustee may on behalf of the
Holders of all of the Series B Debentures waive any existing Default or
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Event of Default and its consequences under the Indenture except a continuing
Default or Event of Default in the payment of interest on, or the principal of,
the Series B Debentures.
Holding is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and Holding is required upon becoming
aware of any Default or Event of Default, to deliver to the Trustee a statement
specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Holding, as
such, shall have any liability for any obligations of Holding under the Series B
Debentures or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Series B
Debentures, by accepting a Series B Debenture, waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Series B Debentures. Such waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the Commission that such
a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Holding may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Series B Debentures
("Legal Defeasance") except for (i) the rights of Holders of outstanding Series
B Debentures to receive payments in respect of the principal of, premium, if
any, and interest and Liquidated Damages on such Series B Debentures when such
payments are due from the trust referred to below, (ii) Holding's obligations
with respect to the Series B Debentures concerning issuing temporary Series B
Debentures, registration of Series B Debentures, mutilated, destroyed, lost or
stolen Series B Debentures and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights, powers,
trusts, duties and immunities of the Trustee, and Holding's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, Holding may, at its option and at any time, elect to have the
obligations of Holding released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Series B Debentures. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "--Events of
Default and Remedies" will no longer constitute an Event of Default with respect
to the Series B Debentures.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
Holding must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Series B Debentures, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal amount at maturity of or Accreted Value (as
applicable) of, premium, if any, and interest and Liquidated Damages on the
outstanding Series B Debentures on the stated maturity or on the applicable
redemption date, as the case may be, and Holding must specify whether the Series
B Debentures are being defeased to maturity or to a particular redemption date;
(ii) in the case of Legal Defeasance, Holding shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that (A) Holding has received from, or there has been
published by, the Internal Revenue Service, a ruling or (B) since the date of
the Indenture, there has been a change in the applicable federal income tax law,
in either case to the effect that, and based thereon such opinion of counsel
shall confirm that, subject to customary assumptions and exclusions, the Holders
of the outstanding Series B Debentures will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, Holding shall have delivered
to the Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that, subject to customary assumptions and exclusions,
the Holders of the outstanding Series B Debentures will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of
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Default shall have occurred and be continuing on the date of such deposit (other
than a Default or Event of Default resulting from the financing of amounts to be
applied to such deposit) or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
will not result in a breach or violation of, or constitute a default under any
material agreement or instrument (other than the Indenture) to which Holding or
any of its Subsidiaries is a party or by which Holding or any of its
Subsidiaries is bound; (vi) Holding shall have delivered to the Trustee an
opinion of counsel to the effect that, subject to customary assumptions and
exclusions (which assumptions and exclusions shall not relate to the operation
of Section 547 of the United States Bankruptcy Code or any analogous New York
State law provision), after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii)
Holding shall have delivered to the Trustee an Officers' Certificate stating
that the deposit was not made by Holding with the intent of preferring the
Holders of Series B Debentures over the other creditors of Holding with the
intent of defeating, hindering, delaying or defrauding creditors of Holding or
others; and (viii) Holding shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Series B Debentures in accordance with
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and Holding
may require a Holder to pay any taxes and fees required by law or permitted by
the Indenture. Holding is not required to transfer or exchange any Series B
Debentures selected for redemption. Also, Holding is not required to transfer
or exchange any Series B Debentures for a period of 15 days before a selection
of Series B Debentures to be redeemed.
The registered Holder of a Series B Debenture will be treated as the owner
of it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Series B Debentures may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount at maturity of the Series B
Debentures then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Series B
Debentures), and any existing default or compliance with any provision of the
Indenture or the Series B Debentures may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Series B
Debentures (including consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Series B Debentures).
Without the consent of each Holder affected, an amendment or waiver may not
with respect to any Series B Debentures held by a non-consenting Holder: (i)
reduce the principal amount of Series B Debentures whose Holders must consent to
an amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Series B Debentures or alter the provisions with respect
to the redemption of the Series B Debentures (other than provisions relating to
the covenants described above under the caption "--Repurchase at the Option of
Holders") or amend or modify the calculation of the Accreted Value so as to
reduce the amount of the Accreted Value of the Series B Debentures, (iii) reduce
the rate of or change the time for payment of interest on any Series B
Debenture, (iv) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the Series B Debentures (except a
rescission of acceleration of the Series B Debentures by the Holders of at least
a majority in aggregate principal amount at maturity of the Series B Debentures
and a waiver of the payment default that resulted from such acceleration), (v)
make any Series B Debenture payable in money other than that stated in the
Series B Debentures, (vi) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of Holders of Series B
Debentures to receive payments of principal of or premium, if any, or interest
on the Series B Debentures, (vii) waive a redemption payment with respect to any
Series B
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Debenture (other than a payment required by one of the covenants described above
under the caption " --Repurchase at the Option of Holders"), or (viii) make any
change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Series
B Debentures, Holding and the Trustee may amend or supplement the Indenture or
the Series B Debentures to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Series B Debentures in addition to or in place of
certificated Series B Debentures, to provide for the assumption of Holding's
obligations to Holders of Series B Debentures in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders of Series B Debentures or that does not materially
adversely affect the legal rights under the Indenture of any such Holder, to
comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of Holding, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount at maturity of the then
outstanding Series B Debentures will have the right to direct the time, method
and place of conducting any proceeding for exercising any remedy available to
the Trustee, subject to certain exceptions. The Indenture provides that in case
an Event of Default shall occur (which shall not be cured), the Trustee will be
required, in the exercise of its power, to use the degree of care of a prudent
man in the conduct of his own affairs. Subject to such provisions, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Series B Debentures, unless such
Holder shall have offered to the Trustee security and indemnity satisfactory to
it against any loss, liability or expense.
FORM, DENOMINATION AND BOOK-ENTRY PROCEDURES
The Series B Debentures may be issued in the form of one or more global
securities (collectively, the "Global Series B Debenture"). The Global Series B
Debenture will be deposited with, or on behalf of, the DTC and registered in the
name of the DTC or its nominee. Except as set forth below, the Global Series B
Debenture may be transferred, in whole and not in part, only to the DTC or
another nominee of the DTC. Investors may hold their beneficial interests in
the Global Series B Debenture directly through the DTC if they have an account
with the DTC or indirectly through organizations which have accounts with the
DTC.
Depository Procedures
DTC has advised Holding that DTC is a limited-purpose trust company created
to hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between the Participants through electronic book-entry
changes in accounts of the Participants. The Participants include securities
brokers and dealers (including the Initial Purchasers), banks, trust companies,
clearing corporations and certain other organizations. Access to DTC's system
is also available to other entities such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own
securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interest and transfer of ownership
interest of each actual purchaser of each security held by or on behalf of DTC
are recorded on the records of the Participants and the Indirect Participants.
DTC has also advised Holding that pursuant to procedures established by it,
(i) upon deposit of the Global Series B Debentures, DTC will credit the accounts
of Participants designated by the Initial Purchasers with portions
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of the principal amount of the Global Series B Debentures and (ii) ownership of
such interests in the Global Series B Debentures will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by DTC (with respect to the Participants) or by the Participants and the
Indirect Participants (with respect to other owners of beneficial interests in
the Global Series B Debentures).
Investors in the Global Series B Debenture may hold their interests therein
directly through DTC, if they are Participants in such system, or indirectly
through organizations (including Euroclear and CEDEL) which are Participants in
such system.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Series B Debenture to such persons may
be limited to that extent. Because DTC can act only on behalf of the
Participants, which in turn act on behalf of the Indirect Participants and
certain banks, the ability of a person having beneficial interests in a Global
Series B Debenture to pledge such interests to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interests, may be affected by the lack of a physical certificate evidencing such
interests. For certain other restrictions on the transferability of the Series
B Debentures, see "--Exchange of Book-Entry Series B Debentures for Certificated
Series B Debentures."
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL SERIES B
DEBENTURES WILL NOT HAVE SERIES B DEBENTURES REGISTERED IN THEIR NAMES, WILL NOT
RECEIVE PHYSICAL DELIVERY OF SERIES B DEBENTURES IN CERTIFICATED FORM AND WILL
NOT BE CONSIDERED THE REGISTERED OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE
FOR ANY PURPOSE.
Payments in respect of the principal of (and premium, if any) and interest
on a Global Series B Debenture registered in the name of DTC or its nominee will
be payable to DTC or its nominee in its capacity as the registered holder under
the Indenture. Under the terms of the Indenture, Holding and the Trustee will
treat the persons in whose names the Series B Debentures, including the Global
Series B Debentures, are registered as the owners thereof for the purpose of
receiving such payments and for any and all other purposes whatsoever.
Consequently, neither of Holding, the Initial Purchasers, the Trustee nor any
agent of Holding, the Initial Purchasers or the Trustee has or will have any
responsibility or liability for (i) any aspect or accuracy of DTC's records or
any Participant's or Indirect Participant's records relating to or payments made
on account of beneficial ownership interests in the Global Series B Debentures,
or for maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in the Global Series B Debentures, or (ii) any other matter
relating to the actions and practices of DTC or any of the Participants or the
Indirect Participants.
DTC has advised Holding that its current practice, upon receipt of any
payment in respect of securities such as the Series B Debentures (including
principal and interest), is to credit the accounts of the relevant Participants
with the payment on the payment date, in amounts proportionate to their
respective holdings in principal amount of beneficial interests in the relevant
security as shown on the records of DTC. Payments by the Participants and the
Indirect Participants to the beneficial owners of the Series B Debentures will
be governed by standing instructions and customary practices and will not be the
responsibility of DTC, the Trustee or Holding. Neither Holding nor the Trustee
will be liable for any delay by DTC or any of the Participants in identifying
the beneficial owners of the Series B Debentures, and Holding and the Trustee
may conclusively rely on and will be protected in relying on instructions from
DTC or its nominee as the registered owner of the Global Series B Debentures for
all purposes.
Interests in the Global Series B Debentures will trade in DTC's Same-Day
Funds Settlement System and secondary market trading activity in such interests
will therefore settle in immediately available funds, subject in all cases to
the rules and procedures of DTC and the Participants. Transfers between
Participants in DTC will be effected in accordance with DTC's procedures and
will be settled in same-day funds.
DTC has advised Holding that it will take any action permitted to be taken
by a holder of Series B Debentures only at the direction of one or more
Participants to whose account with DTC interests in the Global Series B
Debentures are credited and only in respect of such portion of the aggregate
principal amount of the Series
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B Debentures as to which such Participant or Participants has or have given such
direction. However, if any of the events described under "--Exchange of Book
Entry Series B Debentures for Certificated Series B Debentures" occurs, DTC
reserves the right to exchange the Global Series B Debentures for legended
Series B Debentures in certificated form and to distribute such Series B
Debentures to its Participants.
The information in this section concerning DTC and its book-entry system
has been obtained from sources that Holding believes to be reliable, but Holding
takes no responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Series B Debenture among accountholders in DTC, it is
under no obligation to perform or to continue to perform such procedures, and
such procedures may be discontinued at any time. None of Holding, the Initial
Purchasers or the Trustee nor any agent of Holding, the Initial Purchasers or
the Trustee will have any responsibility for the performance by DTC or its
participants, indirect participants or accountholders of their respective
obligations under the rules and procedures governing their respective
operations.
Exchange of Book-Entry Series B Debentures for Certificated Series B
Debentures
The Global Series B Debenture is exchangeable for definitive Series B
Debentures in registered certificated form if (i) DTC (x) notifies Holding that
it is unwilling or unable to continue as depository for the Global Series B
Debenture and Holding thereupon fails to appoint a successor depository or (y)
has ceased to be a clearing agency registered under the Series B Act, (ii)
Holding, at its option, notifies the Trustee in writing that it elects to cause
the issuance of the Series B Debentures in certificated form or (iii) there
shall have occurred and be continuing a default or an Event of Default with
respect to the Series B Debentures. In all cases, certificated Series B
Debentures delivered in exchange for any beneficial interests in the Global
Series B Debenture will be registered in the names, and issued in any approved
denominations, requested by or on behalf of DTC (in accordance with its
customary procedures).
Concerning the Trustee
United States Trust Company of New York is the Trustee under the Indenture.
Governing Law
The Indenture and the Series B Debentures will be governed by and construed
in accordance with the laws of the State of New York.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to Holding at 5673
Airport Road, Roanoke, Virginia 24012, Attention: Chief Financial Officer.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Accreted Value" means, as of any date of determination prior to April 15,
2003, with respect to any Series B Debenture, the sum of (a) the initial
offering price (which shall be calculated by discounting the aggregate principal
amount at maturity of such Series B Debenture at a rate of 12.875% per annum,
compounded semi-annually on each April 15 and October 15 from April 15, 2003 to
the date of issuance) of such Series B Debenture and (b) the portion of the
excess of the principal amount of such Series B Debenture over such initial
offering price
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which shall have been accreted thereon through such date, such amount to be so
accreted on a daily basis at a rate of 12.875% per annum of the initial offering
price of such Series B Debenture, compounded semi-annually on each April 15 and
October 15 from the date of issuance of the Series B Debentures through the date
of determination, computed on the basis of a 360-day year of twelve 30-day
months.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, and (ii)
Indebtedness secured by a Lien encumbering any asset acquired by such specified
Person or assumed in connection with the acquisition of any asset used or useful
in a Permitted Business acquired by such specified Person; provided that such
Indebtedness was not incurred in connection with, or in contemplation of, such
other Person merging with or into or becoming a Subsidiary of such specified
Person, or such acquisition, as the case may be.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease (other than an operating lease),
conveyance or other disposition of any assets or rights (including, without
limitation, by way of a sale and leaseback) other than in the ordinary course of
business (provided that the sale, lease (other than an operating lease),
conveyance or other disposition of all or substantially all of the assets of
Holding and its Restricted Subsidiaries taken as a whole will be governed by the
provisions of the Indenture described above under the caption "--Repurchase at
the Option of Holders--Change of Control" and/or the provisions described above
under the caption "--Certain Covenants--Merger, Consolidation or Sale of Assets"
and not by the provisions of the Asset Sales covenant), and (ii) the sale by
Holding and the issue or sale by any of the Restricted Subsidiaries of Holding
of Equity Interests of any of Holding's Restricted Subsidiaries, in the case of
either clause (i) or (ii), whether in a single transaction or a series of
related transactions that have a fair market value (as determined in good faith
by the Board of Directors) in excess of $1.0 million or for net cash proceeds in
excess of $1.0 million. Notwithstanding the foregoing, the term Asset Sale
shall not include (i) a sale, conveyance or other disposition of assets or
rights by Holding to a Wholly Owned Subsidiary of Holding or an entity that
would become a Wholly Owned Subsidiary upon the consummation of such sale,
conveyance or other disposition or by a Wholly Owned Subsidiary of Holding to
Holding or to a Wholly Owned Subsidiary of Holding, (ii) an issuance of Equity
Interests by a Restricted Subsidiary of Holding to Holding or to a Wholly Owned
Subsidiary of Holding, (iii) a Restricted Payment that is permitted by the
covenant described above under the caption "--Certain Covenants--Restricted
Payments," (iv) the sale and leaseback of any assets within 270 days of the
acquisition of such assets, (v) foreclosures on assets, (vi) the clearance of
inventory, (vii) sales or dispositions of obsolete equipment or other assets in
the ordinary course of business or (viii) the sale, conveyance or other
disposition of accounts receivables and related assets customarily transferred
in connection with a Qualified Receivables Transaction will not be deemed to be
Asset Sales.
"Capital Lease Obligation" means at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participation, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) securities issued or unconditionally and fully
guaranteed or insured by the full faith and credit of the United States
government or any agency or instrumentality thereof having maturities of not
more than one year from the date of acquisition, (ii) obligations issued or
fully guaranteed by any state of the
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United States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Ratings Group ("S&P")
or Moody's Investors Service, Inc. ("Moody's"), (iii) certificates of deposit
and eurodollar time deposits with maturities of one year or less from the date
of acquisition, bankers' acceptances with maturities not exceeding one year and
overnight bank deposits, in each case with any lender party to the New Credit
Facility or with any domestic commercial bank having capital and surplus in
excess of $250.0 million, (iv) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clauses (i)
and (iii), above entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper having one
of the two of the highest ratings obtainable from either Moody's or S&P and in
each case maturing within one year after the date of acquisition and (vi)
investments in funds investing at least 90% of its assets in investments of the
types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of any of the following: (i)
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that (A) any "person" (as defined above),
other than the Principals and their Related Parties, becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act), directly or indirectly, of 50% or more of the Voting Stock of Holding
(measured by voting power rather than number of shares) or (B) any "person" (as
defined above), other than the Principals and their Related Parties becomes the
"beneficial owner" (as defined above) of more than 33 1/3% of the Voting Stock
of Holding (measured by voting power rather than number of shares) and the
Principals and their Related Parties beneficially own, directly or indirectly,
in the aggregate a lesser percentage of the Voting Stock of Holding than such
other "person", (ii) the first day on which a majority of the members of the
Board of Directors of Holding are not Continuing Directors or (iii) Holding
consolidates with, or merges with or into, any Person, or any Person
consolidates with, or merges with or into, Holding, in any such event pursuant
to a transaction in which any of the outstanding Voting Stock of Holding is
converted into or exchanged for cash, securities or other property, other than
any such transaction where (A) the Voting Stock of Holding outstanding
immediately prior to such transaction is converted into or exchanged for Voting
Stock (other than Disqualified Stock) of the surviving or transferee Person and
(B) the "beneficial owners" (as defined above) of the Voting Stock of Holding
immediately prior to such transaction own, directly or indirectly through one or
more subsidiaries, not less than a majority of the total Voting Stock of the
surviving or transferee corporation immediately after such transaction.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income of such Person and its Restricted Subsidiaries), plus
(ii) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such provision for
taxes was included in computing such Consolidated Net Income, plus (iii)
consolidated interest expense of such Person and its Restricted Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation and amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash charges (excluding any such non-cash
charge to the extent that it represents an accrual of or reserve for cash
charges in any future period or amortization of prepaid cash charge that was
paid in a prior period) of such Person and its Subsidiaries for such period to
the extent that such depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income, plus (v) any interest
expense on Indebtedness of another Person that is Guaranteed by such Person or
any of its Restricted Subsidiaries or secured by a Lien on assets of such Person
or any of its Restricted Subsidiaries, in each case, to the extent that such
interest expense was deducted in computing such Consolidated Net Income, plus
(vi) (a) fees and expenses incurred in connection with the Recapitalization and
deducted in the calculation of Consolidated Net Income and (b) bonuses paid to
management and other employees of Holding and its subsidiaries in connection
with, and substantially concurrently with, the Recapitalization in an amount not
to exceed in the aggregate $11.5 million, minus (vii) non-cash items increasing
such Consolidated Net Income for such period, in each case, on a consolidated
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basis and determined in accordance with GAAP. Notwithstanding the foregoing,
the provision for taxes based on the income or profits of, and the depreciation
and amortization and other non-cash charges of, a Restricted Subsidiary of a
Person shall be added to Consolidated Net Income to compute Consolidated Cash
Flow only to the extent (and in the same proportion) that the Net Income of such
Restricted Subsidiary was included in calculating the Consolidated Net Income of
such Person.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP, provided
that (i) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Restricted Subsidiary thereof, (ii) the Net
Income of any Restricted Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that Restricted
Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded, and (iv) the
cumulative effect of a change in accounting principles shall be excluded and (v)
the Net Income of, or any dividends or other distributions from, any
Unrestricted Subsidiary, to the extent otherwise included, shall be excluded,
except to the extent actually distributed to Holding or one of its Restricted
Subsidiaries.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of Holding who (i) was a member of such Board of
Directors on the date of the Indenture immediately after consummation of the
Recapitalization or (ii) was nominated for election or elected to such Board of
Directors with the approval of a majority of the Continuing Directors who were
either members of such Board at the time of such nomination or election or are
successor Continuing Directors appointed by such Continuing Directors (or their
successors).
"Credit Facilities" means, with respect to Holding and its Restricted
Subsidiaries, one or more debt facilities (including, without limitation, the
New Credit Facility) or commercial paper facilities with banks or other
institutional lenders providing for revolving credit loans, term loans,
receivables financing (other than a Qualified Receivables Transaction) or
letters of credit and related security and collateral agreements, in each case,
as amended, restated, modified, renewed, refunded, replaced or refinanced in
whole or in part from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder; provided that such
increase in borrowings is permitted under the covenant described under "--
Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock"
or adding Restricted Subsidiaries of Holding as additional borrowers or
guarantors thereunder) all or any portion of the Indebtedness under such
agreement or any successor or replacement agreement and whether by the same or
any other agent, lender or group of lenders.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date on which the Series B Debentures
mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means an offering of Equity Interests (other than
Disqualified Stock) of Holding pursuant to an effective registration statement
filed with the Commission in accordance with the Securities Act, other than an
offering pursuant to Form S-8 (or any successor thereto).
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"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations, and (ii) the consolidated
interest expense of such Person and its Restricted Subsidiaries that was
capitalized during such period; provided, however, that in no event shall any
amortization of deferred financing costs incurred in connection with the
Recapitalization be included in Fixed Charges and (iii) any interest expense on
Indebtedness of another Person to the extent such Indebtedness is Guaranteed by
such Person or one of its Restricted Subsidiaries or secured by a Lien on assets
of such Person or one of its Restricted Subsidiaries (whether or not such
Guarantee or Lien is called upon) and (iv) the product of (a) (without
duplication) (1) all dividends paid or accrued in respect of Disqualified Stock
which are not treated as interest for tax purposes for such period and (2) all
cash dividend payments on any series of preferred stock of such Person or any of
its Restricted Subsidiaries, other than dividend payments on Equity Interests
payable solely in Equity Interests (other than Disqualified Stock of Holding),
times (b) a fraction, the numerator of which is one and the denominator of which
is one minus the then current combined federal, state and local statutory tax
rate of such Person, expressed as a decimal, in each case, on a consolidated
basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that Holding or any
of its Restricted Subsidiaries incurs, assumes, Guarantees, repays or redeems
any Indebtedness (other than revolving credit borrowings) or issues or redeems
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, Guarantee, repayment or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
reference period. In addition, for purposes of making the computation referred
to above, (i) acquisitions that have been made by Holding or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter reference
period or subsequent to such reference period and on or prior to the Calculation
Date shall be deemed to have occurred on the first day of the four-quarter
reference period and Consolidated Cash Flow and Fixed Charges for such reference
period shall be calculated without giving effect to clause (iii) of the proviso
set forth in the definition of Consolidated Net Income and shall reflect any pro
forma expense and cost reductions attributable to such acquisitions (as
determined in good faith by a responsible financial or accounting officer of
Holding and approved by Holding's Board of Directors), and (ii) the Consolidated
Cash Flow and Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded and Consolidated Cash Flow
shall reflect any pro forma expense or cost reductions relating to such
discontinuance or disposition (as determined in good faith by a responsible
financial or accounting officer of Holding and approved by Holding's Board of
Directors), and (iii) the Fixed Charges attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations of the
referent Person or any of its Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture provided, however,
that all reports and other financial information provided by Holding to the
Holders, the Trustee and/or the Commission shall be prepared in accordance with
generally accepted accounting principles, as in effect at the date of such
report or such other financial information; provided, further, however, that if
there are any differences between such principles and GAAP Holding shall provide
a written explanation thereof.
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"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or the value of foreign currencies.
"Indebtedness" means, with respect to any Person, any Obligation of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing Indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all Indebtedness of others
secured by a Lien on any asset of such Person (whether or not such Indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any Indebtedness of any other Person to the extent
such Indebtedness is so Guaranteed. The amount of any Indebtedness outstanding
as of any date shall be the accreted value thereof, in the case of any
Indebtedness that does not require current payments of interest.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of direct or indirect
loans (including guarantees of Indebtedness or other obligations), advances or
capital contributions (excluding commission, travel, relocation and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If Holding or any Restricted Subsidiary of Holding sells or otherwise disposes
of any Equity Interests of any direct or indirect Restricted Subsidiary of
Holding such that, after giving effect to any such sale or disposition, such
Person is no longer a Restricted Subsidiary of Holding, Holding shall be deemed
to have made an Investment on the date of any such sale or disposition equal to
the fair market value of the Equity Interests of such Restricted Subsidiary not
sold or disposed of in an amount determined as provided in the final paragraph
of the covenant described above under the caption "--Certain Covenants--
Restricted Payments."
"Issue Date" means the date on which Series B Debentures are first issued
and authenticated under the Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, and any option or other agreement to sell or give a security
interest and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Management Note" means any promissory Note given by an employee of Holding
or any Affiliate thereof as part of the purchase price for Equity Interests in
Holding or in Holding.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but not
loss).
"Net Proceeds" means the aggregate cash proceeds received by Holding or any
of its Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of
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any non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than Indebtedness under the Credit Facilities) secured by a Lien on the
asset or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither Holding nor
any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), or (b) is directly or indirectly liable (as a guarantor or
otherwise), and (ii) as to which the lenders have been notified in writing that
they will not have any recourse to the stock or assets of Holding or any of its
Restricted Subsidiaries, including the stock of any Unrestricted Subsidiary.
"Obligations" means, with respect to any Indebtedness, any principal of,
premium, if any, and interest on such Indebtedness and all other amounts,
including without limitation penalties, fees, indemnifications, reimbursements,
damages and other liabilities payable under the documentation governing,
evidencing or securing any Indebtedness.
"Pari Passu Indebtedness" means Indebtedness that ranks pari passu in right
of payment with the Series B Debentures.
"Permitted Asset Swap" means any transfer of properties or assets by
Holding or any of its Restricted Subsidiaries in which 80% of the consideration
received by the transferor consists of properties or assets (other than cash)
that will be used in the business of such transferor; provided, that (i) the
aggregate fair market value (as determined in good faith by the Board of
Directors of Holding) of the property or assets (including cash) being
transferred by Holding or such Restricted Subsidiary, as the case may be, is not
greater than the aggregate fair market value (as determined in good faith by the
Board of Directors of Holding) of the property or assets (including cash)
received by Holding or such Restricted Subsidiary, as the case may be, in such
exchange and (ii) the aggregate fair market value (as determined in good faith
by the Board of Directors of Holding) of all property or assets transferred by
Holding and any of its Restricted Subsidiaries in connection with exchanges in
any period of twelve consecutive months shall not exceed $20 million.
"Permitted Business" means the business conducted (or proposed to be
conducted, including activities referred to as being contemplated by Holding, as
described or referred to in this Offering Memorandum) by Holding and the
Restricted Subsidiaries as of the Issue Date and any and all business that in
the good faith judgment of the Board of Directors of Holding are reasonably
related businesses, including reasonably related extensions or expansions
thereof.
"Permitted Investments" means (a) any Investment in Holding or in a
Restricted Subsidiary of Holding; (b) any Investment in Cash and Cash
Equivalents; (c) any Investment by Holding or any Restricted Subsidiary in a
Person, if as a result of such Investment (i) such Person becomes a Restricted
Subsidiary of Holding or (ii) such Person is merged, consolidated or amalgamated
with or into, or transfers or conveys substantially all of its assets to, or is
liquidated into, Holding or a Restricted Subsidiary of Holding; (d) any
Restricted Investment made as a result of the receipt of non-cash consideration
from an Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "--Repurchase at the Option of Holders--Asset
Sales" or any transaction not constituting an Asset Sale by reason of the $1.0
million threshold contained in the definition thereof; (e) any acquisition of
assets solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of Holding; (f) Hedging Obligations entered into in the
ordinary course of Holding's or its Restricted Subsidiaries' Businesses and
otherwise in compliance with the Indenture; (g) loans and advances to employees
and officers of Holding and its Restricted Subsidiaries in the ordinary course
of business for bona fide business purposes not in excess of $1 million at any
one time outstanding; (h) Management Notes in an aggregate amount not to exceed
$3 million at any one time outstanding; (i) Investments received in settlement
of obligations or pursuant to any plan of reorganization or similar arrangement
upon the bankruptcy or insolvency of customers or other third parties; and (j)
additional Investments not to exceed $15.0 million at any one time outstanding.
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"Permitted Liens" means:
(i) Liens existing as of the Issue Date to the extent and in the manner
such Liens are in effect on the Issue Date;
(ii) Liens on assets of Restricted Subsidiaries securing Indebtedness of
Restricted Subsidiaries permitted to be incurred under the Indenture;
(iii) Liens securing the Series B Debentures;
(iv) Liens in favor of Holding or a Wholly Owned Restricted Subsidiary on
assets of any Restricted Subsidiary of Holding;
(v) Liens securing Permitted Refinancing Indebtedness which is incurred to
refinance any Indebtedness which has been secured by a Lien permitted under the
Indenture and which has been incurred in accordance with the provisions of the
Indenture, provided, however, that such Liens (A) are not materially less
favorable to the Holders and are not materially more favorable to the
lienholders with respect to such Liens than the Liens in respect of the
Indebtedness being refinanced and (B) do not extend to or cover any property or
assets of Holding or any of its Restricted Subsidiaries not securing the
Indebtedness so refinanced;
(vi) Liens for taxes, assessments or governmental charges or claims either
(A) not delinquent or (B) contested in good faith by appropriate proceedings and
as to which Holding or its Restricted Subsidiaries shall have set aside on its
books such reserves as may be required pursuant to GAAP;
(vii) Statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or being
contested in good faith, if such reserve or other appropriate provision, if any,
as shall be required by GAAP shall have been made in respect thereof;
(viii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other types
of social security or similar obligations, including any Lien securing letters
of credit issued in the ordinary course of business consistent with past
practice in connection therewith, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, indemnity, surety, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money);
(ix) judgment Liens not giving rise to an Event of Default so long as such
Lien is adequately bonded and any appropriate legal proceedings which may have
been duly initiated for the review of such judgement shall not have been finally
terminated or the period within which such proceedings may be initiated shall
not have expired;
(x) easements, rights-of-way, zoning restrictions and other similar charges
or encumbrances in respect of real property not interfering in any material
respect with the ordinary conduct of the business of Holding or any of its
Restricted Subsidiaries;
(xi) any interest or title of a lessor under any lease, whether or not
characterized as capital or operating; provided that such Liens do not extend to
any property or assets which is not leased property subject to such lease;
(xii) Liens securing Capital Lease Obligations and Indebtedness incurred in
accordance with the covenant described under "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock;" provided, however, that (A) the
Indebtedness shall not exceed the cost (including installation and delivery
charges and related sales taxes) of such property or assets being acquired,
remodeled or constructed and shall not be secured by any property or assets of
Holding or any Restricted Subsidiary of Holding other than the property or
assets of Holding or any Restricted Subsidiary of Holding other than the
property and assets being acquired, remodeled or constructed and (B) the Lien
securing such Indebtedness shall be created within 180 days of such acquisition
or the competition of such construction or remodeling;
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(xiii) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate the
purchase, shipment or storage of such inventory or other goods;
(xiv) Liens securing reimbursement obligations with respect to letters of
credit which encumber documents and other property relating to such letters of
credit and products and proceeds thereof;
(xv) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of Holding or any
of its Restricted Subsidiaries, including rights of offset and set-off;
(xvi) Liens securing Hedging Obligations which Hedging Obligations relate
to Indebtedness that is otherwise permitted under the Indenture;
(xvii) Liens securing Acquired Debt incurred in accordance with the
covenant described under "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock;" provided that (A) such Liens secured such Acquired
Debt at the time of and prior to the incurrence of such Acquired Debt by Holding
or a Restricted Subsidiary of Holding and were not granted in connection with,
or in anticipation of, the incurrence of such Acquired Debt by Holding or a
Restricted Subsidiary of Holding and (B) such Liens do not extend to or cover
any property or assets of Holding or any of its Restricted Subsidiaries other
than the property or assets that secured the Acquired Debt prior to the time
such Indebtedness became Acquired Debt of Holding or a Restricted Subsidiary of
Holding and are not more favorable to the lienholders than those securing the
Acquired Debt prior to the incurrence of such Acquired Debt by Holding or a
Restricted Subsidiary of Holding;
(xviii) leases or subleases granted to others not interfering in any
material respect with the business of Holding or its Restricted Subsidiaries;
(xix) Liens arising out of consignment or similar arrangements for the sale
of goods entered into by Holding or any Restricted Subsidiary in the ordinary
course of business;
(xx) Liens arising from filing Uniform Commercial Code financing statements
as a precautionary matter with respect to leases; and
(xxi) Liens on accounts receivable and any asset related thereto in
connection with a Qualified Receivables Transaction.
"Permitted Refinancing Indebtedness" means any Indebtedness of Holding or
any of its Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, prepay, retire, renew, replace, defease
or refund Indebtedness of Holding or any of its Restricted Subsidiaries;
provided that: (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest on, the Indebtedness
so extended, refinanced, renewed, prepaid, retired, replaced, defeased or
refunded (plus the amount of reasonable expenses incurred in connection
therewith including premiums paid, if any, to the holders thereof); (ii) such
Permitted Refinancing Indebtedness has a final maturity date at or later than
the final maturity date of, and has a Weighted Average Life to Maturity equal to
or greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, prepaid, retired, replaced, defeased or refunded;
(iii) if the Indebtedness being extended, refinanced, renewed, prepaid, retired,
replaced, defeased or refunded is subordinated in right of payment to the Series
B Debentures, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of payment
to, the Series B Debentures on terms at least as favorable to the Holders of
Series B Debentures as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Indebtedness is incurred either by Holding or by the
Restricted Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision thereof.
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"Principals" means Freeman Spogli & Co. Incorporated.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by Holding or any Restricted Subsidiary
pursuant to which Holding or any Restricted Subsidiary may sell, convey or
otherwise transfer to any Person, or may grant a security interest in, any
accounts receivable (whether now existing or arising in the future) of Holding
or any Restricted Subsidiary and any asset related thereto including, without
limitation, all collateral securing such accounts receivable, all contracts and
all guarantees or other obligations in respect of such accounts receivable,
proceeds of such accounts receivable and other assets which are customarily
transferred, or in respect of which security interests are customarily granted,
in connection with asset securitization transactions involving accounts
receivable.
"Related Party" with respect to any Principal means (A) any controlling
stockholder or a majority (or more) owned Subsidiary of such Principal or, in
the case of an individual, any spouse or immediate family member of such
Principal, or (B) any fund, trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding a
majority (or more) controlling interest that consists of such Principal and/or
such other Persons referred to in the immediately preceding clause (A).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of Holding other than an
Unrestricted Subsidiary.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date of the
Indenture.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness (including any scheduled sinking fund payment), and
shall not include any contingent obligations to repay, redeem or repurchase any
such interest or principal prior to the date originally scheduled for the
payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total Voting
Stock thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
"Tax Sharing Agreement" means, the tax sharing agreement among Holding, the
Company, and any one or more of Holding's subsidiaries, as amended from time to
time, so long as the method of calculating the amount of Holding's (or any
Restricted Subsidiary's) payments, if any, to be made thereunder is not less
favorable to Holding than as provided in such agreement as in effect on the
Issue Date, as determined in good faith by the Board of Directors of Holding.
"Unrestricted Subsidiary" means any Subsidiary of Holding that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution; but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with Holding or any Restricted Subsidiary
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to Holding or such Restricted Subsidiary than those that
might be obtained at the time from Persons who are not Affiliates of Holding;
(c) is a Person with respect to which neither Holding nor any of its Restricted
Subsidiaries has any direct or indirect obligation (x) to subscribe for
additional Equity Interests or (y) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results; and (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of Holding or any of its
Restricted Subsidiaries. Any such designation by the Board of Directors shall
be evidenced to the Trustee by filing with a Trustee a certified copy of the
Board
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Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted under the Indenture. If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred
by a Restricted Subsidiary of Holding as of such date. The Board of Directors
of Holding may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that such designation shall be deemed to be an
incurrence of Indebtedness and issuance of preferred stock by a Restricted
Subsidiary of Holding of any outstanding Indebtedness or outstanding issue of
preferred stock of such Unrestricted Subsidiary and such designation shall only
be permitted if (i) such Indebtedness and preferred stock is permitted under the
Indenture, and (ii) no Default or Event of Default would exist following such
designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Restricted Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Restricted Subsidiaries of such
Person or by such Person and one or more Wholly Owned Restricted Subsidiaries of
such Person.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material federal income tax consequences
expected to result to Holders whose Series A Notes are exchanged for Series B
Notes in the Exchange Offer. This discussion is a summary for general
information only and does not consider all aspects of U.S. federal income
taxation that may be relevant to investors in light of such investor's personal
circumstances. This discussion also does not address the U.S. federal income
tax consequences of ownership of Series B Notes not held as capital assets
within the meaning of Section 1221 of the U.S. Internal Revenue Code of 1986, as
amended (the "Code"), or the U.S. federal income tax consequences to investors
subject to special treatment under the U.S. federal income tax laws, such as
dealers in securities or foreign currency, tax-exempt entities, financial
institutions, insurance companies, persons that hold the Series B Notes as part
of a "straddle," a "hedge," a "synthetic security," a "conversion transaction,"
or other integrated investment, persons that have a "functional currency" other
than the U.S. dollar, and investors in pass-through entities. In addition, this
discussion does not describe any tax consequences arising under U.S. federal
gift and estate taxes (except to the limited extent set forth below under "Non-
U.S. Holders") or under the tax laws of any state, local or foreign
jurisdiction.
This discussion is based upon the Code, existing regulations thereunder,
and current administrative rulings and court decisions. All of the foregoing is
subject to change, possibly on a retroactive basis, and any such change could
affect the continuing validity of this discussion.
HOLDERS OF THE SERIES A NOTES SHOULD CONSULT THEIR OWN ADVISORS AS TO HOW
THEIR OWN PARTICULAR TAX SITUATION MIGHT BE AFFECTED BY THE EXCHANGE OF SERIES A
NOTES FOR SERIES B NOTES AND THE PURCHASE, HOLDING AND DISPOSITION OF THEIR
SERIES B NOTES.
U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a Series B Note that is (i) a citizen or
resident (as defined in Section 7701(b)(1) of the Code) of the United States,
(ii) a corporation organized under the laws of the United States or any
political subdivision thereof or therein, (iii) an estate, the income of which
is subject to U.S. federal income tax regardless of the source or (iv) a trust,
with respect to which a court within the United States is able to exercise
primary supervision over its administration and one or more United States
persons have the authority to control all its substantial decisions (a "U.S.
Holder"). Certain U.S. federal income tax consequences relevant to a holder
other than a U.S. Holder are discussed separately below.
STATED INTEREST
Interest on a Series B Note should be taxable to a U.S. Holder as ordinary
interest income at the time it accrues or is received in accordance with such
Holder's method of accounting for U.S. federal income tax purposes.
SALE, EXCHANGE OR REDEMPTION OF THE SERIES B NOTES
Upon the disposition of a Series B Note by sale, exchange or redemption, a
U.S. Holder will generally recognize gain or loss equal to the difference
between (i) the amount realized on the disposition (other than amounts
attributable to accrued interest not yet taken into income) and (ii) the U.S.
Holder's tax basis in the Series B Note. A U.S. Holder's tax basis in a Series
B Note generally will equal the cost of the Series B Note to the U.S. Holder
increased by amounts includable in income as market discount (if the U.S. Holder
elects to include market discount on a current basis) and reduced by any bond
premium amortized by any U.S. Holder.
Assuming the Series B Note is held as a capital asset, such gain or loss
(except to the extent that the market discount rules otherwise provide) will
generally constitute capital gain or loss and will be long-term capital gain
(taxable at a maximum rate of 20%) if a U.S. Holder who is an individual has
held such Series B Note for longer than eighteen months and mid-term capital
gain (taxable at a maximum rate of 28%) if such a U.S. Holder has held
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such Series B Note for more than 12 months and less than 18 months. Special
rates apply in the case of holders whose income is subject to tax at less than
maximum rates and for dispositions after 2000.
EXCHANGE OFFER
The exchange of the Series A Notes for the Series B Notes pursuant to the
Exchange Offer should not constitute a taxable exchange. As a result, (i) a
U.S. Holder should not recognize taxable gain or loss as a result of exchanging
the Series A Notes for the Series B Notes pursuant to the Exchange Offer, (ii)
the holding period of the Series B Notes should include the holding period of
the Series A Notes exchanged therefor and (iii) the adjusted tax basis of the
Series B Notes should be the same as the adjusted tax basis of the Series A
Notes exchanged therefor immediately before the exchange.
The Company will be required to pay additional cash interest on the Series
A Notes if it fails to comply with certain of its obligations under the Exchange
Offer Registration Rights Agreement. Such additional interest should be taxable
to a U.S. Holder as ordinary income at the time it accrues or is received in
accordance with such holder's regular method of tax accounting. It is possible,
however, that the IRS may take a different position, in which case a U.S. Holder
might be required to include such additional interest in income as it accrues or
becomes fixed (regardless of such holder's regular method of tax accounting).
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under the Code, a U.S. Holder of a Series B Note may be subject, under
certain circumstances, to information reporting and or backup withholding at a
31% rate with respect to cash payments in respect of interest on, or the gross
proceeds from disposition of, a Series B Note thereof. This withholding
applies, only if a U.S. Holder (i) fails to furnish its social security or other
taxpayer identification number ("TIN") within a reasonable time after a request
therefor, (ii) furnishes an incorrect TIN, (iii) fails to report interest or
dividends properly, or (iv) fails, under certain circumstances to provide a
certified statement, signed under penalty of perjury, that the TIN provided is
its correct number and that it is not subject to backup withholding. Any amount
withheld from a payment to a U.S. Holder under the backup withholding rules is
allowable as a credit (and may entitle such holder to a refund) against such
Holder's U.S. federal income tax liability, provided that the required
information is furnished to the IRS. Certain persons are exempt from backup
withholding, including corporations and financial institutions. Holders of
Series B Notes should consult their tax advisors as to their qualification for
exemption from withholding and the procedure for obtaining such exemption.
NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income and estate
tax consequences relevant to a holder of a Series B Note that is not (i) a
current or former citizen or resident of the United States, (ii) a corporation
organized under the laws of the United States or any political subdivision
thereof or therein or (iii) an estate the income of which is subject to U.S.
federal income tax regardless of the source or (iv) a trust, with respect to
which a court within the United States is able to exercise primary supervision
over its administration and one or more United States persons have the authority
to control all its substantial decisions (a "Non-U.S. Holder").
This discussion does not deal with all aspects of U.S. federal income and
estate taxation that may be relevant to any particular Non-U.S. Holder in light
of such Holder's personal circumstances, including holding the Series B Notes
through a partnership. For example, persons who are partners in foreign
partnerships or beneficiaries of foreign trusts or estates and who are subject
to U.S. federal income tax because of their own status, such as United States
residents or foreign persons engaged in a trade or business in the United
States, may be subject to U.S. federal income tax even though the entity is not
subject to income tax on disposition of its Series B Note.
For purposes of the following discussion, interest and gain on the sale,
exchange or other disposition of the Series B Note will be considered "U.S.
trade or business income" if such income or gain is (i) effectively
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connected with the conduct of a U.S. trade or business or (ii) in the case of a
treaty, resident, attributable to a U.S. permanent establishment (or to a fixed
base) in the United States.
STATED INTEREST
Generally, any interest paid to a Non-U.S. Holder of a Series B Note that
is not U.S. trade or business income will not be subject to U.S. federal income
tax if the interest qualifies as "portfolio interest." Interest on the Series B
Notes will qualify as portfolio interest if (i) the Non-U.S. Holder does not
actually or constructively own 10% or more of the total voting power of all
voting stock of the Company and is not a "controlled foreign corporation" with
respect to which the Company is a "related person" within the meaning of the
Code, and (ii) the beneficial owner, under penalties of perjury, certifies that
the beneficial owner is not a U.S. person and such certificate provides the
beneficial owner's name and address.
The gross amount of payments to a Non-U.S. Holder of interest that do not
qualify for the portfolio interest exception and that are not U.S. trade or
business income will be subject to U.S. withholding tax at the rate of 30%,
unless a U.S. income tax treaty applies to reduce or eliminate withholding.
U.S. trade or business income will be taxed at regular U.S. federal income tax
rates rather than the 30% gross rate. To claim the benefit of a tax treaty or
to claim exemption from withholding because the income is U.S. trade or business
income, the Non-U.S. Holder must provide a properly executed Form 1001 or 4224
(or such successor forms as the IRS designates), as applicable, prior to payment
of interest. These forms must be periodically updated. Under proposed
regulations, the Forms 1001 and 4224 will be replaced by Form W-8. Also under
proposed regulations, a Non-U.S. Holder who is claiming the benefits of a tax
treaty may be required to obtain a U.S. taxpayer identification number and to
provide certain documentary evidence issued by foreign governmental authorities
to prove residence in the foreign country. Certain special procedures are
provided in the proposed regulations for payments through qualified
intermediaries.
SALE, EXCHANGE OR REDEMPTION OF SERIES B NOTES
Except as described below and subject to the discussion concerning backup
withholding, any gain realized by a Non-U.S. Holder on the sale, exchange or
redemption of a Series B Note generally will not be subject to U.S. federal
income tax, unless (i) such gain is U.S. trade or business income or (ii)
subject to certain exceptions, the Non-U.S. Holder is an individual who holds
the Series B Note as a capital asset and is present in the United States for 183
days or more in the taxable year of the disposition.
FEDERAL ESTATE TAX
Series B Notes held (or treated as held) by an individual who is a Non-U.S.
Holder at the time of his or her death will not be subject to U.S. federal
estate tax, provided that the individual did not actually or constructively, own
10% or more of the total voting power of all voting stock of the Company, and
income on the Series B Notes was not U.S. trade or business income.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the IRS and to each Non-U.S. Holder any
interest that is subject to U.S. withholding tax or that is exempt from
withholding pursuant to a tax treaty or the portfolio interest exception.
Copies of these information returns may also be made available under the
provisions of a specific treaty or agreement to the tax authorities of the
country in which the Non-U.S. Holder resides.
The regulations provide that backup withholding and information reporting
will not apply to payments of principal on the Series B Notes by the Company to
a Non-U.S. Holder, if the Holder certifies as to its non-U.S. status under
penalties of perjury or otherwise establishes an exemption (provided that
neither the Company nor its paying agent has actual knowledge that the Holder is
a U.S. Holder or that the conditions of any other exemption are not, in fact,
satisfied).
The payment of the proceeds from the disposition of Series B Notes to or
through the United States office of any broker, U.S. or foreign, will be subject
to information reporting and possible backup withholding unless the
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owner certifies as to its non-U.S. status under penalties of perjury or
otherwise establishes an exception, provided that the broker does not have
actual knowledge that the holder is a U.S. Holder or that the conditions of any
other exemption are not, in fact, satisfied. The payment of the proceeds from
the disposition of a Series B Note to or through a non-U.S. office of a U.S.
broker that is not a "U.S. related person" will not be subject to information
reporting or backup withholding. (For this purpose, a "U.S. related person" is
(i) a "controlled foreign corporation" for U.S. federal income tax purposes or
(ii) a foreign person 50% or more of whose gross income from all sources for the
three-year period ending with the close of its taxable year preceding the
payment (or for such part of the period that the broker has been in existence)
is derived from activities that are effectively connected with the conduct of a
U.S. trade or business).
In the case of the payment of proceeds from the disposition of Series B
Notes to or through a non-U.S. office of a broker that is either a U.S. person
or a U.S. related person, the regulations require information reporting on the
payment unless the broker has documentary evidence in its files that the owner
is a Non-U.S. Holder and the broker has no knowledge to the contrary. Backup
withholding will not apply to payments made through foreign offices of a broker
that is a U.S. person or a U.S. related person (absent actual knowledge that the
payee is a U.S. Holder).
Proposed regulations provide similar rules but, in the case of payment of
proceeds inside the United States, may require an additional certification that
the beneficial owner has not and does not expect to be present in the United
States for a period of 183 days or more during the year.
Any amounts withheld under the backup withholding rules from a payment
to a Non-U.S. Holder will be allowed as a refund or a credit against such Non-
U.S. Holder's U.S. federal income tax liability, provided that the requisite
procedures are followed.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Series B Debentures for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Series B Debentures. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Series B Debentures received in
exchange for Series A Debentures where such Series A Debentures were acquired as
a result of market-making activities or other trading activities and not
acquired directly from Holding. Holding has agreed that for a period of 180
days after the Expiration Date or such shorter period as will terminate when all
Series B Debentures covered by the registration statement of which this
Prospectus is a part have been sold pursuant thereto, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 1998, all
dealers effecting transactions in the Series B Debentures may be required to
deliver a prospectus.
Holding will not receive any proceeds from any sale of Series B Debentures
by broker-dealers. Series B Debentures received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Series B Debentures or a combination of
such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or purchasers of any such Series B Debentures. Any
broker-dealer that resells Series B Debentures that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Series B Debentures may be deemed to be
an "underwriter" within the meaning of the Securities Act, and any profit on any
such resale of Series B Debentures and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, Holding will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. Holding has agreed to pay the expenses incident to the Exchange
Offer and to Holding's performance of, or compliance with, the Exchange Offer
Registration Rights Agreement (other than commissions or concessions of any
brokers or dealers) and will indemnify the Holders of the Series B Debentures
against certain liabilities, including liabilities under the Securities Act, in
connection with the Exchange Offer. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers and
persons controlling the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The Initial Purchasers have also acted as initial purchasers in the
offering by Holding of the Debentures. DLJ is an affiliate of DLJ Capital
Funding, Inc. which is a syndication agent and a lender to Holding under the New
Credit Facility. DLJ performs various investment banking services from time to
time for FS&Co. and its affiliates, and an affiliate of DLJ is an investor in an
investment fund organized by FS&Co. Chase Securities Inc. is an affiliate of The
Chase Manhattan Bank which is the administrative agent and a lender to Holding
under the New Credit Facility. Chase Securities Inc., The Chase Manhattan Bank
and their affiliates perform various investment banking and commercial banking
services from time to time for FS&Co. and its affiliates, and an affiliate of
Chase Securities Inc. is a limited partner of certain investment funds organized
by FS&Co. See "Description of Other Indebtedness--The New Credit Facility."
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LEGAL MATTERS
Certain legal matters with respect to the legality of the Series B
Debentures offered hereby will be passed upon for Holding by Riordan & McKinzie,
a Professional Corporation, Los Angeles, California. Certain principals and
employees of Riordan & McKinzie are limited partners in partnerships which are
limited partners of an FS&Co. investment fund that own a majority of Holding's
equity interests.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS:
AUDITED FINANCIAL STATEMENTS:
Report of Independent Public Accountants................................................... F-2
Consolidated Balance Sheets - January 3, 1998, and December 28, 1996....................... F-3
Consolidated Statements of Income For the Years Ended January 3, 1998, December 28, 1996,
and December 30, 1995..................................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity For the Years Ended January 3,
1998, December 28, 1996, and December 30, 1995............................................ F-5
Consolidated Statements of Cash Flows For the Years Ended January 3, 1998, December 28,
1996, and December 30, 1995............................................................... F-6
Notes to Consolidated Financial Statements January 3, 1998, December 28, 1996, and
December 30, 1995......................................................................... F-7
UNAUDITED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets - April 25, 1998, and January 3, 1998................ F-21
Condensed Consolidated Statements of Operations for the Sixteen-week Periods Ended April 25,
1998, and April 19, 1997.................................................................. F-22
Condensed Consolidated Statements of Cash Flows for the Sixteen-week Periods Ended April 25,
1998, and April 19, 1997................................................................... F-23
Notes to Unaudited Condensed Consolidated Financial Statements for the Sixteen-Week Periods
Ended April 15, 1998 and April 19, 1997.................................................... F-24
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Advance Holding Corporation:
We have audited the accompanying consolidated balance sheets of Advance Holding
Corporation (a Virginia company) and subsidiaries (the Company), as of January
3, 1998, and December 28, 1996, and the related consolidated statements of
income, changes in stockholders' equity and cash flows for each of the three
fiscal years in the period ended January 3, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Advance Holding
Corporation and subsidiaries as of January 3, 1998, and December 28, 1996, and
the results of their operations and their cash flows for each of the three
fiscal years in the period ended January 3, 1998, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Greensboro, North Carolina,
January 30, 1998 (except with respect to the
matter discussed in Note 13, as to which
the date is March 18, 1998).
F-2
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ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- JANUARY 3, 1998, AND DECEMBER 28, 1996
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
ASSETS 1998 1996
------ ---------- ------------
(dollars in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 15,463 $ 14,833
Marketable securities 2,025 1,833
Receivables, primarily from vendors 19,108 14,394
Trade Receivables 3,359 -
Inventories 280,267 252,544
Prepaid expenses and other current assets 2,895 1,950
Refundable income taxes 1,765 -
-------- --------
Total current assets 324,882 285,554
PROPERTY AND EQUIPMENT, net 134,896 108,452
OTHER ASSETS 2,054 389
-------- --------
$461,832 $394,395
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Bank overdrafts $ 6,970 $ 14,158
Borrowings secured by trade receivables 3,359 -
Notes payable and current portion of long-term debt 3,959 5,303
Current portion of deferred revenue 1,530 1,602
Accounts payable 157,096 130,024
Accrued expenses 27,718 21,248
Deferred income taxes 3,110 3,139
-------- --------
Total current liabilities 203,742 175,474
-------- --------
LONG-TERM DEBT 100,167 86,400
-------- --------
DEFERRED REVENUE 693 426
-------- --------
DEFERRED INCOME TAXES 12,839 9,316
-------- --------
OTHER LONG-TERM LIABILITIES 843 456
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 4, 8, 9, 10 and 11)
STOCKHOLDERS' EQUITY:
8% noncumulative, nonvoting preferred stock, $10 par value, redeemable
by the Company at par; liquidation value at par; 100,000 shares
authorized; 77,300 shares issued and outstanding 773 773
Common stock, Class A, voting, $100 par value; 5,000 shares authorized;
193 shares issued and outstanding 19 19
Common stock, Class B, nonvoting, $100 par value; 35,000 shares 175 175
authorized; 1,750 shares issued and outstanding 142,581 121,356
-------- --------
Retained earnings 143,548 122,323
-------- --------
Total stockholders' equity $461,832 $394,395
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-3
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JANUARY 3, 1998,
DECEMBER 28, 1996, AND DECEMBER 30, 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -----------
(53 weeks) (52 weeks) (52 weeks)
(dollars in thousands)
<S> <C> <C> <C>
NET SALES $848,108 $705,983 $602,559
COST OF SALES, including purchasing and warehousing costs 524,586 437,615 369,962
-------- -------- --------
Gross profit 323,522 268,368 232,597
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 281,095 228,226 196,289
-------- -------- --------
Operating income 42,427 40,142 36,308
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (6,086) (4,891) (5,028)
Interest income 463 638 818
Losses on sales of property and equipment, net (362) (97) (1,905)
Other, net (422) (354) (68)
-------- -------- --------
Total other income (expense), net (6,407) (4,704) (6,183)
-------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 36,020 35,438 30,125
PROVISION FOR INCOME TAXES 14,733 14,174 12,122
-------- -------- --------
NET INCOME $ 21,287 $ 21,264 $ 18,003
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
<TABLE>
<CAPTION>
COMMON COMMON TOTAL
PREFERRED STOCK STOCK RETAINED STOCKHOLDERS'
STOCK CLASS A CLASS B EARNINGS EQUITY
----------- --------- --------- ---------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 $773 $19 $175 $ 82,213 $ 83,180
Net income - - - 18,003 18,003
Preferred dividend, $0.80 per share - - - (62) (62)
---- ---- ---- -------- --------
BALANCE, December 30, 1995 773 19 175 100,154 101,121
Net income - - - 21,264 21,264
Preferred dividend, $0.80 per share - - - (62) (62)
---- ---- ---- -------- --------
BALANCE, December 28, 1996 773 19 175 121,356 122,323
Net income - - - 21,287 21,287
Preferred dividend, $0.80 per share - - - (62) (62)
---- ---- ---- -------- --------
BALANCE, January 3, 1998 $773 $19 $175 $142,581 $143,548
==== ==== ==== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 3, 1998,
DECEMBER 28, 1996, AND DECEMBER 30, 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(53 weeks) (52 weeks) (52 weeks)
(dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,287 $ 21,264 $ 18,003
Adjustments to reconcile net income to net cash provided by operating
activities-
Depreciation and amortization 21,801 17,499 14,799
Losses on sales of property and equipment 362 97 1,905
Provision for deferred income taxes 4,216 5,234 1,981
Net periodic postretirement benefit expense, net of payments made 387 245 211
Net (increase) decrease in:
Receivables, primarily from vendors (4,714) (5,623) (2,519)
Trade receivables (3,359) - -
Inventories (27,723) (72,645) (24,670)
Prepaid expenses and other assets (837) 515 (1,177)
Refundable income taxes (1,765) - 1,057
Net increase in:
Accounts payable 27,072 58,589 9,577
Accrued expenses 5,748 2,843 3,961
-------- -------- --------
Net cash provided by operating activities 42,475 28,018 23,128
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (48,864) (44,264) (42,939)
Proceeds from sales of property and equipment 257 143 3,084
Purchases of marketable securities (192) (84) (289)
-------- -------- --------
Net cash used in investing activities (48,799) (44,205) (40,144)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank overdrafts (7,188) 634 4,356
Net borrowings under notes payable 6 226 1,395
Proceeds from issuance of long-term debt 65,000 62,200 26,000
Principal payments on long-term debt (52,583) (50,450) (7,000)
Net borrowings secured by trade receivables 3,359 - -
Restricted escrow funds (1,773) - -
Increase (decrease) in deferred revenue 195 (1,416) (1,046)
Preferred dividends paid (62) (62) (62)
-------- -------- --------
Net cash provided by financing activities 6,954 11,132 23,643
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 630 (5,055) 6,627
CASH AND CASH EQUIVALENTS, beginning of year 14,833 19,888 13,261
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of year $ 15,463 $ 14,833 $ 19,888
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 5,867 $ 5,026 $ 5,029
Income taxes paid, net of refunds received 13,302 7,771 8,813
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
(dollars in thousands)
1. DESCRIPTION OF BUSINESS:
Advance Holding Corporation and subsidiaries (the Company) is a retailer of
automotive replacement parts, accessories and maintenance items, with 814, 649
and 536 stores as of January 3, 1998, December 28, 1996, and December 30, 1995,
respectively. The stores are located throughout Virginia, North Carolina, South
Carolina, Tennessee, West Virginia, Kentucky, Alabama, Georgia, Ohio,
Pennsylvania, Maryland, Michigan, Arkansas and Indiana.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ACCOUNTING PERIOD
The Company's fiscal year ends on the Saturday nearest the end of the month of
December. The consolidated financial statements reflect the results of
operations for the 53-week period ended January 3, 1998 (fiscal 1997) and the
52-week periods ended December 28, 1996 (fiscal 1996) and December 30, 1995
(fiscal 1995).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash in banks and highly liquid debt
instruments, including municipal bonds with investor put options at par or
original maturities of three months or less.
F-7
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
MARKETABLE SECURITIES
Marketable securities have been categorized as trading securities and, as a
result, are stated at fair value as current assets in the accompanying
consolidated balance sheets. Unrealized holding gains and losses are recorded
as other income or expense due to the short-term nature of the investments.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the last-in, first-out (LIFO) method for approximately 89% of inventories at
January 3, 1998, and December 28, 1996, and the first-in, first-out (FIFO)
method for remaining inventories. The Company capitalizes certain purchasing and
warehousing costs into inventory. Purchasing and warehousing costs included in
inventory at January 3, 1998, and December 28, 1996, were $16,608 and $14,217,
respectively. Inventories consist of the following:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
-------- --------
<S> <C> <C>
Replacement cost $280,267 $252,544
Reserve to state inventories at LIFO 2,274 56
-------- --------
Inventories at LIFO 282,541 252,600
Other reserves (2,274) (56)
-------- --------
$280,267 $252,544
======== ========
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Expenditures for maintenance and repairs are charged directly to
expense when incurred; major improvements are capitalized. When items are sold
or retired, the related cost and accumulated depreciation are removed from the
accounts, with any gain or loss reflected in the consolidated statements of
income.
Depreciation of land improvements, buildings, furniture, fixtures and equipment,
and vehicles is provided over the estimated useful lives, which range from 2 to
40 years, of the respective assets using the straight-line method. Amortization
of leasehold improvements is provided over the shorter of the estimated useful
lives of the respective assets or the term of the lease using the straight-line
method.
F-8
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
In March 1995, Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," was issued. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used or disposed of by an entity
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. During 1996, the
Company adopted the provisions of SFAS No. 121, the effect of which was not
material to the accompanying consolidated financial statements.
ALLOWANCES
The Company receives rebates, discounts, cooperative advertising and other
incentives from vendors that are recorded as a reduction of cost of sales or
selling, general and administrative expenses when earned. Amounts collected but
not yet earned are reflected as deferred revenue in the accompanying
consolidated balance sheets. Management's estimate of the portion of deferred
revenue that will be earned within one year of the balance sheet date has been
reflected as a current liability in the accompanying consolidated balance
sheets.
ACCRUAL FOR CLOSED STORES
The Company recognizes a provision for future obligations at the time a decision
is made to close a store. The provision for closed stores includes the present
value of the remaining lease payments, reduced by the present value of estimated
revenues from subleases, and management's estimate of future utility, insurance,
property tax and common area maintenance costs.
POSTRETIREMENT BENEFITS
The Company provides certain health care and life insurance benefits for
eligible retired employees. Employees retiring from the Company with 20
consecutive years of service after age 40 are eligible for these benefits,
subject to deductibles, copayment provisions and other limitations.
The estimated cost of retiree health and life insurance benefits is recognized
over the years that the employees render service as required by SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." The
initial accumulated liability, measured as of January 1, 1995, the date the
Company adopted SFAS No. 106, is being recognized over a 20-year amortization
period.
PREOPENING EXPENSES
Preopening expenses, which consist primarily of payroll and occupancy costs, are
expensed as incurred.
F-9
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expense was
approximately $23,274, $21,694 and $17,078 in fiscal 1997, 1996 and 1995,
respectively.
WARRANTY COSTS
Warranty costs associated with certain products sold with warranty protection
are estimated based on the Company's historical experience and recorded in the
period the product is sold. The Company's vendors are primarily responsible for
warranty claims on vendor products.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each period-end, based on enacted tax laws and statutory
tax rates applicable to the periods in which the differences are expected to
affect taxable income. The provision for income taxes includes the income tax
payable for the period and the net change during the period in deferred tax
assets and liabilities.
REVENUE RECOGNITION
The Company recognizes revenue at the point of sale to the retail customer. The
majority of sales are made for cash; however, during 1996, the Company began to
extend credit through a third-party provider of private label credit cards.
Receivables under the private label credit card program are transferred to the
third-party provider generally without recourse. The Company provides for an
allowance for doubtful accounts on receivables sold on a recourse basis based
upon factors related to credit risk of specific customers, historical trends and
other information. In fiscal 1997, the Company adopted SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities," which provides that this arrangement be accounted for as a
secured borrowing. Receivables under the private label credit card and the
related payable to the third-party provider were $3,359 at January 3, 1998.
FINANCIAL INSTRUMENTS
The Company has certain financial instruments which include cash and cash
equivalents, marketable securities, receivables, accounts payable, bank
overdrafts and notes payable and long-term debt. The carrying amounts of these
financial instruments approximate fair value because of their short maturities.
RECLASSIFICATIONS
Certain items in the fiscal 1996 and fiscal 1995 financial statements have been
reclassified to conform with the fiscal 1997 presentation.
F-10
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
3. INVESTMENTS:
Marketable securities classified as current assets include the following:
<TABLE>
<CAPTION>
JANUARY 3, 1998 DECEMBER 28, 1996
-------------------- -------------------
FAIR FAIR
VALUE COST VALUE COST
------- ------ ------ -------
<S> <C> <C> <C> <C>
Cash and cash equivalents-
Municipal bonds $7,996 $7,996 $7,881 $7,881
Money market funds 42 42 31 31
------ ------ ------ ------
$8,038 $8,038 $7,912 $7,912
------ ------ ------ ------
Marketable securities - Mutual fund $2,025 $1,962 $1,833 $1,830
====== ====== ====== ======
</TABLE>
The fair value of municipal bonds is considered to equal the par value because
the Company has the availability to put the bonds at par with seven days'
notice. The municipal bonds have high credit ratings and are backed by letters
of credit.
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
---------- ------------
<S> <C> <C>
Land and land improvements $ 3,316 $ 3,242
Buildings 10,434 10,330
Leasehold improvements 18,435 17,053
Furniture, fixtures and equipment 143,069 115,263
Vehicles 21,979 20,368
Construction in progress 15,603 -
-------- --------
212,836 166,256
Less - Accumulated depreciation and
amortization (77,940) (57,804)
-------- --------
Property and equipment, net $134,896 $108,452
======== ========
</TABLE>
Construction in progress primarily relates to the construction of a distribution
center (Note 7).
The Company capitalized $169 and $235 of interest incurred on funds used to
construct buildings and improvements during fiscal 1997 and fiscal 1996,
respectively. No interest was capitalized during fiscal 1995.
F-11
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
At January 3, 1998, the Company had contractual commitments of approximately
$4,188 to construct facilities or purchase equipment.
5. ACCRUED EXPENSES:
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
----------- ------------
<S> <C> <C>
Payroll and related benefits $ 7,307 $ 7,780
Sales taxes 3,439 2,674
Medical and workers' compensation claims 5,266 2,679
Other 11,706 8,115
------- -------
Total accrued expenses $27,718 $21,248
======= =======
</TABLE>
6. NOTES PAYABLE AND SHORT-TERM FINANCING AGREEMENTS:
The Company maintains short-term lines of credit with several banks with
aggregate available borrowings of $32,000 at January 3, 1998, and $42,000 at
December 28, 1996. Borrowings under the lines are unsecured and are generally
payable within 7 to 30 days and bear interest at variable rates (6.1% at January
3, 1998). The maximum short-term borrowings during fiscal 1997, fiscal 1996 and
fiscal 1995 were $22,109, $28,068 and $29,150, respectively; the average
borrowings were $7,406, $11,624, and $14,492, respectively; and the weighted
average interest rates were 6.1%, 6.0% and 6.6%, respectively. Borrowings
outstanding under the lines of credit were $2,959 at January 3, 1998, and $2,953
at December 28, 1996. The Company has no compensating balance arrangements.
The carrying value of notes payable and short-term financing agreements of the
Company approximate the fair value for loans with similar terms.
F-12
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
7. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
------------ -------------
<S> <C> <C>
Revolving credit arrangements, available borrowings of $100,000,
unsecured, interest payable monthly at variable rates (6.22% at
January 3, 1998), principal converts to a term loan on May 31,
1999, payable in 18 equal installments plus interest, from June 1,
1999, through November 30, 2000 $ 84,500 $ 81,000
Term note, unsecured, interest payable monthly at variable rates
(6.47% at January 3, 1998), payable in 96 equal installments plus
interest from October 1, 1996, through September 1, 2004 6,667 7,750
McDuffie County Authority taxable industrial development revenue
bonds, issued December 31, 1997, interest due monthly beginning
February 1, 1998, at an adjustable rate established by the
Remarketing Agent, principal due on November 1, 2002 10,000 -
-------- --------
Total long-term debt 101,167 88,750
Less - Current portion of long-term debt 1,000 2,350
-------- --------
Long-term debt, excluding current portion $100,167 $ 86,400
======== ========
</TABLE>
Aggregate borrowings under the revolving credit arrangement are from four banks.
The terms under the revolving credit arrangements with each bank are similar
with respect to interest rates, repayment terms and restrictive covenants.
Repayment of each revolving credit arrangement has been guaranteed by the
Company's wholly owned subsidiary, Advance Stores Company, Incorporated.
On December 31, 1997, the Company entered into an agreement with McDuffie County
Authority under which bond proceeds of $10,000 were issued and are being used to
construct a distribution center. Proceeds of the bond offering that have not
been expended as of January 3, 1998, of $1,773 are in a restricted escrow
account, of which $676 is included in prepaid expenses and other current assets
and $1,097 is included in other assets on the January 3, 1998, consolidated
balance sheet.
F-13
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
These industrial development revenue bonds currently bear interest at a variable
rate adjusted monthly by the Remarketing Agent, with a one time option to
convert the interest rate to a fixed rate. The bonds can be tendered by the
bondholders on any business day at 100% of the principal amount plus interest
while the bonds bear interest at a variable rate. The Tender Agent will
purchase the bonds with drawings under the related letter of credit. In the
event the bonds can not be resold by the Remarketing Agent, the Company is
obligated to redeem the bonds. These bonds are secured by a letter of credit
issued by the Bank. Under the terms of the letter of credit and as long as
there are no violations under the related bond agreement, the Bank will loan the
Company the amounts necessary to redeem any bonds that can not be sold by the
Remarketing Agent. Such loans will bear interest at a variable rate per annum
equal to the rates applicable to the bonds and are due one year from the date
the loan is made. The letter of credit expires on November 1, 2000, and is
subject to annual commission fees at the rate of .3%. The letter of credit is
automatically renewed for one year periods until the expiration date of the
bonds.
The Company has the option to redeem all or a portion of the industrial
development revenue bonds. When interest is at a variable rate, the bonds can
be redeemed for the principal amount plus accrued interest. After the bonds
have been converted to a fixed rate, the redemption price for the bonds carry a
premium of up to 3%. Such premiums decline by .5% each year after the
conversion.
The carrying value of long-term debt of the Company approximates the fair value
of loans with similar terms.
The aggregate future annual maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1998 $ 1,000
1999 33,778
2000 52,639
2001 1,000
2002 11,000
Thereafter 1,750
--------
$101,167
========
</TABLE>
Certain loan agreements contain various provisions, including minimum net worth
and working capital requirements, minimum fixed charges coverage and limitations
on total funded debt as a percentage of net worth and the payment of dividends.
The agreements also contain a clause that makes the borrowings immediately due
and payable in the event of a change in control of the Company, as defined in
the agreements. As of January 3, 1998, the Company was in compliance with these
covenants.
F-14
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
8. INCOME TAXES:
Provision for income taxes for fiscal 1997, fiscal 1996 and fiscal 1995 consists
of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
1997-
Federal $ 9,177 $3,741 $12,918
State 1,340 475 1,815
------- ------ -------
$10,517 $4,216 $14,733
======= ====== =======
1996-
Federal $ 8,079 $4,632 $12,711
State 861 602 1,463
------- ------ -------
$ 8,940 $5,234 $14,174
======= ====== =======
1995-
Federal $ 9,093 $1,727 $10,820
State 1,048 254 1,302
------- ------ -------
$10,141 $1,981 $12,122
======= ====== =======
</TABLE>
The provision for income taxes differed from the amount computed by applying the
federal statutory income tax rate due to:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Statutory U.S. federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal income tax
benefit 3.3 2.7 2.8
Other, net 2.6 2.3 2.4
------- ------ ------
Effective income tax rate 40.9% 40.0% 40.2%
======= ====== ======
</TABLE>
Deferred income taxes reflect the net income tax effect of temporary differences
between the bases of assets and liabilities for financial reporting purposes and
for income tax reporting purposes. Net deferred income tax balances are
comprised of the following:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
------------ ---------------
<S> <C> <C>
Deferred tax assets $ 5,728 $ 3,301
Deferred tax liabilities (21,677) (15,756)
-------- --------
Net deferred taxes $(15,949) $(12,455)
======== ========
</TABLE>
F-15
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
No valuation allowances against deferred income tax assets were recorded at
January 3, 1998, or December 28, 1996.
Temporary differences which gave rise to significant deferred income tax assets
(liabilities) were as follows:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
------------ --------------
<S> <C> <C>
Current deferred income taxes-
Inventory valuation differences $ (6,592) $(4,437)
Accrued medical and workers' compensation 1,805 908
Accrued expenses not currently deductible
for tax 1,418 320
Other, net 259 70
-------- -------
Total current deferred income taxes $ (3,110) $(3,139)
======== =======
Long-term deferred income taxes-
Property and equipment $(13,225) $(9,679)
Other 386 363
-------- -------
Total long-term deferred income taxes $(12,839) $(9,316)
======== =======
</TABLE>
The Company currently has two years that are open to audit by the Internal
Revenue Service. The Company has received notice from a certain state's
Department of Revenue asserting income tax deficiencies for 1993 through 1995.
In addition, various state income and franchise tax returns for several years
are open to audit. In management's opinion, adequate reserves have been
established and any amounts assessed will not have a material effect on the
Company's financial position and results of operations.
9. LEASE COMMITMENTS:
The Company leases store locations, distribution centers, office space,
equipment and vehicles under lease arrangements, some of which are with related
parties or trusts established for the benefit of related parties (Note 12). The
Company accounts for these leases as operating leases.
F-16
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
At January 3, 1998, future minimum lease payments due under operating leases are
as follows:
<TABLE>
<CAPTION>
RELATED
PARTIES OTHER TOTAL
--------- -------- ---------
<S> <C> <C> <C>
1998 $ 3,092 $ 51,935 $ 55,027
1999 2,844 50,739 53,583
2000 2,683 48,032 50,715
2001 2,286 44,189 46,475
2002 2,237 41,125 43,362
Thereafter 7,721 123,107 130,828
------- -------- --------
$20,863 $359,127 $379,990
======= ======== ========
</TABLE>
Total rent expense for fiscal 1997, fiscal 1996 and fiscal 1995 was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- -------
<S> <C> <C> <C>
Minimum facility rentals $44,707 $36,678 $29,650
Contingent facility rentals 413 357 442
Equipment rentals 1,532 1,242 1,092
Vehicle rentals 1,658 331 -
------- ------- -------
$48,310 $38,608 $31,184
======= ======= =======
</TABLE>
Contingent facility rentals are determined on the basis of a percentage of sales
in excess of stipulated minimums for certain store facilities. Most of the
leases provide that the Company pay taxes, maintenance, insurance and certain
other operating expenses applicable to the leased premises and include options
to renew. Certain leases contain rent escalation clauses. Management expects
that, in the normal course of business, leases that expire will be renewed or
replaced by other leases.
10. CONTINGENCIES:
In the case of all known contingencies, the Company accrues for an obligation
when it is probable and the amount is reasonably estimable. As facts concerning
contingencies become known to the Company, the Company reassesses its position
both with respect to gain contingencies and accrued liabilities and other
potential exposures. Estimates that are particularly sensitive to future change
include tax and legal matters, which are subject to change as events evolve and
as additional information becomes available during the administrative and
litigation process.
F-17
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
In November 1997 a plaintiff, on behalf of himself and others similarly
situated, filed a class action complaint and motion of class certification
against the Company in the circuit court for Jefferson County, Tennessee,
alleging misconduct in the sale of automobile batteries. The complaint seeks
compensatory and punitive damages. The case is in the very early stages of
discovery; however, management believes that there is no merit to the complaint,
nor to the motion for class certification and, accordingly, plans a vigorous
defense. The Company is also involved in various other claims and lawsuits
arising in the normal course of business. Although the final outcome of these
legal matters cannot be determined, based on the facts presently known, it is
management's opinion that the final outcome of such claims and lawsuits will not
have a material adverse effect on the Company's financial position or results of
operations.
The Company has certain periods open to examination by taxing authorities in
various states for sales and use tax. In management's opinion, adequate
reserves have been established and any amounts assessed will not have a material
effect on the Company's financial position or results of operations.
The Company is self-insured with respect to workers' compensation and health
care claims for eligible active employees. The Company maintains certain levels
of stop-loss insurance coverage for these claims through an independent
insurance provider. The cost of workers' compensation and general health care
claims is accrued based on actual claims reported plus an estimate for claims
incurred but not reported. These estimates are based on historical information
along with certain assumptions about future events, and are subject to change as
additional information comes available.
The Company has entered into employment agreements with certain employees that
provide severance pay benefits under certain circumstances after a change in
control of the Company. The maximum contingent liability under these employment
agreements is approximately $7,300 at January 3, 1998.
11. BENEFIT PLANS:
401(k) PLAN
The Company maintains a defined contribution employee benefit plan which covers
substantially all employees after one year of service. The plan allows for
employee salary deferrals, which are matched at the Company's discretion.
Company contributions were $3,196 in fiscal 1997, $2,779 in fiscal 1996 and
$2,335 in fiscal 1995.
F-18
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
POSTRETIREMENT PLAN
The Company provides certain health care and life insurance benefits for
eligible retired employees. Financial information related to this plan was
determined by the Company's independent actuary as of January 3, 1998, and
December 28, 1996.
Net periodic postretirement benefit expense includes the following components:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Service cost $ 139 $ 155
Interest cost 195 113
Amortization of the transition obligation 58 58
Loss amortization 54 8
----- -----
$ 446 $ 334
===== =====
</TABLE>
The funded status and accrued cost for the plan is as follows:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
------------ -------------
<S> <C> <C>
Accumulated postretirement benefit obligation-
Retirees $ 1,130 $ 905
Active plan participants 2,095 1,740
------- -------
Accumulated benefit obligation 3,225 2,645
Fair value of plan assets - -
------- -------
Accumulated benefit obligation in excess of plan assets 3,225 2,645
Unrecognized transition obligation (984) (1,041)
Unrecognized loss (1,398) (1,148)
------- -------
Accrued postretirement benefit cost $ 843 $ 456
======= =======
</TABLE>
The accumulated postretirement benefit obligation was computed using an assumed
discount rate of 7.0% in 1997 and 7.5% in 1996. The health care trend rate was
assumed to be 8.5% for 1997, and was assumed to decline by approximately .5% in
each of the next seven years and then remain at 5.0% for 2004 and thereafter.
If the health care cost were increased 1% for all future years the accumulated
postretirement benefit obligation would have increased by $254 as of January 3,
1998. The effect of this change on the combined service and interest cost would
have been an increase of $18 for 1997.
F-19
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
The Company reserves the right to change or terminate the benefits at any time.
The Company also continues to evaluate ways in which it can better manage these
benefits and control costs. Any changes in the plan or revisions to assumptions
that affect the amount of expected future benefits may have a significant impact
on the amount of the reported obligation and annual expense.
12. RELATED-PARTY TRANSACTIONS:
The Company leases certain store locations, offices and a distribution center
from related parties. Rents for related-party leases may be slightly higher
than rents for nonaffiliated leases, and certain terms of the related-party
leases are more favorable to the landlord than those contained in leases with
nonaffiliates. Rental payments to related parties of approximately $3,171 in
fiscal 1997, $3,076 in fiscal 1996 and $2,735 in fiscal 1995 are included in the
total rent expense (Note 9).
In 1996, the Company entered into an agreement for the sale and leaseback of a
$2,200 addition to a distribution center. There was no gain or loss as a result
of the transaction. The lease is classified as an operating lease in accordance
with SFAS No. 13, "Accounting for Leases."
13. SUBSEQUENT EVENT:
Holding entered into an agreement and plan of merger on March 4, 1998, which
provides for the recapitalization of the Company. In connection with this
transaction, (1) all common and preferred stock of Holding will be converted
into the right to receive approximately $351,000, except that 140 shares of
common stock will remain outstanding and be converted into 1,750,000 shares via
a 12,500-to-one stock split, (2) an additional 10,750,000 shares of common stock
(after the 12,500-to-one stock split) will be sold for $107,500, (3) all
existing debt except for the McDuffie County Authority taxable industrial
revenue bonds discussed in Note 7 will be repaid, (4) new notes and debentures
of $260,000 will be issued and (5) a new term loan and revolving credit facility
will be entered into with aggregate borrowing availability of $375,000. The
Company intends to account for these transactions as recapitalization for
financial reporting purposes.
F-20
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS -- APRIL 25, 1998, AND JANUARY 3, 1998
<TABLE>
<CAPTION>
APRIL 25, JANUARY 3,
ASSETS 1998 1998
------ ------------ -------------
(unaudited)
(dollars in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 47,175 $ 15,463
Marketable securities - 2,025
Receivables, primarily from vendors 21,980 19,108
Trade receivables 4,857 3,359
Inventories 333,083 280,267
Prepaid expenses and other current assets 3,647 2,895
Refundable income taxes 3,750 1,765
--------- --------
Total current assets 414,492 324,882
PROPERTY AND EQUIPMENT, NET 139,056 134,896
OTHER ASSETS 21,809 2,054
--------- --------
$ 575,357 $461,832
========= ========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
----------------------------------------------
CURRENT LIABILITIES
Bank overdrafts $ - $ 6,970
Borrowings secured by trade receivables 4,857 3,359
Notes payable and current portion of long-term debt - 3,959
Current portion of deferred revenue 1,916 1,530
Accounts payable 219,907 157,096
Accrued expenses 39,491 27,718
Deferred income taxes 2,674 3,110
--------- --------
Total current liabilities 268,845 203,742
--------- --------
LONG-TERM DEBT 395,249 100,167
--------- --------
DEFERRED REVENUE 1,638 693
--------- --------
DEFERRED INCOME TAXES 13,311 12,839
--------- --------
POST-RETIREMENT BENEFITS 985 843
--------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' (DEFICIT) EQUITY:
8% noncumulative, nonvoting preferred stock, $10 par value, 100,000 shares
authorized; 77,300 shares issued and outstanding at January 3, 1998 - 773
Common stock, Class A, voting, $.01 par value, 62,500,000 shares authorized and
12,603,800 issued and outstanding at April 25, 1998; $100 par value, 5,000
shares authorized and 193 shares issued and outstanding at January 3, 1998 126 19
Common stock, Class B, nonvoting, $100 par value, 35,000 shares authorized and
1,750 shares issued and outstanding at January 3, 1998 - 175
Additional paid-in capital 107,654 -
Stockholder subscription receivables (2,615) -
(Accumulated deficit) retained earnings (209,836) 142,581
--------- --------
Total stockholders' (deficit) equity (104,671) 143,548
--------- --------
$ 575,357 $461,832
========= ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-21
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIXTEEN-WEEK PERIODS ENDED APRIL 25, 1998, AND APRIL 19, 1997
<TABLE>
<CAPTION>
SIXTEEN-WEEK PERIOD ENDED
---------------------------
APRIL 25, APRIL 19,
1998 1997
---------- ----------
(Unaudited) (Unaudited)
(dollars in thousands)
<S> <C> <C>
NET SALES $288,963 $239,151
COST OF SALES 176,377 146,860
-------- --------
Gross profit 112,586 92,291
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 99,286 82,034
EXPENSES ASSOCIATED WITH RECAPITALIZATION 14,005 -
-------- --------
Operating income (705) 10,257
-------- --------
OTHER INCOME (EXPENSE):
Interest expense (3,341) (1,996)
Other (4) (101)
-------- --------
Total other expense, net (3,345) (2,097)
-------- --------
(LOSS) INCOME BEFORE INCOME TAXES (4,050) 8,160
INCOME TAX (BENEFIT) EXPENSE (1,698) 3,338
-------- --------
NET (LOSS) INCOME $ (2,352) $ 4,822
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-22
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIXTEEN-WEEK PERIODS ENDED APRIL 25, 1998 AND APRIL 19, 1997
<TABLE>
<CAPTION>
SIXTEEN-WEEK PERIOD
ENDED
-------------------------
APRIL 25, APRIL 19,
1998 1997
------------ ------------
(Unaudited) (Unaudited)
(dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (2,352) $ 4,822
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization of property and equipment 7,486 6,295
Loss on sale of property and equipment 26 35
Amortization of deferred debt issuance costs 106 -
Amortization of bond discount 232 -
Provision for deferred income taxes 36 513
Net periodic postretirement benefit expense, net of payments made 142 123
Net (increase) decrease in:
Receivables, primarily from vendors (2,872) 927
Trade receivables (1,498) 0
Inventories (52,816) (37,733)
Prepaid expenses and other assets (1,388) (1,044)
Refundable income taxes (1,985) -
Net increase in:
Accounts payable 62,811 31,877
Accrued expenses 10,283 5,869
------------ ------------
Net cash provided by operating activities 18,211 11,684
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (15,813) (9,658)
Proceeds from sale of property and equipment 4,141 55
Sales of marketable securities 2,025 4
------------ ------------
Net cash used in investing activities (9,647) (9,599)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in bank overdrafts (6,970) (5,293)
Net borrowings under notes payable (2,959) (475)
Proceeds from issuance of long-term debt 11,500 19,000
Payments on long-term debt (102,667) (16,633)
Borrowings under new credit facilities 385,017 -
Payment of debt issuance costs (18,288) -
Proceeds from issuance of Class A Common Stock 105,148 -
Payment for redemption of preferred and common stock (351,000) -
Other 3,367 754
------------ ------------
Net cash provided by (used in) financing activities 23,148 (2,647)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 31,712 (562)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 15,463 14,833
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 47,175 $ 14,271
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 1,848 $ 1,939
Income taxes paid, net of refunds received 389 3,613
============ ============
NONCASH TRANSACTIONS:
Debt issuance costs accrued $ 1,490 $ 0
Loans receivable related to issuance of common stock 2,615 0
============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-23
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIXTEEN-WEEK PERIODS ENDED APRIL 25, 1998 AND APRIL 19, 1997
(dollars in thousands, except per share data)
(Unaudited)
1. BASIS OF PRESENTATION:
The accompanying condensed consolidated financial statements include the
accounts of Advance Holding Corporation and its wholly owned subsidiaries (the
Company). All significant intercompany balances and transactions have been
eliminated in consolidation.
The condensed consolidated balance sheet as of April 25, 1998, and the condensed
consolidated statements of operations and cash flows for the 16-week periods
ended April 25, 1998 and April 19, 1997, have been prepared by the Company and
have not been audited. In the opinion of management, all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the financial position of the Company, the results of its
operations and cash flows have been made.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's consolidated financial statements for the fiscal year ended January 3,
1998.
The results of operations for the 16-week periods are not necessarily indicative
of the operating results to be expected for the full fiscal year.
F-24
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIXTEEN-WEEK PERIODS ENDED APRIL 25, 1998 AND APRIL 19, 1997
2. INVENTORIES:
Inventories are stated at the lower of cost or market using the last-in, first-
out (LIFO) method. An actual valuation of inventory under the LIFO method can
be made only at the end of each year based on the inventory levels and costs at
that time. Accordingly, interim LIFO calculations must necessarily be based on
management's estimates of expected year-end inventory levels and costs.
Inventories consist of the following:
<TABLE>
<CAPTION>
APRIL 25, 1998 JANUARY 3, 1998
--------------- -----------------
<S> <C> <C>
Replacement cost $332,333 $280,267
Reserve to state inventories at LIFO 3,774 2,274
-------- --------
Inventories at LIFO 336,107 282,541
Other reserves (3,024) (2,274)
-------- --------
$333,083 $280,267
======== ========
</TABLE>
3. OTHER ASSETS:
As of April 25, 1998, other assets included deferred debt issuance costs of
$19,596, net of accumulated amortization of $69. Such costs are being amortized
over the term of the related debt (6 to 11 years).
4. STOCK OPTIONS:
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options and awards. Under APB 25,
compensation expense for stock options is measured as the excess, if any, of the
fair market value of the Company's common stock at the measurement date over the
exercise price.
F-25
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIXTEEN-WEEK PERIODS ENDED APRIL 25, 1998 AND APRIL 19, 1997
5. RECAPITALIZATION:
On April 15, 1998, the Company consummated its recapitalization pursuant to an
Agreement and Plan of Merger dated March 4, 1998 (the Merger Agreement). In
connection with the Merger, the Company's Board of Directors authorized a 12,500
to 1 split of the common stock and a change in the par value of the common stock
from $100 to $.01 per share. Pursuant to the Merger Agreement, AHC Corporation
(AHC), a corporation controlled by an investment fund organized by Freeman
Spogli & Co. Incorporated (FS&Co.), merged into the Company (the Merger), with
the Company as the surviving corporation. In the Merger, a portion of the
common stock and all of the preferred stock of the Company were converted into
the right to receive in the aggregate approximately $351,000 in cash and certain
stock options (see below). Certain shares representing approximately 14% of the
outstanding Class A common stock remained outstanding upon consummation of the
Merger. Immediately prior to the Merger, FS&Co. purchased approximately $80,500
of the common stock of AHC which was converted in the Merger into approximately
64% of the Company's outstanding common stock and Ripplewood Partners, L.P. and
its affiliates (Ripplewood) purchased approximately $20,000 of the common stock
of AHC which was converted in the merger into approximately 16% of the Company's
outstanding common stock. In connection with the Merger, management purchased
approximately $8,000, or approximately 6%, of the Company's outstanding common
stock.
On April 15, 1998, the Company entered into a new bank credit facility that
provides for (i) three senior secured term loan facilities in the aggregate
amount of $250,000 and (ii) a secured revolving credit facility of up to
$125,000. At the closing of the Merger, $125,000 was borrowed under one of the
term loan facilities. On April 15, 1998, the Company also issued $200,000 of
senior subordinated notes and approximately $60,000 of senior discount
debentures. In connection with these transactions, the Company extinguished a
substantial portion of its existing notes payable and long-term debt.
The Merger, the retirement of debt, borrowings under the new bank credit
facility, the issuance of the senior discount debentures and the issuance of the
senior subordinated notes collectively represent the "Recapitalization".
The stock options received by the existing stockholders are for 500,000 shares
of common stock. The stock options are fully vested, nonforfeitable and provide
for a $10 per share exercise price, increasing $2.00 per share annually, through
the expiration date of April 2005. The Company is currently obtaining a
valuation of these options. When the valuation is received, the value of the
options will be reflected as additional consideration for the shares of common
stock repurchased in the Recapitalization.
F-26
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIXTEEN-WEEK PERIODS ENDED APRIL 25, 1998 AND APRIL 19, 1997
Concurrent with the Recapitalization, the Company paid $11,500 in bonuses to
certain employees, including executive officers. The Company also incurred
$22,858 of Recapitalization related costs and fees, of which $19,578 has been
recorded as deferred debt issuance costs, $775 has been recorded as a reduction
of the proceeds from the sale of common stock and $2,505 has been expensed.
The employee bonuses and Recapitalization related expenses, primarily
professional service fees, are presented as expenses associated with
Recapitalization in the accompanying unaudited condensed consolidated statement
of operations for the 16-week period ending April 25, 1998.
As of April 25, 1998, accrued expenses include $2,580 of accrued liabilities
related to the Recapitalization, which include the Company's estimate of certain
unpaid professional services.
In connection with the Recapitalization, FS&Co. and an affiliate of Ripplewood
collectively received a $5,000 fee for negotiating the Recapitalization,
advisory and consulting services, arranging financing and raising equity
funding.
6. STOCKHOLDERS AGREEMENT:
The Chairman of the Board and an affiliated trust (the Existing Stockholders),
FS&Co., Ripplewood and the Company have entered into a Stockholders' Agreement
(the Stockholders' Agreement). Under the Stockholders' Agreement, FS&Co.,
Ripplewood and the Existing Stockholders have the right to purchase their pro
rata share of certain new issuances of common stock. In addition, the
Stockholders' Agreement provides for restrictions on the transferability of the
common stock of the Existing Stockholders and Ripplewood for a period of two
years following the Recapitalization and, thereafter, for the following three-
year period any transfers, with certain exceptions, are subject to a right of
first offer in favor of FS&Co., provided that Ripplewood's obligation to make a
first offer extends indefinitely. In addition, the Stockholders' Agreement
provides that upon certain transfers by FS&Co. of its shares of common stock,
the Existing Stockholders and Ripplewood will have the right to participate in
such sales on a pro rata basis. If FS&Co. sells all of its common stock,
Ripplewood and the Existing Stockholders will be obligated to sell all of their
shares of common stock at the request of FS&Co.
F-27
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIXTEEN-WEEK PERIODS ENDED APRIL 25, 1998 AND APRIL 19, 1997
The Stockholders' Agreement further provides that FS&Co. will elect the existing
Chairman of the Board to the Board of Directors, and the Existing Stockholders
will elect nominees of FS&Co. Ripplewood has granted FS&Co. an irrevocable
proxy to vote Ripplewood's common stock on all matters, expiring upon an initial
public offering, but FS&Co. will nominate one director designated by Ripplewood.
The Ripplewood director will agree to vote with the FS&Co. directors on all
matters prior to an initial public offering. Pursuant to Stockholders'
Agreement, the existing Chairman of the Board has certain approval rights with
respect to major corporate transactions.
7. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 25, JANUARY 3,
1998 1998
----------- -----------
<S> <C> <C>
Senior Debt-
Delayed draw facilities $ - $ -
Revolving facility - -
Tranche B facility 125,000 -
Revolving credit arrangements, interest payable monthly at variable rates
(ranging from 6.1% to 6.5% in 1998), repaid in April 1998 - 84,500
Term note, interest payable monthly at variable rates (ranging from 6.4% to
6.5% in 1998), repaid in April 1998 - 6,667
McDuffie County Authority taxable industrial development revenue bonds,
interest at an adjustable rate (5.55% at April 25, 1998) 10,000 10,000
Subordinated Debt-
Subordinated notes payable, interest due semi-annually at 10.25% commencing
on October 15, 1998, due April 2008 200,000 -
Discount debentures, at 12.875%, due April 2009 (subordinate to
substantially all other liabilities) 60,249 -
-------- --------
Total long-term debt 395,249 101,167
Less - current portion of long-term debt - (1,000)
-------- --------
Long-term debt, excluding current portion $395,249 $100,167
======== ========
</TABLE>
F-28
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIXTEEN-WEEK PERIODS ENDED APRIL 25, 1998 AND APRIL 19, 1997
The terms of the McDuffie County Authority taxable industrial development
revenue bonds remain unchanged from January 3, 1998, except that the letter of
credit obtained in connection with the issuance of these bonds has been
cancelled. The bonds are now secured by the letter of credit obtained in
connection with the Revolving Credit Facility.
The terms of the McDuffie County Authority taxable industrial development
revenue bonds remain unchanged from January 3, 1998, except that the letter of
credit obtained in connection with the issuance of these bonds, has been
cancelled. The bonds are now secured by the letter of credit obtained in
connection with the Revolving Credit Facility.
The delayed draw facilities, new revolving facility and Tranche B facility (New
Credit Facility) are with a syndicate of banks. The New Credit Facility
provides for the Company to borrow up to $375,000 in the form of senior secured
credit facilities, consisting of (i) $50,000 senior secured delayed draw term
loan facility (the Delayed Draw Facility I), (ii) $75,000 senior secured delayed
draw term loan facility (the Delayed Draw Facility II) and, together with the
Delayed Draw Facility I, (the Delayed Draw Facilities), (iii) a $125,000 Tranche
B senior secured term loan facility (the Tranche B Facility), and (iv) a
$125,000 senior secured revolving credit facility (the Revolving Facility). The
Revolving Facility has a letter of credit sublimit of $25,000. Amounts
available under the Delayed Draw Facilities and the Revolving Facility are
subject to a borrowing base formula based on a specified percentage of the
Company's eligible inventory.
The Delayed Draw Facilities mature April 2004. The Tranche B Facility matures
in April 2006. These term facilities provide for nominal annual amortization in
the first five years and amortization of $149.0 million in 2004, $60.0 million
in 2005 and $30.0 million in 2006. The Revolving Facility will mature in April
2004.
Borrowings under the New Credit Facility are required to be prepaid, subject to
certain exceptions, with (a) 50% of Excess Cash Flow (as defined), (b) the net
cash proceeds of all asset sales or other dispositions of property (as defined),
(c) the net proceeds of issuances of debt obligations and, (d) the net proceeds
of issuance of equity securities.
For the first four fiscal quarters after April 1998, the interest rates under
the Delayed Draw Facilities and the Revolving Facility are based, at the option
of the Company, on either a eurodollar rate plus 2.25% per annum or a base rate
plus 1.25% per annum. Thereafter, the interest rates under the Delayed Draw
Facilities and the Revolving Facility will be determined by reference to a
pricing grid that will provide for reductions in the applicable interest rate
margins based on the trailing Total Debt to EBITDA ratio, as defined, of Advance
Stores Company, Incorporated, a wholly-owned subsidiary (Stores). The initial
margins will be 2.25% and 1.25% for eurodollar and base rate borrowings,
respectively, and can step down to 1.75% and 0.75%, respectively, if Stores'
Total Debt to EBITDA ratio is less than or equal to 4.00 to 1.00. The interest
rate under the Tranche B Facility is based, at the option of the Company, on a
eurodollar rate plus 2.5% or a base rate plus 1.5% (8.2% at April 25, 1998). A
commitment fee of 0.50% per annum will be charged on the unused portion of the
New Credit Facility.
F-29
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIXTEEN-WEEK PERIODS ENDED APRIL 25, 1998 AND APRIL 19, 1997
The New Credit Facility is secured by substantially all of the assets of the
Company. The New Credit Facility contains covenants restricting the ability of
Stores and its subsidiaries to, among others, (i) declare dividends or redeem or
repurchase capital stock (ii) prepay, redeem or purchase debt, (iii) incur liens
or engage in sale-leaseback transactions, (iv) make loans and investments, (v)
incur additional debt (including hedging arrangements), (vi) make capital
expenditures, (vii) engage in mergers, acquisitions and asset sales, (viii)
engage in transactions with affiliates, (ix) change the nature of the business
conducted by the Company and its subsidiaries, (x) change the passive holding
company status of Advance Holding Corporation and (xi) amend existing debt
agreements. Stores is also required to comply with financial covenants with
respect to (a) a maximum leverage ratio, (b) a minimum interest coverage ratio,
and (c) a minimum retained cash earnings test.
The $200,000 Senior Subordinated Notes (the Notes) mature on April 15, 2008 and
will bear interest at the rate of 10.25% per annum, payable semi-annually on
April 15 and October 15 of each year, commencing October 15, 1998. The Notes
are unsecured and are subordinate in right of payment to all existing and future
Senior Debt. The Notes are redeemable at the option of the Company, in whole or
in part, at any time on or after April 15, 2003 in cash at the redemption prices
(as defined), plus accrued and unpaid interest and liquidated damages, if any,
thereon to the date of redemption. In addition, at any time prior to April 15,
2001, the Company may redeem up to 35% of the initially outstanding aggregate
principal amount of the Notes at a redemption price equal to 110.25% of the
principal amount thereof, plus accrued and unpaid interest and liquidated
damages, if any, thereon to the date of redemption, with the net proceeds of one
or more equity offerings; provided that, in each case, at least 65% of the
initially outstanding aggregate principal amount of the Notes remains
outstanding immediately after the occurrence of any such redemption; and
provided further, that such redemption shall occur within 90 days of the date of
the closing of such equity offering.
Upon the occurrence of a change of control, (as defined), each holder of the
Notes will have the right to require the Company to repurchase all or any part
of such holder's Notes at an offering price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest and
liquidated damages, if any, thereon to the date of purchase.
The Notes are guaranteed by a wholly-owned subsidiary of Stores, LARALEV, INC.,
which holds certain trademarks and tradenames and other intangible assets for
which it receives royalty income from Stores. The Notes contain certain
covenants that limit, among other things, the ability of Stores to incur
additional indebtedness, issue preferred stock, pay dividends or certain other
distributions, issue stock of subsidiaries, make certain investments, repurchase
stock and certain indebtedness, create or incur liens, engage in transactions
with affiliates, enter into new businesses and restrict Stores from engaging in
certain mergers or consolidations and selling assets.
F-30
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIXTEEN-WEEK PERIODS ENDED APRIL 25, 1998 AND APRIL 19, 1997
The Senior Discount Debentures (the Debentures) are due on April 15, 2009.
Interest at 12.875% (computed on a semi-annual basis) is calculated from April
15, 1998. The Debentures will accrete at a rate of 12.875%, compounded semi-
annually, to an aggregate principal amount of $112.0 million by April 15, 2003.
Cash interest will not accrue on the Debentures prior to April 15, 2003.
Commencing April 15, 2003, cash interest on the Debentures will accrue and be
payable, at a rate of 12.875% per annum, semi-annually in arrears on each April
15 and October 15.
The Debentures are redeemable at the option of the Company, in whole or in part,
at any time on or after April 15, 2003, in cash at the redemption prices, plus
accrued and unpaid interest and liquidated damages, (as defined), if any,
thereon to the redemption date. In addition, at any time prior to April 15,
2001 the Company may, at its option, redeem up to 35% of the aggregate principal
amount at maturity of the Debentures originally issued at a redemption price
equal to 112.875% of the accredited value thereof, plus liquidated damages, if
any, with the net cash proceeds of one or more equity offerings; provide that at
least 65% of the original aggregate principal amount at maturity of the
Debentures will remain outstanding immediately following each such redemption.
Upon the occurrence of a change of control (as defined), each holder of the
Debentures will have the right to require the Company to purchase the Debentures
at a price in cash equal to 101% of the accreted value thereof plus liquidated
damages, if any, thereon in the case of any such purchase prior to April 15,
2003, or 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest and liquidated damages, if any, thereon to the date of purchase in the
case of any such purchase on or after April 15, 2003. The Company may not have
any significant assets other than capital stock of the Stores (which is pledged
to secure the Company's obligations under then New Credit Facility). As a
result, the Company's ability to purchase all or any part of the Debentures upon
the occurrence of a change in control will be dependent upon the receipt of
dividends or other distributions from Stores or its subsidiaries. The New
Credit Facility and the Senior Subordinated Notes have certain restrictions for
Stores with respect to paying dividends and making any other distributions.
The Debentures are effectively subordinated to all of the Company's other
liabilities. The Debentures contain certain covenants that, among other things,
limit the ability of the Company to incur indebtedness, issue preferred stock,
repurchase stock and certain indebtedness, engage in transactions with
affiliates, create or incur certain liens, pay dividends or certain other
distributions, make certain investments, enter into new business, sell stock of
subsidiaries, sell assets and engage in certain mergers and consolidations.
F-31
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIXTEEN-WEEK PERIODS ENDED APRIL 25, 1998 AND APRIL 19, 1997
8. STOCK OPTIONS:
The Company has adopted a senior executive stock option plan and an executive
stock option plan (the Option Plans), which provide for the granting of either
incentive stock options or non-qualified stock options to purchase shares of the
Company's common stock to officers and key employees of the Company. All
options will terminate on the seventh anniversary of the Option Agreement under
which they were granted if not exercised prior thereto.
Shares available for grant under the senior executive and the executive stock
option plans are 507,500 and 450,000, respectively as of April 25, 1998.
Three different types of options were granted pursuant to the Option Plans.
Fixed Price Service Options will vest over a three year period in three equal
installments beginning in fiscal 1999. Performance Options will be earned in
installments based upon satisfaction of certain performance targets for the four
year period ending in fiscal 2001. Variable Price Service Options will vest in
equal annual installments over a two year period beginning in 1999, and have an
exercise price that increases over time.
Total options outstanding at April 25, 1998, were as follows:
<TABLE>
<CAPTION>
INITIAL
NUMBER OF EXERCISE
SHARES PRICE
---------- -----------
<S> <C> <C>
Variable Price Service Options 397,085 $10
Performance Options 397,085 $10
Fixed Price Service Options 104,580 $10
Other options (Note 5) 500,000 $10
---------
1,398,750
=========
</TABLE>
Options exercisable at April 25, 1998, were 500,000.
The Company has elected to account for stock option grants under APB 25 and, at
year-end, is required to provide pro forma disclosures of what net income would
have been had the Company adopted the new fair value method for recognition
purposes under Statement of Financial Accounting Standards No. 123 "Accounting
for Stock-Based Compensation". Under APB 25, the Company did not recognize
compensation expense on the issuance of its stock options because the exercise
price equaled the fair market value of the underlying stock on the grant date.
The fair market value did not change from the grant date to April 25, 1998.
F-32
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIXTEEN-WEEK PERIODS ENDED APRIL 25, 1998 AND APRIL 19, 1997
9. STOCKHOLDERS' (DEFICIT) EQUITY:
Changes in stockholders' (deficit) equity for the 16-week period ended April 25,
1998 are as follows:
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
PREFERRED STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 3, 1998 193 $ 19 1,750 $ 175 77,300 $ 773
Stock split (12,500 to 1) 2,412,307 - 21,873,250 - - -
Change in par value of common stock - 5 - 44 - -
Redemption of stock (662,500) (7) (21,875,000) (219) (77,300) (773)
Issuance of Class A common stock, net of
issuance costs of $775 10,853,300 109 - - - -
Stockholder subscription receivables - - - - - -
Net loss - - - - - -
Preferred dividend, $.80 per share - - - - - -
---------- ---- ---------- ----- ------- -----
Balance, April 25, 1998 12,603,800 $126 - $ - - $ -
========== ==== ========== ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL STOCKHOLDER TOTAL
PAID-IN SUBSCRIPTION RETAINED EARNINGS EQUITY
CAPITAL RECEIVABLES (ACCUMULATED DEFICIT) (DEFICIT)
---------- ------------ --------------------- ----------
<S> <C> <C> <C> <C>
Balance, January 3, 1998 $ - $ - $ 142,581 $ 143,548
Stock split (12,500 to 1) - - - -
Change in par value of common stock - - (49) -
Redemption of stock - - (350,001) (351,000)
Issuance of Class A common stock, net of
issuance costs of $775 107,654 - - 107,763
Stockholder subscription receivables - (2,615) - (2,615)
Net loss - - (2,352) (2,352)
Preferred dividend, $.80 per share - - (15) (15)
-------- ------- --------- ---------
Balance, April 25, 1998 $107,654 $(2,615) $(209,836) $(104,671)
======== ======= ========= =========
</TABLE>
F-33
<PAGE>
ADVANCE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIXTEEN-WEEK PERIODS ENDED APRIL 25, 1998 AND APRIL 19, 1997
10. RELATED-PARTY TRANSACTIONS:
In April 1998, the Company sold its airplane to the Chairman of the Board, an
existing stockholder, for its net book value of approximately $4,100.
11. CONTINGENCIES:
The employment agreements which existed at January 3, 1998 have been terminated.
The Company entered into new agreements that provide severance pay benefits
under certain circumstances.
F-34
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY HOLDING OR BY ANY OF THE INITIAL PURCHASERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO BUY OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................ 1
Risk Factors........................................... 14
Use of Proceeds........................................ 20
Capitalization......................................... 21
The Exchange Offer..................................... 22
Unaudited Pro Forma Consolidated Financial Data........ 29
Selected Consolidated Financial Data................... 33
Management's Discussion and Analysis
of Financial Condition and
Results of Operations................................. 35
Business............................................... 41
Management............................................. 52
Certain Transactions................................... 57
Principal Stockholders................................. 59
Description of Other Indebtedness...................... 61
Description of Series B Debentures..................... 64
Certain Federal Income Tax Considerations.............. 91
Plan of Distribution................................... 95
Legal Matters.......................................... 96
Index to Consolidated Financial Statements............. F-1
</TABLE>
================================================================================
================================================================================
$112,000,000
ADVANCE HOLDING CORPORATION
12.875% SENIOR DISCOUNT
DEBENTURES DUE 2009
, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Article 10 of the Virginia Stock Corporation Act (the "Virginia
Stock Corporation Act"), Article 5(C) of the Restated Articles of Incorporation
of the Registrant, a copy of which is filed as Exhibit 3.1 to this Registration
Statement (the "Articles of Incorporation"), provides that the Registrant may
indemnify (i) any person who was or is a party to any proceeding, including a
proceeding brought by a shareholder in the right of the Registrant or brought by
or on behalf of shareholders of the Registrant, by reason of the fact that he is
or was a director or officer of the Registrant, or (ii) any director or officer
who is or was serving at the request of the Registrant as a director, trustee,
partner or officer of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against any liability incurred by him
in connection with such proceeding unless he engaged in willful misconduct or a
knowing violation of the criminal law. A person is considered to be serving an
employee benefit plan at the Registrant's request if his duties to the
Registrant also impose duties on, or otherwise involve services by, him to the
plan or to participants in or beneficiaries of the plan.
Article 5(I) of the Articles of Incorporation permits the Registrant to
purchase and maintain insurance to indemnify it against the whole or any portion
of the liability assumed by it in accordance with such Article and may also
procure insurance in such amounts as the Board of Directors may determine on
behalf of any person who is or was a director, officer, employee, consultant,
representative or agent of the Registrant, or is or was serving at the request
of the Registrant as a director, officer, employee, consultant, representative
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or enterprise, against any liability asserted against or incurred
by him in any such capacity or arising from his status as such, whether or not
the Registrant would have power to indemnify him against such liability under
the provisions of such Article.
Pursuant to Article 10 of the Virginia Stock Corporation Act, Article 5(B)
of the Articles of Incorporation provides that no director or officer of the
Registrant shall be liable to the Registrant or its shareholders for monetary
damages with respect to any transaction, occurrence or course of conduct,
whether prior or subsequent to the effective date of such Article, except that
such Article shall not exclude liability resulting from such person's having
engaged in willful misconduct or a knowing violation of the criminal law or of
any federal or state securities law.
Reference is made to the Registration Rights Agreement (attached as Exhibit
4.2 to this Registration Statement) which provides for indemnification (i) by
the Registrant of each Holder (as defined therein), its directors, officers and
each person controlling such Holder against certain liabilities, including those
arising under the Securities Act and (ii) by each Holder of the Registrant, its
directors, officers and each person controlling the Registrant against certain
liabilities, but only with reference to information relating to such Holder
furnished to the Registrant by such Holder expressly for use in any Registration
Statement.
Reference is also made to the Stockholders Agreement (attached as Exhibit
10.1 to the Registration Statement) which provides for indemnification (i) by
the Registrant of each Selling Holder (as defined), its officers, directors and
agents, and each person controlling such Selling Holder against certain
liabilities, including those arising under the Securities Act and (ii) by each
Selling Holder of the Registrant, its officers, directors and agents and each
person controlling the Registrant against certain liabilities, but only with
reference to (i) information related to such Selling Holder furnished in writing
by such Selling Holder or on such Selling Holder's behalf expressly for use in
any registration statement or prospectus relating to the Registrable Securities
(as defined), or any amendment or supplement thereto, or any preliminary
prospectus and (ii) subject to certain exclusions.
Reference is also made to the Indemnity Agreement with Nicholas F. Taubman
(attached as Exhibit 10.26 to this Registration Statement) which provides for
indemnification by the Registrant of Mr. Taubman to the fullest extent permitted
by law. The Registrant has also entered into indemnity agreements with each
other director (the form of which is attached as Exhibit 10.24 to this
Registration Statement) which provides for indemnification to the fullest extent
permitted by law.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted with respect to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has
II-1
<PAGE>
been informed that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
The foregoing discussion of the Articles of Incorporation and the Virginia
Stock Corporation Act is not intended to be exhaustive and is qualified in its
entirety by the Articles of Incorporation and the relevant provisions of the
Virginia Stock Corporation Act.
II-2
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------- -----------
<C> <S>
1.1 Purchase Agreement dated as of April 7, 1998 among Advance Holding Corporation
("Holding"), Donaldson, Lufkin & Jenrette Securities Corporation and Chase Securities Inc.
(the "Initial Purchasers").
2.1(1) Merger Agreement dated as of March 4, 1998 among AHC Corporation and Holding with
FS Equity Partners III, L.P., FS Equity Partners IV, L.P. ("FSEP IV"), and FS Equity
Partners International, L.P.
3.1 Articles of Incorporation of Holding, as amended to date.
3.2 Bylaws of Holding, as amended to date.
4.1 Indenture dated as of April 15, 1998 between Holding and United States Trust Company of
New York, as Trustee, with respect to the 12.875% Senior Discount Debentures due 2009
(including the form of 12.875% Senior Discount Debenture due 2009).
4.2 Registration Rights Agreement dated as of April 15, 1998 among Holding and the Initial
Purchasers.
4.3(1) Stockholders' Agreement dated as of April 15, 1998 among FSEP IV, Ripplewood Partners,
L.P., Ripplewood Advance Auto Parts Employee Fund I L.L.C., Nicholas F. Taubman,
Arthur Taubman Trust dated July 13, 1964, and Holding (including the Terms of the
Registration Rights of the Common Stock).
5.1 Opinion of Riordan & McKinzie as to the legality of securities registered hereunder.
10.1(1) Credit Agreement dated as of April 15, 1998 among Holding, Advance Stores Company,
Incorporated (the "Company"), as borrower, the lenders party thereto, and the Chase
Manhattan Bank ("Chase"), as administrative agent.
10.2(1) Pledge Agreement dated as of April 15, 1998 among the Company, Holding, LARALEV,
Inc. ("LARALEV"), and Chase, as collateral agent.
10.3(1) Guarantee Agreement dated as of April 15, 1998 among Holding and LARALEV, as
guarantors, and Chase, as collateral agent.
10.4(1) Indemnity, Subrogation and Contribution Agreement dated as of April 15, 1998 among the
Company, Holding, LARALEV and Chase, as collateral agent.
10.5(1) Security Agreement dated as of April 15, 1998 among the Company, Holding, LARALEV
and Chase, as collateral agent.
10.6(1) Lease Agreement dated as of March 16, 1995 between Ki, L.C. and the Company for the
Company's headquarters located at 5673 Airport Road, Roanoke, Virginia, as amended.
10.7(1) Lease Agreement dated as of January 1, 1997 between Nicholas F. Taubman and the
Company for the distribution center located at 1835 Blue Hills Drive, N.E., Roanoke,
Virginia, as amended.
10.8(1) Trust Indenture dated as of December 1, 1997 among McDuffie County Development
Authority, First Union National Bank, as trustee, and Branch Banking and Trust Company,
as credit facility trustee, relating to the $10,000,000 Taxable Industrial Development
Revenue Bonds (Advance Stores Company, Incorporated Project) Series 1997 (the "IRB").
10.9(1) Lease Agreement dated as of December 1, 1997 between Development Authority of
McDuffie County and the Company relating to the IRB.
10.10(1) Letter of Credit and Reimbursement Agreement dated as of December 1, 1997 among the
Company, Holding and First Union National Bank relating to the IRB.
10.11(1) Advance Holding Corporation 1998 Senior Executive Stock Option Plan.
10.12(1) Form of Advance Holding Corporation 1998 Senior Executive Stock Option Agreement.
10.13(1) Advance Holding Corporation 1998 Executive Stock Option Plan.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------- -----------
<C> <S>
10.14(1) Form of Advance Holding Corporation 1998 Stock Option Agreement.
10.15(1) Advance Holding Corporation 1998 Senior Executive Stock Subscription Plan.
10.16(1) Form of Advance Holding Corporation Senior Executive Stock Subscription Agreement.
10.17(1) Advance Holding Corporation 1998 Employee Stock Subscription Plan.
10.18(1) Form of Advance Holding Corporation Employee Stock Subscription Agreement.
10.19(1) Form of Secured Promissory Note.
10.20(1) Form of Stock Pledge Agreement.
10.21(1) Form of Employment and Non-Competition Agreement between the Company's employee
and the Company (one-year agreement).
10.22(1) Form of Employment and Non-Competition Agreement between the Company's employee
and the Company (two-year agreement).
10.23(1) Form of Indemnity Agreement between each of the directors of Holding (other than Nicholas
F. Taubman) and Holding.
10.24(1) Form of Consulting and Non-Competition Agreement among Nicholas F. Taubman, Holding
and the Company.
10.25(1) Indemnity Agreement dated as of April 15, 1998 between Nicholas F. Taubman and
Holding.
10.26(1) Option Agreement dated as of April 15, 1998 between Nicholas F. Taubman and Holding.
10.27(1) Option Agreement dated as of April 15, 1998 between Arthur Taubman Trust dated July 13,
1968 and Holding.
10.28(1) Form of Employment and Non-Competition Agreement among Garnett E. Smith, Holding
and the Company.
10.29 Form of Series B Debenture.
12.1 Statement re Computation of Earnings to Fixed Charges Ratio.
21.1 Subsidiaries of the Company.
23.1 Consent of Riordan & McKinzie (contained in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (contained in the signature pages hereof)
25.1 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939
of United States Trust Company of New York.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal with respect to the Exchange Offer.
99.2 Form of Notice of Guaranteed Delivery with respect to the Exchange Offer.
</TABLE>
______________________
(1) Filed on June 4, 1998 as an exhibit to Registration Statement on Form S-4
(No. 333-56013) of Advance Stores Company, Incorporated.
(B) FINANCIAL STATEMENT SCHEDULE
No schedules have been included because the information required to be set
forth therein is not applicable.
ITEM 22. UNDERTAKINGS
1. The undersigned Registrant hereby undertakes as follows:
II-4
<PAGE>
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement: (i)
to include any prospectus required by Section 10(a)(3) of the
Securities Act; (ii) to reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the information
set forth in the Registration Statement; (iii) to include any material
information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement.
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
2. The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Roanoke,
Commonwealth of Virginia, on June 4, 1998.
ADVANCE HOLDING CORPORATION
By: /s/ J. O'Neil Leftwich
---------------------------------
J. O'Neil Leftwich
Senior Vice President and
Chief Financial Officer,
Secretary and Treasurer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Advance Holding
Corporation, hereby severally constitute and appoint J. O'Neil Leftwich, our
true and lawful attorney, with full power to him to sign for us and in our names
in the capacities indicated below, the Registration Statement on Form S-4 filed
herewith and any and all pre-effective and post-effective amendments to said
Registration Statement, and generally to do all such things in our names and on
our behalf in our capacities as officers and directors to enable Advance Holding
Corporation to comply with the provisions of the Securities Act of 1933, as
amended, and the requirements of the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorneys, or any of them, to said Registration Statement and any and all
amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Garnett E. Smith President and Chief Executive Officer June 4, 1998
- --------------------------- and Director (Principal Executive Officer)
Garnett E. Smith
/s/ J. O'Neil Leftwich Senior Vice President and Chief June 4, 1998
- --------------------------- Financial Officer, Secretary and
J. O'Neil Leftwich Treasurer (Principal Financial and
Accounting Officer)
/s/ Nicholas F. Taubman Chairman of the Board and Director June 4, 1998
- ---------------------------
Nicholas F. Taubman
/s/ Mark J. Doran Director June 4, 1998
- ---------------------------
Mark J. Doran
/s/ John M. Roth Director June 4, 1998
- ---------------------------
John M. Roth
/s/ J. Frederick Simmons Director June 4, 1998
- ---------------------------
J. Frederick Simmons
/s/ Ronald D. Spogli Director June 4, 1998
- ---------------------------
Ronald D. Spogli
/s/ Timothy C. Collins Director June 4, 1998
- ----------------------------
Timothy C. Collins
</TABLE>
II-6
<PAGE>
EXHIBIT 1.1
ADVANCE HOLDING CORPORATION
$112,000,000
12.875% SENIOR DISCOUNT DEBENTURES DUE 2009
PURCHASE AGREEMENT
APRIL 7, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CHASE SECURITIES, INC.
<PAGE>
$112,000,000
12.875% Senior Discount Debentures due 2009
of Advance Holding Corporation
PURCHASE AGREEMENT
April 7, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CHASE SECURITIES INC.
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
Advance Holding Corporation, a Virginia corporation ("HOLDING"), proposes
to issue and sell to Donaldson, Lufkin & Jenrette Securities Corporation and
Chase Securities Inc. (each, an "INITIAL PURCHASER" and, collectively, the
"INITIAL PURCHASERS") an aggregate of $112,000,000 in principal amount at
maturity of its 12.875% Senior Discount Debentures due 2009 (the "SERIES A
DEBENTURES"), subject to the terms and conditions set forth herein (the
"OFFERING"). The Series A Debentures are to be issued pursuant to the
provisions of an indenture (the "INDENTURE"), to be dated as of the Closing Date
(as defined below), between Holding and United States Trust Company of New York,
as trustee (the "TRUSTEE"). The Series A Debentures and the Series B Debentures
(as defined below) issuable in exchange therefor are collectively referred to
herein as the "DEBENTURES." Capitalized terms used but not defined herein shall
have the meanings given to such terms in the Indenture.
The Debentures are being issued and sold in connection with the
Recapitalization (as defined below) of Holding. In connection with the
Recapitalization, Holding and AHC Corporation ("AHC"), a corporation wholly-
owned by an investment fund organized by Freeman Spogli & Co. Incorporated
("FS&CO."), entered into an Agreement and Plan of Merger dated as of March 4,
1998 (the "MERGER AGREEMENT") pursuant to which AHC will merge into Holding (the
"MERGER"), with Holding to continue as the surviving corporation. Upon the
consummation of the Merger, the outstanding shares of the equity securities of
Holding will be converted into the right to
<PAGE>
2
receive an aggregate of approximately $351 million, other than certain shares of
Holding's Common Stock, par value $100.00 per share (the "HOLDING COMMON
STOCK"), which will continue to be held by certain existing stockholders and
which will represent approximately 14% of the outstanding shares of Holding
Common Stock immediately following the transaction. Immediately prior to the
Merger, FS&Co. will purchase approximately $82.5 million of the Common Stock of
AHC, which will be converted in the Merger into approximately 66% of the
outstanding Holding Common Stock. Immediately following the Merger, $20.0
million of Holding Common Stock will be purchased by Ripplewood Partners, L.P.
("RIPPLEWOOD") or its affiliates, constituting approximately 16% of the
outstanding Holding Common Stock (the investments by FS&Co. and Ripplewood are
collectively referred to herein as the "EQUITY INVESTMENT"). In addition,
management of Advance Stores Company, Incorporated, a Virginia corporation and a
wholly owned subsidiary of Holding (the "COMPANY"), is expected to purchase a
minimum of 4% of the outstanding Holding Common Stock. In connection with the
Recapitalization, substantially all of Holding's existing funded debt
obligations will be repaid, and the Company will repay its intercompany
obligations to Holding and will pay a dividend to Holding.
Cash funding requirements for the Recapitalization are $492.5 million and
will be satisfied as follows: (i) the Equity Investment; (ii) the purchase by
management of the Company of Holding Common Stock with a value of $5.0 million;
(iii) proceeds of $200.0 million from the issuance and sale by the Company of
its 10.25% Senior Subordinated Notes due 2008 (the "SENIOR SUBORDINATED NOTE
OFFERING" and, together with the Offering, the "OFFERINGS") in a separate
offering in which the Initial Purchasers will act as initial purchasers; (iv)
approximately $60.0 million from the proceeds of the Offering; and (v) $125.0
million of borrowings by the Company under a new bank credit facility (the "NEW
CREDIT FACILITY").
The Merger, the retirement of Holding's existing debt, the dividend payment
to Holding, the borrowing by the Company of funds under the New Credit Facility
and the Offerings are collectively referred to herein collectively as the
"RECAPITALIZATION", and the documents, agreements and instruments relating
thereto are referred to herein as the "OPERATIVE DOCUMENTS."
SECTION 1. OFFERING MEMORANDUM. The Series A Debentures will be offered
and sold to the Initial Purchasers pursuant to one or more exemptions from the
registration requirements under the Securities Act of 1933, as amended (the
"ACT"). Holding has prepared a preliminary offering memorandum, dated March 23,
1998 (the "PRELIMINARY OFFERING MEMORANDUM") and a final offering memorandum,
dated April 7, 1998 (the "OFFERING MEMORANDUM"), relating to the Series A
Debentures.
Upon original issuance thereof, and until such time as the same is no
longer required pursuant to the Indenture, the Series A Debentures (and all
securities issued in exchange therefor, in substitution thereof or upon
conversion thereof) shall bear the following legend:
<PAGE>
3
"THIS DEBENTURE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS, EXCEPT AS SET FORTH IN THE THIRD SENTENCE HEREOF. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS ACQUIRING THIS
DEBENTURE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER
THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE ACT
(AN "IAI")), (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS
DEBENTURE EXCEPT (A) TO HOLDING OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON
WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE
903 OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN IAI THAT,
PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS
DEBENTURE (THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF DEBENTURES LESS
THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO HOLDING THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
(AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO HOLDING) OR (G)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS DEBENTURE OR AN INTEREST HEREIN IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATIONS UNDER THE SECURITIES ACT.
THE INDENTURE
<PAGE>
4
CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS DEBENTURE IN VIOLATION OF THE FOREGOING."
SECTION 2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to the terms and conditions contained herein, Holding agrees to issue
and sell to the Initial Purchasers, and the Initial Purchasers agree, severally
and not jointly, to purchase from Holding, the principal amount of Series A
Debentures set forth opposite the name of such Initial Purchaser on Schedule B
----------
hereto at a purchase price equal to 51.911% of the principal amount thereof (the
"PURCHASE PRICE").
SECTION 3. TERMS OF OFFERING. The Initial Purchasers have advised Holding
that the Initial Purchasers will make offers (the "EXEMPT RESALES") of the
Series A Debentures purchased hereunder on the terms set forth in the Offering
Memorandum, as amended or supplemented, solely to (i) persons whom the Initial
Purchasers reasonably believe to be "qualified institutional buyers" as defined
in Rule 144A under the Act ("QIBS") and (ii) persons permitted to purchase the
Series A Debentures in offshore transactions in reliance upon Regulation S under
the Act (each, a "REGULATION S PURCHASER") (such persons specified in clauses
(i) and (ii) being referred to herein as the "ELIGIBLE PURCHASERS"). The Initial
Purchasers will offer the Series A Debentures to Eligible Purchasers initially
at a price equal to 53.586% of the principal amount thereof. Such price may be
changed at any time without notice.
Holders (including subsequent transferees) of the Series A Debentures will
have the registration rights set forth in the registration rights agreement (the
"REGISTRATION RIGHTS AGREEMENT"), to be dated the Closing Date, in substantially
the form of Exhibit A hereto, for so long as such Series A Debentures constitute
---------
"TRANSFER RESTRICTED SECURITIES" (as defined in the Registration Rights
Agreement). Pursuant to the Registration Rights Agreement, Holding will agree
to file with the Securities and Exchange Commission (the "COMMISSION") under the
circumstances set forth therein, (i) a registration statement under the Act (the
"EXCHANGE OFFER REGISTRATION STATEMENT") relating to Holding's 12.875% Senior
Discount Debentures Due 2009 (the "SERIES B DEBENTURES"), to be offered in
exchange for the Series A Debentures (such offer to exchange being referred to
as the "EXCHANGE OFFER") and (ii) under certain circumstances, a shelf
registration statement pursuant to Rule 415 under the Act (the "SHELF
REGISTRATION STATEMENT" and, together with the Exchange Offer Registration
Statement, the "REGISTRATION STATEMENTS") relating to the resale by certain
holders of the Series A Debentures and to use its reasonable best efforts to
cause such Registration Statements to be declared and remain effective and
usable for the periods specified in the Registration Rights Agreement and to
consummate the Exchange Offer.
<PAGE>
5
SECTION 4. DELIVERY AND PAYMENT. (a) Delivery of, and payment of the
Purchase Price for, the Series A Debentures shall be made at the offices of
Cravath, Swaine & Moore, 825 Eighth Avenue, New York, New York 10019 or such
other location as may be mutually acceptable. Such delivery and payment shall
be made at 10:00 a.m. New York City time, on April 15, 1998 or at such other
time on the same date or such other date as shall be agreed upon by the Initial
Purchasers and Holding in writing. The time and date of such delivery and the
payment for the Series A Debentures are herein called the "CLOSING DATE."
(b) One or more of the Series A Debentures in definitive global form,
registered in the name of Cede & Co., as nominee of the Depository Trust Company
("DTC"), having an aggregate principal amount corresponding to the aggregate
principal amount of the Series A Debentures (collectively, the "GLOBAL
DEBENTURE"), shall be delivered by Holding to the Initial Purchasers (or as the
Initial Purchasers direct) in each case with any transfer taxes thereon duly
paid by Holding against payment by the Initial Purchasers of the Purchase Price
thereof by wire transfer in same day funds to the order of Holding. The Global
Debenture shall be made available to the Initial Purchasers for inspection not
later than 9:30 a.m., New York City time, on the business day immediately
preceding the Closing Date.
SECTION 5. AGREEMENTS OF HOLDING. Holding hereby agrees with the Initial
Purchasers as follows:
(a) To advise the Initial Purchasers promptly and, if requested by the
Initial Purchasers, confirm such advice in writing, (i) of the issuance by
any state securities commission of any stop order suspending the
qualification or exemption from qualification of any Series A Debentures
for offering or sale in any jurisdiction designated by the Initial
Purchasers pursuant to Section 5(e) hereof, or the initiation of any
proceeding by any state securities commission or any other federal or state
regulatory authority for such purpose and (ii) of the happening of any
event during the period referred to in Section 5(c) below that makes any
statement of a material fact made in the Preliminary Offering Memorandum or
the Offering Memorandum untrue or that requires any additions to or changes
in the Preliminary Offering Memorandum or the Offering Memorandum in order
to make the statements therein not misleading. Holding shall use its best
efforts to prevent the issuance of any stop order or order suspending the
qualification or exemption of any Series A Debentures under any state
securities or Blue Sky laws and, if at any time any state securities
commission or other federal or state regulatory authority shall issue an
order suspending the qualification or exemption of any Series A Debentures
under any state securities or Blue Sky laws, Holding shall use its best
efforts to obtain the withdrawal or lifting of such order at the earliest
possible time.
(b) To furnish the Initial Purchasers and those persons identified by
the Initial Purchasers to Holding, without charge, as many copies of the
Preliminary Offering Memorandum and the Offering Memorandum, and any
amendments or supplements thereto, as the Initial Purchasers may reasonably
request. Subject to the Initial Purchasers'
<PAGE>
6
compliance with its representations and warranties and agreements set forth
in Section 7 hereof, Holding consents to the use of the Preliminary
Offering Memorandum and the Offering Memorandum, and any amendments and
supplements thereto required pursuant hereto, by the Initial Purchasers in
connection with Exempt Resales.
(c) During such period as in the opinion of counsel for the Initial
Purchasers an Offering Memorandum is required by law to be delivered in
connection with Exempt Resales by the Initial Purchasers and until
completion of the distribution of the Series A Debentures, but in no event
later than one year from the date hereof, (i) not to make any amendment or
supplement to the Offering Memorandum of which the Initial Purchasers shall
not previously have been advised or to which the Initial Purchasers shall
reasonably object promptly after being so advised and (ii) to prepare
promptly upon the Initial Purchasers' reasonable request, any amendment or
supplement to the Offering Memorandum which may be necessary or advisable
in connection with such Exempt Resales.
(d) If, during the period referred to in Section 5(c) above, any event
shall occur or condition shall exist as a result of which, in the opinion
of counsel to the Initial Purchasers, it becomes necessary to amend or
supplement the Offering Memorandum in order to make the statements therein,
in the light of the circumstances when such Offering Memorandum is
delivered to an Eligible Purchaser, not misleading, or if, in the opinion
of counsel to the Initial Purchasers, it is necessary to amend or
supplement the Offering Memorandum to comply with any applicable law,
forthwith to prepare an appropriate amendment or supplement to such
Offering Memorandum so that the statements therein, as so amended or
supplemented, will not contain any untrue statement of material fact or
omit to state a material fact necessary to make the statements therein, in
the light of the circumstances when it is so delivered, not misleading, or
so that such Offering Memorandum will otherwise comply with applicable law,
and to furnish to the Initial Purchasers and such other persons as the
Initial Purchasers may designate such number of copies thereof as the
Initial Purchasers may reasonably request.
(e) Prior to the sale of all Series A Debentures pursuant to Exempt
Resales as contemplated hereby, to cooperate with the Initial Purchasers
and counsel to the Initial Purchasers in connection with the registration
or qualification of the Series A Debentures for offer and sale to the
Initial Purchasers and pursuant to Exempt Resales under the securities or
Blue Sky laws of such jurisdictions as the Initial Purchasers may request
and to continue such registration or qualification in effect so long as
required for Exempt Resales and to file such consents to service of process
or other documents as may be necessary in order to effect such registration
or qualification; provided, however, that Holding shall not be required in
connection therewith to register or qualify as a foreign corporation in any
jurisdiction in which it is not now so qualified or to take any action that
would subject it to general consent to service of process or taxation other
than as to
<PAGE>
7
matters and transactions relating to the Preliminary Offering Memorandum,
the Offering Memorandum or Exempt Resales, in any jurisdiction in which it
is not now so subject.
(f) So long as the Debentures are outstanding, to mail and make
generally available, within 90 days after the end of Holding's fiscal year
and within 45 days after the end of each fiscal quarter, (i) all quarterly
and annual financial information that would be required to be contained in
a filing with the Commission on Forms 10-Q and 10-K if Holding were
required to file such Forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" that describes
the financial condition and results of operation of Holding and its
consolidated subsidiaries and, with respect to the annual information only,
a report thereon by Holding's certified independent accountants and (ii)
all current reports that would be required to be filed with the Commission
on Form 8-K if Holding were required to file such reports in each case
within the time periods set forth in the Commission's rules and
regulations. In addition, whether or not required by the rules and
regulations of the Commission, Holding shall file a copy of all such
information and reports with the Commission for public availability (unless
the Commission will not accept such a filing).
(g) For five years from the date hereof, to furnish to the Initial
Purchasers as soon as available copies of all reports or other
communications furnished by Holding to its security holders or furnished to
or filed with the Commission or any national securities exchange on which
any class of securities of Holding is listed and such other publicly
available information concerning Holding and/or its subsidiaries as the
Initial Purchasers may reasonably request.
(h) So long as any of the Series A Debentures remain outstanding and
during any period in which Holding is not subject to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), to
make available to any holder of Series A Debentures in connection with any
sale thereof and any prospective purchaser of such Series A Debentures from
such holder, the information ("RULE 144A INFORMATION") required by Rule
144A(d)(4) under the Act; provided, however, that Holding's obligations
under this Section 5(h) shall terminate upon the earlier of (i) the date
the Exchange Offer is concluded and the exchange of the Series B Debentures
for the Series A Debentures is consummated or (ii) the date the Shelf
Registration Statement is declared effective by the Commission; provided
further that, notwithstanding the foregoing proviso, Holding shall be
obligated to deliver, upon request, any Rule 144A Information to
prospective purchasers of the Debentures during any period during which,
pursuant to the Registration Rights Agreement, the Shelf Registration
Statement is required to be effective, but such effectiveness has been
suspended or revoked for any reason.
(i) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of the obligations of Holding under
this Agreement, including:
<PAGE>
8
(i) the fees, disbursements and expenses of counsel to Holding and
accountants of Holding in connection with the sale and delivery of the
Series A Debentures to the Initial Purchasers and pursuant to Exempt
Resales, and all other fees and expenses in connection with the
preparation, printing, filing and distribution of the Preliminary Offering
Memorandum, the Offering Memorandum and all amendments and supplements to
any of the foregoing (including financial statements), including the
mailing and delivering of copies thereof to the Initial Purchasers and
persons designated by them in the quantities specified herein, (ii) all
costs and expenses related to the transfer and delivery of the Series A
Debentures to the Initial Purchasers and pursuant to Exempt Resales,
including any transfer or other taxes payable thereon, (iii) all costs of
printing or producing this Agreement, the other Operative Documents and any
other agreements or documents in connection with the offering, purchase,
sale or delivery of the Series A Debentures, (iv) all expenses in
connection with the registration or qualification of the Series A
Debentures for offer and sale under the securities or Blue Sky laws of the
several states and all costs of printing or producing any preliminary and
supplemental Blue Sky memoranda in connection therewith (including the
filing fees and reasonable fees and disbursements of counsel for the
Initial Purchasers in connection with such registration or qualification
and memoranda relating thereto), (v) the cost of printing certificates
representing the Series A Debentures, (vi) all expenses and listing fees in
connection with the application for quotation of the Series A Debentures in
the National Association of Securities Dealers, Inc. ("NASD") Automated
Quotation System - PORTAL ("PORTAL"), (vii) the fees and expenses of the
Trustee and the Trustee's counsel in connection with the Indenture and the
Debentures, (viii) the costs and charges of any transfer agent, registrar
and/or depositary (including DTC), (ix) any fees charged by rating agencies
for the rating of the Debentures, (x) all costs and expenses of the
Exchange Offer and any Registration Statement, as set forth in the
Registration Rights Agreement, and (xi) all other costs and expenses
incident to the performance of the obligations of Holding hereunder for
which provision is not otherwise made in this Section.
(j) To use its best efforts to effect the inclusion of the Series A
Debentures in PORTAL and to maintain the listing of the Series A Debentures
on PORTAL for so long as the Series A Debentures are outstanding.
(k) To use its best efforts to obtain the approval of DTC for "book-
entry" transfer of the Debentures, and to comply with all of its agreements
set forth in the representation letter of Holding to DTC relating to the
approval of the Debentures by DTC for "book-entry" transfer.
(l) Except as disclosed in or contemplated by the Offering Memorandum,
during the period beginning on the date hereof and continuing to and
including the Closing Date, not to offer, sell, contract to sell or
otherwise transfer or dispose of any debt securities of Holding or any
warrants, rights or options to purchase or otherwise acquire debt
securities of Holding substantially similar to the Debentures (other than
(i) the
<PAGE>
9
Debentures and (ii) commercial paper issued in the ordinary course of
business), without the prior written consent of the Initial Purchasers.
(m) Not to sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in the Act) that would be
integrated with the sale of the Series A Debentures to the Initial
Purchasers or pursuant to Exempt Resales in a manner that would require the
registration of any such sale of the Series A Debentures under the Act.
(n) Not to voluntarily claim, and to actively resist any attempts to
claim, the benefit of any usury laws against the holders of any Debentures.
(o) To cause the Exchange Offer to be made in the appropriate form to
permit Series B Debentures registered pursuant to the Act to be offered in
exchange for the Series A Debentures and to comply with all applicable
federal and state securities laws in connection with the Exchange Offer.
(p) To comply with all of its agreements set forth in the Registration
Rights Agreement.
(q) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement and the Operative
Documents by it prior to the Closing Date and to satisfy all conditions
precedent to the delivery of the Series A Debentures.
SECTION 6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF HOLDING. As of
the date hereof, Holding represents and warrants to, and agrees with, the
Initial Purchasers that:
(a) The Preliminary Offering Memorandum, at the date thereof, did not,
and the Offering Memorandum, at the date hereof, does not, and any
supplement or amendment to them will not, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties contained in this paragraph (a) shall not
apply to (i) pricing terms and other financial terms intentionally left
blank in the Preliminary Offering Memorandum or (ii) statements in or
omissions from the Preliminary Offering Memorandum or the Offering
Memorandum (or any supplement or amendment thereto) based upon information
relating to the Initial Purchasers furnished to Holding in writing by the
Initial Purchasers expressly for use therein.
(b) Each of Holding and its subsidiaries has been duly incorporated,
is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and authority to
carry on its business as
<PAGE>
10
described in the Preliminary Offering Memorandum and the Offering
Memorandum and to own, lease and operate its properties, and each is duly
qualified and is in good standing as a foreign corporation authorized to do
business in the jurisdictions set forth on Schedule C, which jurisdictions
----------
are the ones in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the failure
to be so qualified would not have a material adverse effect on the
business, prospects, financial condition or results of operations of
Holding and its subsidiaries, taken as a whole or draw into question the
validity of this Agreement or the other Operative Documents (a "MATERIAL
ADVERSE EFFECT").
(c) All outstanding shares of capital stock of Holding have been duly
authorized and validly issued and are fully paid, non-assessable and not
subject to any preemptive or similar rights and are owned by Holding free
and clear of any security interest, claim, lien, encumbrance or adverse
interest of any nature (each, a "LIEN"), other than liens existing on the
indebtedness outstanding on the date hereof which will be repaid upon the
consummation of the Recapitalization.
(d) The entities listed on Schedule A hereto are the only
----------
subsidiaries, direct or indirect, of Holding. All of the outstanding shares
of capital stock of each of Holding's subsidiaries have been duly
authorized and validly issued and are fully paid and non-assessable, and
are owned by Holding, directly or indirectly through one or more
subsidiaries, free and clear of any Lien, other than liens existing on the
indebtedness outstanding on the date hereof which will be repaid upon the
consummation of the Recapitalization.
(e) This Agreement has been duly authorized, executed and delivered by
Holding.
(f) The Indenture has been duly authorized by Holding and, on the
Closing Date, will have been validly executed and delivered by Holding.
When the Indenture has been duly executed and delivered by Holding
(assuming the due authorization, execution and delivery by the Trustee),
the Indenture will be a valid and binding agreement of Holding, enforceable
against Holding in accordance with its terms, except as the enforceability
thereof may be limited by (i) bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or similar laws affecting creditors'
rights generally and (ii) general principles of equity and the discretion
of the court before which any proceeding therefor may be brought
(regardless of whether such enforcement is considered in a proceeding at
law or in equity). On the Closing Date, the Indenture will conform in all
material respects to the requirements of the Trust Indenture Act of 1939,
as amended (the "TIA" or "TRUST INDENTURE ACT"), and the rules and
regulations of the Commission applicable to an indenture which is qualified
thereunder.
<PAGE>
11
(g) The Series A Debentures have been duly authorized and, on the
Closing Date, will have been validly executed and delivered by Holding.
When the Series A Debentures have been issued, executed and authenticated
in accordance with the provisions of the Indenture and delivered to and
paid for by the Initial Purchasers in accordance with the terms of this
Agreement, the Series A Debentures will be entitled to the benefits of the
Indenture and will be valid and binding obligations of Holding, enforceable
in accordance with their terms, except as the enforceability thereof may be
limited by (i) bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or similar laws affecting creditors' rights
generally and (ii) general principles of equity and the discretion of the
court before which any proceeding therefor may be brought (regardless of
whether such enforcement is considered in a proceeding at law or in
equity). On the Closing Date, the Series A Debentures will conform in all
material respects to the description thereof contained in the Offering
Memorandum.
(h) On the Closing Date, the Series B Debentures will have been duly
authorized by Holding. When the Series B Debentures are issued, executed
and authenticated in accordance with the terms of the Exchange Offer and
the Indenture, the Series B Debentures will be entitled to the benefits of
the Indenture and will be the valid and binding obligations of Holding,
enforceable against Holding in accordance with their terms, except as the
enforceability thereof may be limited by (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or similar laws affecting
creditors' rights generally and (ii) general principles of equity and the
discretion of the court before which any proceeding therefor may be brought
(regardless of whether such enforcement is considered in a proceeding at
law or in equity). When the Series B Debentures are issued, authenticated
and delivered, the Series B Debentures will conform in all material
respects to the description thereof contained in the Offering Memorandum.
(i) The Registration Rights Agreement has been duly authorized by
Holding and, on the Closing Date, will have been duly executed and
delivered by Holding. When the Registration Rights Agreement has been duly
executed and delivered, the Registration Rights Agreement will be a valid
and binding agreement of Holding, enforceable against Holding in accordance
with its terms, except as the enforceability thereof may be limited by (i)
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium
or similar laws affecting creditors' rights generally and (ii) general
principles of equity and the discretion of the court before which any
proceeding therefor may be brought (regardless of whether such enforcement
is considered in a proceeding at law or in equity), and except as any
rights to indemnity or contribution thereunder may be limited by federal
and state securities laws and public policy considerations. On the Closing
Date, the Registration Rights Agreement will conform in all material
respects to the description thereof in the Offering Memorandum.
(j) Neither Holding nor any of its subsidiaries is (i) in violation of
its respective charter or by-laws or (ii) in default in the performance of
any obligation,
<PAGE>
12
agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is
material to Holding and its subsidiaries, taken as a whole, to which
Holding or any of its subsidiaries is a party or by which Holding or any of
its subsidiaries or their respective property is bound which default would
have a Material Adverse Effect.
(k) The execution, delivery and performance of this Agreement and the
other Operative Documents by Holding, compliance by Holding with all
provisions hereof and thereof and the consummation of the transactions
contemplated hereby and thereby will not (i) assuming the Debentures are
sold in the manner described in this Agreement, require any consent,
approval, authorization or other order of, or qualification with, any court
or governmental body or agency (except such as have been obtained or may be
required under the securities or Blue Sky laws of the various states and,
with respect to the Registration Rights Agreement, the Securities Act and
Trust Indenture Act), (ii) conflict with or constitute a breach of any of
the terms or provisions of, or a default under, the charter or by-laws of
Holding or any of its subsidiaries or any indenture, loan agreement,
mortgage, lease or other agreement or instrument that is material to
Holding and its subsidiaries, taken as a whole, to which Holding or any of
its subsidiaries is a party or by which Holding or any of its subsidiaries
or their respective property is bound, (iii) violate or conflict with any
applicable material law or any rule, regulation, judgment, order or decree
of any court or any governmental body or agency having jurisdiction over
Holding, any of its subsidiaries or their respective property, (iv) result
in the imposition or creation of (or the obligation to create or impose) a
Lien under, any agreement or instrument to which Holding or any of its
subsidiaries is a party or by which Holding or any of its subsidiaries or
their respective property is bound, or (v) result in the termination,
suspension or revocation of any Authorization (as defined below) of Holding
or any of its subsidiaries or result in any other impairment of the rights
of the holder of any such Authorization, except, with respect to clauses
(ii), (iv) and (v) above, for violation, conflict, breach, default, Lien,
termination, suspension, revocation or impairment which would not,
individually or in the aggregate, have a Material Adverse Effect.
(l) There are no legal or governmental proceedings pending or, to
Holding's knowledge, threatened to which Holding or any of its subsidiaries
is a party or to which any of their respective property is subject, which
might result, singly or in the aggregate, in a Material Adverse Effect.
(m) Neither Holding nor any of its subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the
protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL
LAWS"), any provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or any provisions of the Foreign Corrupt
Practices Act or the rules and regulations promulgated thereunder, except
for such violations which, singly or in the aggregate, would not have a
Material Adverse Effect.
<PAGE>
13
(n) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any Authorization, any related constraints on
operating activities and any potential liabilities to third parties) which
would, singly or in the aggregate, have a Material Adverse Effect.
(o) Each of Holding and its subsidiaries has such permits, licenses,
consents, exemptions, franchises, authorizations and other approvals (each,
an "AUTHORIZATION") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations
and all courts and other tribunals, including without limitation, under any
applicable Environmental Laws, as are necessary to own, lease, license and
operate its respective properties and to conduct its business, except where
the failure to have any such Authorization or to make any such filing or
notice would not, singly or in the aggregate, have a Material Adverse
Effect. Each such Authorization is valid and in full force and effect and
each of Holding and its subsidiaries is in compliance with all the terms
and conditions thereof and with the rules and regulations of the
authorities and governing bodies having jurisdiction with respect thereto;
and no event has occurred (including, without limitation, the receipt of
any notice from any authority or governing body) which allows or, after
notice or lapse of time or both, would allow, revocation, suspension or
termination of any such Authorization or results or, after notice or lapse
of time or both, would result in any other impairment of the rights of the
holder of any such Authorization; and such Authorizations contain no
restrictions that are burdensome to Holding or any of its subsidiaries;
except where such failure to be valid and in full force and effect or to be
in compliance, the occurrence of any such event or the presence of any such
restriction would not, singly or in the aggregate, have a Material Adverse
Effect.
(p) Holding's accountants, Arthur Andersen LLP, that have certified
the financial statements and supporting schedules included in the
Preliminary Offering Memorandum and the Offering Memorandum are independent
public accountants with respect to Holding, as required by the Act and the
Exchange Act. The historical financial statements, together with related
schedules and notes, set forth in the Preliminary Offering Memorandum and
the Offering Memorandum comply as to form in all material respects with the
requirements applicable to registration statements on Form S-1 under the
Act.
(q) The historical financial statements, together with related
schedules and notes forming part of the Offering Memorandum (and any
amendment or supplement thereto), present fairly the consolidated financial
position, results of operations and changes in financial position of
Holding and its subsidiaries on the basis stated in the Offering Memorandum
at the respective dates or for the respective periods to which they apply;
such statements and related schedules and notes have been prepared in
accordance with generally accepted accounting principles consistently
applied throughout the periods involved, except as disclosed therein; and
the other financial and statistical information and
<PAGE>
14
data set forth in the Offering Memorandum (and any amendment or supplement
thereto) are, in all material respects, accurately presented and prepared
on a basis consistent with such financial statements and the books and
records of Holding.
(r) The pro forma financial statements included in the Preliminary
Offering Memorandum and the Offering Memorandum have been prepared on a
basis consistent with the historical financial statements of Holding and
its subsidiaries and give effect to reasonable assumptions used in the
preparation thereof (as of the date of the Offering Memorandum) and present
fairly the historical and proposed transactions contemplated by the
Preliminary Offering Memorandum and the Offering Memorandum; and such pro
forma financial statements comply as to form in all material respects with
the requirements applicable to pro forma financial statements included in
registration statements on Form S-1 under the Act. The other pro forma
financial and statistical information and data included in the Offering
Memorandum are, in all material respects, accurately presented and prepared
on a basis consistent with the pro forma financial statements.
(s) Holding is not and, after giving effect to the offering and sale
of the Series A Debentures and the Recapitalization, will not be, an
"investment company," as such term is defined in the Investment Company Act
of 1940, as amended.
(t) There are no contracts, agreements or understandings between
Holding and any person granting such person the right to require Holding to
include any securities of Holding with the Debentures registered pursuant
to any Registration Statement.
(u) Neither Holding nor any of its subsidiaries nor any agent thereof
acting on the behalf of them has taken, and none of them will take, any
action that might cause this Agreement or the issuance or sale of the
Series A Debentures to violate Regulation G (12 C.F.R. Part 207),
Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or
Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal
Reserve System.
(v) No "nationally recognized statistical rating organization" as such
term is defined for purposes of Rule 436(g)(2) under the Act (i) has
imposed (or has informed Holding that it is considering imposing) any
condition (financial or otherwise) on Holding's retaining any rating
assigned as of the date hereof to Holding or any securities of Holding or
(ii) has indicated to Holding that it is considering the downgrading,
suspension, or withdrawal of, or any review for a possible change that does
not indicate the direction of the possible change in, any rating so
assigned.
(w) Since the respective dates as of which information is given in the
Offering Memorandum other than as set forth in the Offering Memorandum
(exclusive of any amendments or supplements thereto subsequent to the date
of this Agreement), (i) there
<PAGE>
15
has not occurred any material adverse change or any development involving a
prospective material adverse change in the condition, financial or
otherwise, or the earnings, business, management or operations of Holding
and its subsidiaries, taken as a whole, (ii) there has not been any
material adverse change or any development involving a prospective material
adverse change in the capital stock or in the long-term debt of Holding or
any of its subsidiaries and (iii) neither Holding nor any of its
subsidiaries has incurred any material liability or obligation, direct or
contingent.
(x) Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its date, contains all the information specified in, and
meeting the requirements of, Rule 144A(d)(4) under the Act.
(y) When the Series A Debentures are issued and delivered pursuant to
this Agreement, the Series A Debentures will not be of the same class
(within the meaning of Rule 144A under the Act) as any security of Holding
that is listed on a national securities exchange registered under Section 6
of the Exchange Act or that is quoted in a United States automated inter-
dealer quotation system.
(z) No form of general solicitation or general advertising (as defined
in Regulation D under the Act) was used by Holding or any of its
representatives (other than the Initial Purchasers, as to whom Holding
makes no representation) in connection with the offer and sale of the
Series A Debentures contemplated hereby, including, but not limited to,
articles, notices or other communications published in any newspaper,
magazine, or similar medium or broadcast over television or radio, or any
seminar or meeting whose attendees have been invited by any general
solicitation or general advertising. No securities of the same class as
the Series A Debentures have been issued and sold by Holding within the
six-month period immediately prior to the date hereof.
(aa) Assuming the Debentures are sold in the manner contemplated by
this Agreement, prior to the effectiveness of any Registration Statement,
the Indenture is not required to be qualified under the TIA.
(bb) Neither Holding nor any of its affiliates or any person acting on
its or their behalf (other than the Initial Purchasers, as to whom Holding
makes no representation) has engaged or will engage in any directed selling
efforts within the meaning of Regulation S under the Act ("REGULATION S")
with respect to the Series A Debentures.
(cc) The sale of the Series A Debentures pursuant to Regulation S is
not part of a plan or scheme to evade the registration provisions of the
Act.
(dd) Holding and its affiliates and all persons acting on their behalf
(other than the Initial Purchasers, as to whom Holding makes no
representation) have complied with and will comply with the offering
restrictions requirements of Regulation S applicable to
<PAGE>
16
them in connection with the offering of the Series A Debentures outside the
United States and, in connection therewith, the Offering Memorandum will
contain the disclosure required by Rule 902(h).
(ee) No registration under the Act of the Series A Debentures is
required for the sale of the Series A Debentures to the Initial Purchasers
as contemplated hereby or for the Exempt Resales assuming the accuracy of
the Initial Purchasers' representations and warranties and agreements set
forth in Section 7 hereof.
(ff) Each certificate signed by any officer of Holding and delivered
to the Initial Purchasers or counsel for the Initial Purchasers shall be
deemed to be a representation and warranty by Holding to the Initial
Purchasers as to the matters covered thereby.
(gg) Holding and its subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of
Holding and its subsidiaries, in each case free and clear of all Liens and
defects, except such as are described in the Offering Memorandum or such as
do not have a Material Adverse Effect; and any real property and buildings
held under lease by Holding and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as would not
have a Material Adverse Effect, in each case except as described in the
Offering Memorandum.
(hh) Holding and its subsidiaries own or possess all patents, patent
rights, licenses, inventions, copyrights, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and trade
names ("INTELLECTUAL PROPERTY") currently employed by them in connection
with the business now operated by them except where the failure to own or
possess or otherwise be able to acquire such intellectual property would
not, singly or in the aggregate, have a Material Adverse Effect; and
neither Holding nor any of its subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to
any of such intellectual property which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a
Material Adverse Effect.
(ii) Except as disclosed in the Offering Memorandum, no relationship,
direct or indirect, exists between or among Holding or any of its
subsidiaries on the one hand, and the directors, officers, stockholders,
customers or suppliers of Holding or any of its subsidiaries on the other
hand, which would be required by the Act to be described in the Offering
Memorandum if the Offering Memorandum were a prospectus included in a
registration statement on Form S-1 filed with the Commission.
(jj) There is no (i) significant unfair labor practice complaint,
grievance or arbitration proceeding pending or, to Holding's knowledge,
threatened against Holding or
<PAGE>
17
any of its subsidiaries before the National Labor Relations Board or any
state or local labor relations board, (ii) strike, labor dispute, slowdown
or stoppage pending or, to Holding's knowledge, threatened against Holding
or any of its subsidiaries or (iii) union representation question existing
with respect to the employees of Holding or any of its subsidiaries, except
in the case of clauses (i), (ii) and (iii) for such actions which, singly
or in the aggregate, would not have a Material Adverse Effect. To the best
knowledge of Holding, no collective bargaining organizing activities are
taking place with respect to Holding or any of its subsidiaries.
(kk) Holding and each of its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(ll) All material tax returns required to be filed by Holding and each
of its subsidiaries in any jurisdiction have been filed, other than those
filings being contested in good faith, and all material taxes, including
withholding taxes, penalties and interest, assessments, fees and other
charges due pursuant to such returns or pursuant to any assessment received
by Holding or any of its subsidiaries have been paid, other than those
being contested in good faith and for which adequate reserves have been
provided.
(mm) The indebtedness represented by the Series A Debentures is being
incurred for proper purposes and in good faith and each of Holding will be
on the Closing Date (after giving effect to the application of the proceeds
from the issuance of the Series A Debentures) solvent, and will have on the
Closing Date (after giving effect to the application of the proceeds from
the issuance of the Series A Debentures) sufficient capital for carrying on
their respective businesses and will be on the Closing Date (after giving
effect to the application of the proceeds from the issuance of the Series A
Debentures) able to pay their respective debts as they mature.
(nn) Upon consummation of the Recapitalization (including the issuance
of the Debentures), the present fair salable value of the assets of
Holding, taken as a whole, will exceed the amount that will be required to
be paid on or in respect of its existing debts and other liabilities
(including contingent liabilities) as they become absolute and matured. The
assets of Holding, taken as a whole, upon the issuance of the Debentures,
will not constitute unreasonably small capital to carry out their
businesses as now conducted, including the capital needs of Holding, taking
into account the projected capital requirements and capital availability of
Holding. Holding (i) is not entering into the
<PAGE>
18
Recapitalization with the intent to hinder, delay or defraud any entity to
which it is or will in the Recapitalization become indebted and (ii) will
not receive less than reasonably equivalent value in exchange for entering
into the Recapitalization.
Holding acknowledges that the Initial Purchasers and, for purposes of
the opinions to be delivered to the Initial Purchasers pursuant to Section 9
hereof, counsel to Holding and counsel to the Initial Purchasers will rely upon
the accuracy and truth of the foregoing representations and hereby consents to
such reliance.
SECTION 7. INITIAL PURCHASER'S REPRESENTATIONS AND WARRANTIES. Each of
the Initial Purchasers, severally and not jointly, represents and warrants to
Holding, and agrees that:
(a) Such Initial Purchaser is a QIB with such knowledge and experience
in financial and business matters as is necessary in order to evaluate the
merits and risks of an investment in the Series A Debentures.
(b) Such Initial Purchaser (A) is not acquiring the Series A
Debentures with a view to any distribution thereof or with any present
intention of offering or selling any of the Series A Debentures in a
transaction that would violate the Act or the securities laws of any state
of the United States or any other applicable jurisdiction and (B) will be
reoffering and reselling the Series A Debentures only to (x) QIBs in
reliance on the exemption from the registration requirements of the Act
provided by Rule 144A and (y) in offshore transactions in reliance upon
Regulation S under the Act.
(c) Such Initial Purchaser agrees that no form of general solicitation
or general advertising (within the meaning of Regulation D under the Act)
has been or will be used by such Initial Purchaser or any of its
representatives in connection with the offer and sale of the Series A
Debentures pursuant hereto, including, but not limited to, articles,
notices or other communications published in any newspaper, magazine or
similar medium or broadcast over television or radio, or any seminar or
meeting whose attendees have been invited by any general solicitation or
general advertising.
(d) Such Initial Purchaser agrees that, in connection with Exempt
Resales, such Initial Purchaser will solicit offers to buy the Series A
Debentures only from, and will offer to sell the Series A Debentures only
to, Eligible Purchasers. Each Initial Purchaser further agrees that it
will offer to sell the Series A Debentures only to, and will solicit offers
to buy the Series A Debentures only from (A) Eligible Purchasers that such
Initial Purchaser reasonably believes are QIBs and (B) Regulation S
Purchasers, in each case, that agree that (x) the Series A Debentures
purchased by them may be resold, pledged or otherwise transferred within
the time period referred to under Rule 144(k) (taking into account the
provisions of Rule 144(d) under the Act, if applicable) under the Act, as
in effect on the date of the transfer of such Series A Debentures, only (I)
to Holding or any of its subsidiaries, (II) to a person whom the seller
reasonably believes is a QIB purchasing
<PAGE>
19
for its own account or for the account of a QIB in a transaction meeting
the requirements of Rule 144A under the Act, (III) in an offshore
transaction (as defined in Rule 902 under the Act) meeting the requirements
of Rule 904 of the Act, (IV) in a transaction meeting the requirements of
Rule 144 under the Act, (V) to an Accredited Institution that, prior to
such transfer, furnishes the Trustee a signed letter containing certain
representations and agreements relating to the registration of transfer of
such Series A Debenture (the form of which is substantially the same as
Exhibit A to the Indenture) and, if such transfer is in respect of an
---------
aggregate principal amount of Series A Debentures less than $250,000, an
opinion of counsel acceptable to Holding that such transfer is in
compliance with the Act, (VI) in accordance with another exemption from the
registration requirements of the Act (and based upon an opinion of counsel
acceptable to Holding) or (VII) pursuant to an effective registration
statement and, in each case, in accordance with the applicable securities
laws of any state of the United States or any other applicable jurisdiction
and (y) they will deliver to each person to whom such Series A Debentures
or an interest therein is transferred a notice substantially to the effect
of the foregoing.
(e) Such Initial Purchaser and its affiliates or any person acting on
its or their behalf have not engaged or will not engage in any directed
selling efforts within the meaning of Regulation S with respect to the
Series A Debentures (it being understood that Holding may make sales to the
Initial Purchasers and offers and sales in reliance upon Rule 144A under
the Act).
(f) The Series A Debentures offered and sold by such Initial Purchaser
pursuant hereto in reliance on Regulation S have been and will be offered
and sold only in offshore transactions.
(g) The sale of the Series A Debentures offered and sold by such
Initial Purchaser pursuant hereto in reliance on Regulation S is not part
of a plan or scheme to evade the registration provisions of the Act.
(h) Such Initial Purchaser agrees that it has not offered or sold and
will not offer or sell the Series A Debentures in the United States or to,
or for the benefit or account of, a U.S. Person (other than a distributor),
in each case, as defined in Rule 902 under the Act (i) as part of its
distribution at any time and (ii) otherwise until 40 days after the later
of the commencement of the offering of the Series A Debentures pursuant
hereto and the Closing Date, other than in accordance with Regulation S of
the Act or another exemption from the registration requirements of the Act.
Such Initial Purchaser agrees that, during such 40-day restricted period,
it will not cause any advertisement with respect to the Series A Debentures
(including any "tombstone" advertisement) to be published in any newspaper
or periodical or posted in any public place and will not issue any circular
relating to the Series A Debentures, except such advertisements as
permitted by and include the statements required by Regulation S.
<PAGE>
20
(i) Such Initial Purchaser agrees that, at or prior to confirmation of
a sale of Series A Debentures by it to any distributor, dealer or person
receiving a selling concession, fee or other remuneration during the 40-day
restricted period referred to in Rule 903(c)(3) under the Act, it will send
to such distributor, dealer or person receiving a selling concession, fee
or other remuneration notice stating that such distributor, dealer or
person receiving a selling concession, fee or other remuneration is subject
to certain restrictions during such 40-day restricted period.
(j) Such Initial Purchaser agrees that the Series A Debentures offered
and sold in reliance on Regulation S will be represented upon issuance by a
global security that may not be exchanged for definitive securities until
the expiration of the 40-day restricted period referred to in Rule
903(c)(3) of the Act and only upon certification of beneficial ownership of
such Series A Debentures by non-U.S. persons or U.S. persons who purchased
such Series A Debentures in transactions that were exempt from the
registration requirements of the Act.
Such Initial Purchaser acknowledges that Holding and, for purposes of the
opinions to be delivered to each Initial Purchaser pursuant to Section 9 hereof,
counsel to Holding and counsel to the Initial Purchasers will rely upon the
accuracy and truth of the foregoing representations and such Initial Purchaser
hereby consents to such reliance.
SECTION 8. INDEMNIFICATION. (a) Holding agrees to indemnify and
hold harmless the Initial Purchasers, their respective directors and officers
and each person, if any, who controls such Initial Purchasers within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, damages, liabilities and judgments (including, without
limitation, any reasonable legal or other expenses incurred in connection with
investigating or defending any matter, including any action, that could give
rise to any such losses, claims, damages, liabilities or judgments) caused by
any untrue statement or alleged untrue statement of a material fact contained in
the Offering Memorandum (or any amendment or supplement thereto), the
Preliminary Offering Memorandum or any Rule 144A Information provided by Holding
to any holder or prospective purchaser of Series A Debentures pursuant to
Section 5(h) or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading,
except insofar as such losses, claims, damages, liabilities or judgments are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information relating to an Initial Purchaser furnished in
writing to Holding by such Initial Purchaser; provided, however, that the
foregoing indemnity agreement with respect to any Preliminary Offering
Memorandum shall not inure to the benefit of any Initial Purchaser who failed to
deliver a Final Offering Memorandum, as then amended or supplemented, (so long
as the Final Offering Memorandum and any amendment or supplement thereto was
provided by Holding to the several Initial Purchasers in the requisite quantity
and on a timely basis to permit proper delivery on or prior to the Closing Date)
to the person asserting any losses, claims, damages, liabilities or judgements
caused by any untrue statement or alleged
<PAGE>
21
untrue statement of a material fact contained in any Preliminary Offering
Memorandum, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if such material misstatement or omission or alleged
material misstatement or omission was cured in the Final Offering Memorandum, as
so amended or supplemented.
(b) Each of the Initial Purchasers agrees, severally and not jointly, to
indemnify and hold harmless Holding, and its directors and officers and each
person, if any, who controls (within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act) Holding, to the same extent as the foregoing
indemnity from Holding to the Initial Purchasers but only with reference to
information relating to an Initial Purchaser furnished in writing to Holding by
such Initial Purchaser expressly for use in the Preliminary Offering Memorandum
or the Final Offering Memorandum.
(c) In case any action or proceeding shall be commenced involving any
person in respect of which indemnity may be sought pursuant to Section 8(a) or
8(b) (the "INDEMNIFIED PARTY"), the indemnified party shall promptly notify the
person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in
writing and the indemnifying party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all fees and expenses of such counsel, as incurred
(except that in the case of any action in respect of which indemnity may be
sought pursuant to both Sections 8(a) and 8(b), the Initial Purchasers shall not
be required to assume the defense of such action pursuant to this Section 8(c),
but may employ separate counsel and participate in the defense thereof, but the
fees and expenses of such counsel, except as provided below, shall be at the
expense of the Initial Purchasers). Any indemnified party shall have the right
to employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the indemnified party unless (i) the employment of such counsel shall have been
specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party shall have failed to assume the defense of such action or
employ counsel reasonably satisfactory to the indemnified party or (iii) the
named parties to any such action (including any impleaded parties) include both
the indemnified party and the indemnifying party, and the indemnified party
shall have been advised by such counsel that either (i) there may be one or more
legal defenses available to it which are different from or additional to those
available to the indemnifying party or (ii) a conflict may exist between such
indemnifying party and the indemnified party (in which case the indemnifying
party shall not have the right to assume the defense of such action on behalf of
the indemnified party). In any such case, the indemnifying party shall not, in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) for all indemnified parties
and all such fees and expenses shall be reimbursed as they are incurred. Such
firm shall be designated in writing by Donaldson, Lufkin & Jenrette Securities
Corporation, in the case of the parties indemnified pursuant to Section 8(a),
and by Holding, in the case of parties indemnified pursuant to Section 8(b). The
indemnifying party shall
<PAGE>
22
indemnify and hold harmless the indemnified party from and against any and all
losses, claims, damages, liabilities and judgments by reason of any settlement
of any action (i) effected with its written consent or (ii) effected without its
written consent if the settlement is entered into more than twenty business days
after the indemnifying party shall have received a request from the indemnified
party for reimbursement for the reasonable fees and expenses of counsel (in any
case where such fees and expenses are at the expense of the indemnifying party)
and, prior to the date of such settlement, the indemnifying party shall have
failed to comply with such reimbursement request. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement or compromise of, or consent to the entry of judgment with respect
to, any pending or threatened action in respect of which the indemnified party
is or could have been a party and indemnity or contribution may be or could have
been sought hereunder by the indemnified party, unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability on claims that are or could have been the subject
matter of such action and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of the
indemnified party.
(d) To the extent the indemnification provided for in this Section 8 is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein (except as
provided in Section 8(a)), then each indemnifying party, in lieu of indemnifying
such indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities and
judgments (i) in such proportion as is appropriate to reflect the relative
benefits received by Holding, on the one hand, and the Initial Purchasers, on
the other hand, from the offering of the Series A Debentures or (ii) if the
allocation provided by clause 8(d)(i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause 8(d)(i) above but also the relative fault of Holding, on
the one hand, and the Initial Purchasers, on the other hand, in connection with
the statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative benefits received by Holding, on the one hand, and
the Initial Purchasers, on the other hand, shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Series A
Debentures (after underwriting discounts and commissions, but before deducting
expenses) received by Holding, and the total discounts and commissions received
by the Initial Purchasers, bear to the total price to investors of the Series A
Debentures, in each case as set forth in the table on the cover page of the
Offering Memorandum. The relative fault of Holding, on the one hand, and the
Initial Purchasers, on the other hand, shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by Holding, on the one hand, or the Initial Purchasers, on
the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
Holding and the Initial Purchasers agree that it would not be just and
equitable if contribution pursuant to this Section 8(d) were determined by pro
rata allocation (even if the
<PAGE>
23
Initial Purchasers were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or judgments referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses incurred by such indemnified party in connection with investigating or
defending any matter, including any action, that could have given rise to such
losses, claims, damages, liabilities or judgments. Notwithstanding the
provisions of this Section 8, the Initial Purchasers shall not be required to
contribute any amount in excess of the amount by which the total discounts and
commissions received by such Initial Purchasers exceeds the amount of any
damages which the Initial Purchasers have otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Initial Purchasers'
obligations to contribute pursuant to this Section 8(d) are several in
proportion to the respective principal amount of Series A Debentures purchased
by each of the Initial Purchasers hereunder and not joint.
(e) The remedies provided for in this Section 8 are not exclusive and shall
not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
SECTION 9. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS. The obligations
of the Initial Purchasers to purchase the Series A Debentures under this
Agreement are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of Holding contained in
this Agreement shall be true and correct on the Closing Date with the same
force and effect as if made on and as of the Closing Date.
(b) On or after the date hereof, (i) there shall not have occurred any
downgrading, suspension or withdrawal of, nor shall any notice have been
given of any potential or intended downgrading, suspension or withdrawal
of, or of any review (or of any potential or intended review) for a
possible change that does not indicate the direction of the possible change
in, any rating of Holding or any securities of Holding (including, without
limitation, the placing of any of the foregoing ratings on credit watch
with negative or developing implications or under review with an uncertain
direction) by any "nationally recognized statistical rating organization"
as such term is defined for purposes of Rule 436(g)(2) under the Act, (ii)
there shall not have occurred any adverse change, nor shall notice have
been given of any potential or intended adverse change, in the outlook for
any rating of Holding or any securities of Holding by any such rating
organization and (iii) no such rating organization shall have given notice
that it has assigned (or is considering assigning) a lower rating to the
Debentures than that on which the Debentures were marketed.
<PAGE>
24
(c) Since the respective dates as of which information is given in the
Offering Memorandum other than as set forth in the Offering Memorandum
(exclusive of any amendments or supplements thereto subsequent to the date
of this Agreement), (i) there shall not have occurred any change or any
development involving a prospective change in the condition, financial or
otherwise, or the earnings, business, management or operations of Holding
and its subsidiaries, taken as a whole, (ii) there shall not have been any
change or any development involving a prospective change in the capital
stock or in the long-term debt of Holding or any of its subsidiaries and
(iii) neither Holding nor any of its subsidiaries shall have incurred any
liability or obligation, direct or contingent, the effect of which, in any
such case described in clause 9(c)(i), 9(c)(ii) or 9(c)(iii), in your
judgment, is material and adverse and, in your judgment, makes it
impracticable to market the Series A Debentures on the terms and in the
manner contemplated in the Offering Memorandum.
(d) You shall have received on the Closing Date a certificate dated
the Closing Date, signed by the President and Chief Executive Officer and
the Senior Vice President and Chief Financial Officer of Holding,
confirming the matters set forth in Sections 6(y), 9(a) and 9(b) and
stating that Holding has complied with all the agreements and satisfied all
of the conditions herein contained and required to be complied with or
satisfied on or prior to the Closing Date.
(e) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Initial Purchasers), dated the
Closing Date, of Riordan & McKinzie, a Professional Corporation, special
counsel for Holding, to the effect that:
(i) the statements under the captions "Description of
Debentures," "Description of Other Indebtedness" and "Certain Federal
Income Tax Considerations" in the Offering Memorandum, insofar as such
statements constitute a summary of the legal matters, documents or
proceedings referred to therein, fairly present in all material
respects such legal matters, documents and proceedings;
(ii) the execution, delivery and performance of this Agreement
and the other Operative Documents by Holding, the compliance by
Holding with all provisions hereof and thereof and the consummation of
the transactions contemplated hereby and thereby will not (A) require
any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except
such as have been obtained or may be required under the securities or
Blue Sky laws of the various states, and, with respect to the
Registration Rights Agreement, the Securities Act and the TIA), (B)
conflict with or constitute a breach of any of the terms or provisions
of, or a default under, the charter or by-laws of Holding or any of
its subsidiaries, (C) violate or conflict with any applicable law or
any rule or regulation or (D) violate or conflict with any
<PAGE>
25
judgment, order or decree of any court or any governmental body or
agency having jurisdiction over Holding, any of its subsidiaries or
their respective property which has been identified to such counsel by
Holding on an officer's certificate, except for such matters listed in
clauses (A), (C) and (D) above that would not have a Material Adverse
Effect;
(iii) except as set forth in the Offering Memorandum, such
counsel does not know of any legal or governmental proceedings pending
or threatened to which Holding or any of its subsidiaries is a party
or to which any of their respective property is subject, which would
reasonably be expected to result, singly or in the aggregate, in a
Material Adverse Effect;
(iv) Holding is not and, after giving effect to the offering and
sale of the Series A Debentures and the application of the net
proceeds thereof as described in the Offering Memorandum, will not be,
an "investment company" as such term is defined in the Investment
Company Act of 1940, as amended; and
(v) the Indenture complies as to form in all material respects
with the requirements of the TIA, and the rules and regulations of the
Commission applicable to an indenture which is qualified thereunder.
Assuming the accuracy of the representations and warranties of Holding
contained in paragraphs (bb) through (dd) of Section 6, and the
Initial Purchasers' representations and warranties contained in
Section 7 of this Agreement, and assuming compliance by Holding with
the covenants of Holding contained in Section 5 and by the Initial
Purchasers with the agreements contained in Section 7 of this
Agreement, and further assuming that each Initial Purchaser is a QIB
or a Regulation S Purchaser, the issuance and sale of the Series A
Debentures to the Initial Purchasers and the offering, resale and
delivery of the Series A Debentures by the Initial Purchasers, in each
case in the manner contemplated in the Offering Memorandum, are exempt
from the registration requirements of the Securities Act and it is not
necessary to qualify the Indenture under the TIA.
In addition, Riordan & McKinzie shall state that although such counsel has
not undertaken to investigate or verify independently, and is not passing upon
and does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Offering Memorandum (except as set
forth in clause (i) above), during the course of such counsel's participation in
conferences with officers and other representatives of Holding, representatives
of the independent public accountants for Holding and the Initial Purchasers, at
which the contents of the Offering Memorandum were discussed, no facts have come
to the attention of such counsel which cause it to believe that (except for
financial statements, notes thereto, financial statements schedules and other
financial data included therein as to which such counsel need not express any
belief) the Offering Memorandum, as of the date thereof and as of the date
hereof, contained an untrue statement of a material fact or omitted to state a
material fact
<PAGE>
26
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading (relying as to
materiality to the extent such counsel deems appropriate upon the statements of
officers and other representatives of Holding).
The opinion of Riordan & McKinzie, a Professional Corporation, described in
Section 9(e) above shall be rendered to you at the request of Holding and shall
so state therein. In rendering such opinion, Riordan & McKinzie shall have
received and may rely upon one or more opinions of local counsel reasonably
acceptable to the Initial Purchasers, as they may reasonably request to pass
upon such matters.
In rendering such opinion, such counsel may rely, as to matters of fact, to
the extent such counsel deems proper, on certificates of responsible officers
and other representatives of Holding, certificates of public officials, and
certificates or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of Holding provided that copies of any such statements or
certificates shall be delivered or otherwise made available to counsel for the
Initial Purchasers. In addition, such counsel shall not be required to express
any opinion as to the enforceability, binding nature or validity of any
provision in this Agreement, the Indenture or the Registration Rights Agreement
regarding rights of indemnification or contribution.
(f) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Initial Purchasers), dated the
Closing Date, of Flippin, Densmore, Morse, Rutherford & Jesse, special
counsel for Holding, to the effect that:
(i) Holding has been duly incorporated, is validly existing as
a corporation in good standing under the laws of its jurisdiction of
incorporation and has the corporate power and authority to carry on
its business and to own, lease and operate its properties as described
in the Offering Memorandum;
(ii) all the outstanding shares of capital stock of Holding have
been duly authorized and validly issued and are fully paid, non-
assessable and, except as described in the Offering Memorandum, not
subject to any preemptive or similar rights;
(iii) the Series A Debentures have been duly authorized;
(iv) the Indenture has been duly authorized, executed and
delivered by Holding;
(v) this Agreement has been duly authorized, executed and
delivered by Holding;
<PAGE>
27
(vi) The Registration Rights Agreement has been duly authorized,
executed and delivered by Holding;
(vii) the Series B Debentures have been duly authorized; and
(viii)the execution, delivery and performance of this Agreement
and the other Operative Documents by Holding, the compliance by
Holding with all provisions hereof and thereof and the consummation of
the transactions contemplated hereby and thereby will not (A) require
any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except
such as have been obtained or may be required under the securities or
Blue Sky laws of the various states, and, with respect to the
Registration Rights Agreement, the Securities Act and the TIA), (B)
conflict with or constitute a breach of any of the terms or provisions
of, or a default under, the charter or by-laws of Holding or any of
its subsidiaries or any indenture, loan agreement, mortgage, lease or
other agreement or instrument that is material to Holding and its
subsidiaries, taken as a whole, to which Holding or any of its
subsidiaries is a party or by which Holding or any of its subsidiaries
or their respective property is bound which has been identified to
such counsel by Holding on an officer's certificate, (C) violate or
conflict with any applicable law or any rule or regulation, (D)
violate or conflict with any judgment, order or decree of any court or
any governmental body or agency having jurisdiction over Holding, any
of its subsidiaries or their respective property which has been
identified to such counsel by Holding on an officer's certificate, or
(E) result in the imposition or creation of (or the obligation to
create or impose) a Lien under, any agreement or instrument to which
Holding or any of its subsidiaries is a party or by which Holding or
any of its subsidiaries or their respective property is bound which
has been identified to such counsel by Holding on an officer's
certificate, except for such matters listed above that would not,
singly or in the aggregate, have a Material Adverse Effect.
The opinion of Flippin, Densmore, Morse, Rutherford & Jesse described in
Section 9(f) above shall be rendered to you at the request of Holding and shall
so state therein.
(g) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Initial Purchasers), dated the
Closing Date, of Richards & O'Neil LLP, special counsel for Holding, to the
effect that:
(i) the Series A Debentures, when executed and authenticated in
accordance with the provisions of the Indenture and delivered to and
paid for by the Initial Purchasers in accordance with the terms of
this Agreement, will be entitled to the benefits of the Indenture and
will be valid and binding obligations of Holding, enforceable in
accordance with their terms except as the enforceability
<PAGE>
28
thereof may be limited by (i) bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or similar laws affecting creditors'
rights generally and (ii) general principles of equity and the
discretion of the court before which any proceeding therefor may be
brought (regardless whether such enforcement is considered in a
proceeding at law or in equity);
(ii) the Indenture is a valid and binding agreement of Holding,
enforceable against Holding in accordance with its terms except as the
enforceability thereof may be limited by (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or similar laws
affecting creditors' rights generally and (ii) general principles of
equity and the discretion of the court before which any proceeding
therefor may be brought (regardless whether such enforcement is
considered in a proceeding at law or in equity);
(iii) the Registration Rights Agreement is a valid and binding
agreement of Holding, enforceable against Holding in accordance with
its terms, except as the enforceability thereof may be limited by (i)
bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws affecting creditors' rights generally and
(ii) general principles of equity and the discretion of the court
before which any proceeding therefor may be brought (regardless
whether such enforcement is considered in a proceeding at law or in
equity).
The opinion of Richards & O'Neil LLP described in Section 9(g) above shall
be rendered to you at the request of Holding and shall so state therein.
(h) The Initial Purchasers shall have received on the Closing Date an
opinion, dated the Closing Date, of King & Spalding, counsel for the
Initial Purchasers, in form and substance reasonably satisfactory to the
Initial Purchasers.
(i) The Initial Purchasers shall have received, at the time this
Agreement is executed and at the Closing Date, letters dated the date
hereof or the Closing Date (in the latter case constituting an affirmation
of the statements set forth in the former, based on limited procedures), as
the case may be, in form and substance satisfactory to the Initial
Purchasers from Arthur Andersen LLP, independent public accountants,
containing the information and statements of the type ordinarily included
in accountants' "comfort letters" to the Initial Purchasers with respect to
the financial statements and certain financial information contained in the
Offering Memorandum.
(j) The Series A Debentures shall have been approved by the NASD for
trading and duly listed in PORTAL.
(k) The Initial Purchasers shall have received a counterpart,
conformed as executed, of the Indenture which shall have been entered into
by Holding and the Trustee.
<PAGE>
29
(l) Holding shall have executed the Registration Rights Agreement and
the Initial Purchasers shall have received an original copy thereof, duly
executed by Holding.
(m) The Equity Investment shall have been consummated as described in
the Preliminary Offering Memorandum and the Offering Memorandum.
(n) Each condition to closing contemplated by the purchase agreement
relating to the Senior Subordinated Note Offering by the Company (other
than the issuance and sale of the Series A Debentures pursuant hereto)
shall have been satisfied or waived. On the Closing Date, the closing
under the purchase agreement relating to the Senior Subordinated Note
Offering by the Company shall have been consummated on terms that conform
in all material respects to the description thereof in the Offering
Memorandum.
(o) Each condition to closing contemplated by the New Credit Facility
(other than the issuance and sale of the Series A Debentures pursuant
hereto) shall have been satisfied or waived. There shall exist at and as
of the Closing Date (after giving effect to the transactions contemplated
by this Agreement and the other Operative Documents) no conditions that
would constitute a default (or an event that with notice or the lapse of
time, or both, would constitute a default) under the New Credit Facility.
On the Closing Date, the closing under the New Credit Facility shall have
been consummated on terms that conform in all material respects to the
description thereof in the Offering Memorandum and the Initial Purchasers
shall have received evidence satisfactory to it of the consummation
thereof.
(p) Each condition to closing contemplated by each of the other
Operative Documents (other than the issuance and sale of the Series A
Debentures pursuant hereto) shall have been satisfied or waived. There
shall exist at and as of the Closing Date (after giving effect to the
transactions contemplated by this Agreement and the other Operative
Documents) no conditions that would constitute a default (or an event that
with notice or the lapse of time, or both, would constitute a default),
breach or violation of any of the Operative Documents. On the Closing
Date, each of the Operative Documents shall have been entered into on terms
that conform in all material respects to the description thereof in the
Offering Memorandum and the Initial Purchasers shall have received evidence
satisfactory to it of the execution thereof and the consummation of the
transactions contemplated thereby.
(q) Each condition to closing contemplated by the Merger Agreement
shall have been satisfied or waived. There shall exist at and as of the
Closing Date no conditions that would constitute a default (or an event
that with notice or the lapse of time, or both, would constitute a default)
under the Merger Agreement. On the Closing Date, the Merger shall have
been consummated on terms that conform in all material respects to the
description thereof in the Offering Memorandum and the Initial Purchasers
shall have received evidence satisfactory to it of the consummation
thereof.
<PAGE>
30
(r) On the Closing Date, all existing funded indebtedness of Holding
and the Company will be prepaid in full and the Initial Purchasers shall
have received evidence of such repayment.
(s) Holding shall not have failed at or prior to the Closing Date to
perform or comply with any of the agreements herein contained and required
to be performed or complied with by Holding at or prior to the Closing
Date.
SECTION 10. EFFECTIVENESS OF AGREEMENT AND TERMINATION. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by the Initial Purchasers by written notice to Holding if any of the
following has occurred: (i) any outbreak or escalation of hostilities involving
the United States or other national or international calamity or crisis
involving the United States or change in economic conditions or in the financial
markets of the United States or elsewhere that, in the Initial Purchasers'
judgment, is material and adverse and, in the Initial Purchasers' judgment,
makes it impracticable to market the Series A Debentures on the terms and in the
manner contemplated in the Offering Memorandum, (ii) the suspension or material
limitation of trading in securities on the New York Stock Exchange, the American
Stock Exchange or the Nasdaq National Market or limitation on prices for
securities or other instruments on any such exchange or the Nasdaq National
Market, (iii) the suspension of trading of any securities of Holding on any
exchange or in the over-the-counter market, (iv) the enactment, publication,
decree or other promulgation of any federal or state statute, regulation, rule
or order of any court or other governmental authority which in your opinion
materially and adversely affects, or will materially and adversely affect, the
business, prospects, financial condition or results of operations of Holding and
its subsidiaries, taken as a whole, (v) the declaration of a banking moratorium
by either federal or New York State authorities or (vi) the taking of any action
by any federal, state or local government or agency in respect of its monetary
or fiscal affairs which in your opinion has a material adverse effect on the
financial markets in the United States and would, in the Initial Purchasers'
judgment, make it impracticable to market the Series A Debentures on the terms
and in the manner contemplated.
If on the Closing Date any one or more of the Initial Purchasers shall fail
or refuse to purchase the Series A Debentures which it or they have agreed to
purchase hereunder on such date and the aggregate principal amount of the Series
A Debentures which such defaulting Initial Purchaser or Initial Purchasers, as
the case may be, agreed but failed or refused to purchase is not more than one-
tenth of the aggregate principal amount of the Series A Debentures to be
purchased on such date by all Initial Purchasers, each non-defaulting Initial
Purchaser shall be obligated severally, in the proportion which the principal
amount of the Series A Debentures set forth opposite its name in Schedule B
----------
bears to the aggregate principal amount of the Series A Debentures which all the
non-defaulting Initial Purchasers, as the case may be, have agreed to purchase,
or in such other proportion as you may specify, to purchase the Series A
Debentures which such defaulting Initial Purchaser or Initial Purchasers, as the
case may be, agreed but failed
<PAGE>
31
or refused to purchase on such date; provided that in no event shall the
aggregate principal amount of the Series A Debentures which any Initial
Purchaser has agreed to purchase pursuant to Section 2 hereof be increased
pursuant to this Section 10 by an amount in excess of one-ninth of such
principal amount of the Series A Debentures without the written consent of such
Initial Purchaser. If on the Closing Date any Initial Purchaser or Initial
Purchasers shall fail or refuse to purchase the Series A Debentures and the
aggregate principal amount of the Series A Debentures with respect to which such
default occurs is more than one-tenth of the aggregate principal amount of the
Series A Debentures to be purchased by all Initial Purchasers and arrangements
satisfactory to the Initial Purchasers and Holding for purchase of such Series A
Debentures are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Initial Purchaser
and Holding. In any such case which does not result in termination of this
Agreement, either you or Holding shall have the right to postpone the Closing
Date, but in no event for longer than seven days, in order that the required
changes, if any, in the Offering Memorandum or any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Initial Purchaser from liability in respect of any
default of any such Initial Purchaser under this Agreement.
SECTION 11. MISCELLANEOUS. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (i) if to Holding, to Advance
Holding Corporation, 5673 Airport Road, Roanoke, Virginia 24012, Attention:
Chief Financial Officer and (ii) if to the Initial Purchasers, to Donaldson,
Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York, New York
10172, Attention: Syndicate Department, or in any case to such other address as
the person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of Holding and the Initial Purchasers set forth
in or made pursuant to this Agreement shall remain operative and in full force
and effect, and will survive delivery of and payment for the Series A
Debentures, regardless of (i) any investigation, or statement as to the results
thereof, made by or on behalf of the Initial Purchasers, the officers or
directors of each of the Initial Purchasers, any person controlling the Initial
Purchasers, Holding, the officers or directors of Holding, or any person
controlling Holding, (ii) acceptance of the Series A Debentures and payment for
them hereunder and (iii) termination of this Agreement.
If this Agreement shall be terminated by the Initial Purchasers because of
the failure or refusal on the part of Holding to comply with the terms or to
fulfill any of the conditions of this Agreement (other than as a result of any
termination of this Agreement pursuant to Section 10), Holding agrees to
reimburse the Initial Purchasers for all out-of-pocket expenses (including the
fees and disbursements of counsel) incurred by them. Notwithstanding any
termination of this Agreement, Holding shall be liable for all expenses which it
has agreed to pay pursuant to Section 5(i) hereof.
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon Holding, the Initial Purchasers,
the Initial Purchasers' directors and
<PAGE>
32
officers, any controlling persons referred to herein, the directors of Holding
and their respective successors and assigns, all as and to the extent provided
in this Agreement, and no other person shall acquire or have any right under or
by virtue of this Agreement. The term "successors and assigns" shall not include
a purchaser of any of the Series A Debentures from the Initial Purchasers merely
because of such purchase.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement among
Holding and the Initial Purchasers.
Very truly yours,
ADVANCE HOLDING CORPORATION
By: /s/ J. O'Neil Leftwich
-----------------------------------
Name: J. O'Neil Leftwich
Title: Senior Vice President and
Chief Financial Officer,
Secretary and Treasurer
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ William S. Oglesby
-----------------------------
Name: William S. Oglesby
Title: Managing Director
CHASE SECURITIES INC.
By: /s/ Jeffrey Blumin
-----------------------------
Name: Jeffrey Blumin
Title: Vice President
<PAGE>
EXHIBIT 3.1
RESTATED
--------
ARTICLES OF INCORPORATION
-------------------------
OF
--
ADVANCE HOLDING CORPORATION
---------------------------
1. Name. The name of the Corporation is ADVANCE HOLDING CORPORATION.
----
2. Authorized Shares. The aggregate number of shares of capital stock of
-----------------
the Corporation shall be 62,500,000 shares of Class A Common Stock, par value
$.01 per share, 21,875,000 shares of Class B Common Stock, par value $.01 per
share (collectively, the "Common Stock"), and 100,000 shares of Preferred Stock,
no par value per share. The Board of Directors shall have the authority, by an
adoption of an amendment to these Articles, to fix, in whole or in part, the
preferences, limitations and relative rights of (i) any class of shares before
the issuance of any shares of that class or (ii) one or more series within a
class before the issuance of any shares of that series.
The holders of a majority of all votes entitled to vote at a meeting of
shareholders at which a quorum exists on (i) a plan of merger, (ii) a plan of
statutory share exchange, (iii) a sale or other disposition of all or
substantially all the Corporation's assets otherwise than in the usual and
regular course of business, (iv) a dissolution or (v) an amendment of these
Articles shall be sufficient for approval of such transactions. Shareholders of
the Corporation shall not have under these Articles any preemptive right to
acquire proportional amounts of the Corporation's unissued shares upon the
decision of the board of directors to issue any such shares. Special meetings
of the shareholders may be called if the holders of at least a majority of all
votes entitled to be cast on any issue proposed to be considered at a special
meeting sign, date, and deliver to the Corporation's secretary one or more
written demands for the meeting describing the purposes for which it is to be
held.
The terms and relative rights of the Common Stock are as follows:
(A) Voting Rights. The holders of each share of Class A Common Stock shall
-------------
be entitled to one vote per share on all matters to be voted on by shareholders
that are submitted to a vote of shareholders. The holders of Class B Common
Stock shall not have any voting rights except as otherwise from time to time
required by applicable law.
(B) Dividend Rights. Subject to the rights of holders of all classes of
---------------
stock at the time outstanding having prior rights as to dividends, the holders
of Common Stock shall be entitled to receive, out of any funds of the
Corporation legally available therefor, such dividends as may be declared from
time to time by the Board of Directors.
(C) Liquidation Rights. Subject to the rights of holders of all classes of
------------------
stock at the time outstanding having prior rights as to liquidation, upon any
voluntary or involuntary
<PAGE>
liquidation, dissolution or winding up of the Corporation, the holders of Common
Stock shall be entitled to share all assets remaining after payment of all debts
and other liabilities of the Corporation.
(D) Conversion of Class B Common Stock. The holders of Class B Common Stock
----------------------------------
shall have the right, at their option, to convert any or all such shares into an
equal number of shares of Class A Common Stock at any time following the receipt
of all required consents and approvals of any governmental agency or body
relating to the conversion of Class B Common Stock into any voting stock of the
Corporation, including, without limitation, the expiration or termination of any
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
3. Affiliated Transactions and Control Share Acquisitions. The Corporation
------------------------------------------------------
shall not be governed by the provisions of Article 14 and Article 14.1 of the
Virginia Stock Corporation Act.
4. Indemnification.
---------------
(A) In this Article:
"applicant" means the person seeking indemnification pursuant to this
Article.
"expenses" includes counsel fees.
"liability" means the obligation to pay a judgment, settlement,
penalty, fine, including any excise tax assessed with respect to an employee
benefit plan, or expenses incurred with respect to a proceeding.
"party" includes an individual who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
"proceeding" means any threatened, pending, or completed action, suit,
or proceeding, whether civil, criminal, administrative or investigative and
whether formal or informal.
(B) In any proceeding brought by or in the right of the Corporation or
brought by or on behalf of shareholders of the Corporation, no director or
officer of the Corporation shall be liable to the Corporation or its
shareholders for monetary damages with respect to any transaction, occurrence or
course of conduct, whether prior or subsequent to the effective date of this
Article, except that this Article shall not exclude liability resulting from
such person's having engaged in willful misconduct or a knowing violation of the
criminal law or of any federal or state securities law.
(C) The Corporation may indemnify (i) any person who was or is a party to
any proceeding, including a proceeding brought by a shareholder in the right of
the Corporation or brought by or on behalf of shareholders of the Corporation,
by reason of the fact that he is or was
<PAGE>
a director or officer of the Corporation, or (ii) any director or officer who is
or was serving at the request of the Corporation as a director, trustee, partner
or officer of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against any liability incurred by him in
connection with such proceeding unless he engaged in willful misconduct or a
knowing violation of the criminal law. A person is considered to be serving an
employee benefit plan at the Corporation's request if his duties to the
Corporation also impose duties on, or otherwise involve services by, him to the
plan or to participants in or beneficiaries of the plan. The Board of Directors
is hereby empowered, by a majority vote of a quorum of disinterested directors,
to enter into a contract to indemnify any director or officer in respect of any
proceedings arising from any act or omission, whether occurring before or after
the execution of such contract.
(D) No amendment or repeal of this Article shall have any effect on the
rights provided under this Article (including rights under any agreement entered
into in accordance with this Article) with respect to any act or omission
occurring prior to such amendment or repeal. The Corporation shall promptly take
all such actions, and make all such determinations, as shall be necessary or
appropriate to comply with its obligation to make any indemnity under this
Article (including rights under any agreement entered into in accordance with
this Article) and shall promptly pay or reimburse all expenses, including
attorneys' fees, incurred by any such director or officer in connection with
such actions and determinations or proceedings of any kind arising therefrom.
(E) The termination of any proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not of
---- ----------
itself create a presumption that the applicant did not meet the standard of
conduct described in section (B) or (C) of this Article.
(F) Any indemnification under section (C) of this Article (unless ordered
by a court) shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the applicant is permissible
in the circumstances.
Unless otherwise provided by resolution of the Board of Directors or
pursuant to any agreement entered into in accordance with this Article and
applicable laws of the Commonwealth of Virginia, the determination shall be
made:
(i) By the Board of Directors by a majority vote of a quorum consisting of
directors not at the time parties to the proceeding;
(ii) If a quorum cannot be obtained under subsection (i) of this section,
by majority vote of a committee duly designated by the Board of Directors (in
which designation directors who are parties may participate), consisting solely
of two or more directors not at the time parties to the proceeding;
(iii) By special legal counsel:
<PAGE>
(a) Selected by the Board of Directors or its committee in the manner
prescribed in subsection (i) or (ii) of this section; or
(b) If a quorum of the Board of Directors cannot be obtained under
subsection (i) of this section and a committee cannot be designated under
subsection (ii) of this section, selected by majority vote of the full Board of
Directors, in which selection directors who are parties may participate; or
(iv) By the shareholders, but shares owned by or voted under the control of
directors who are at the time parties to the proceeding may not be voted on the
determination.
Any evaluation as to reasonableness of expenses shall be made in the same
manner as the determination that indemnification is appropriate, except that if
the determination is made by special legal counsel, such evaluation as to
reasonableness of expenses shall be made by those entitled under subsection
(iii) of this section (F) to select counsel.
(G) (i) The Corporation may pay for or reimburse the reasonable expenses
incurred by any applicant who is a party to a proceeding in advance of final
disposition of the proceeding or the making of any determination under section
(F) if the applicant furnishes the Corporation:
(a) a written statement of his good faith belief that he has met the
standard of conduct described in section (C); and
(b) a written undertaking, executed personally or on his behalf, which
may be included within an indemnification agreement, to repay the advance if it
is ultimately determined that he did not meet such standard of conduct.
(ii) The undertaking required by paragraph (b) of subsection (i) of this
section shall be an unlimited general obligation of the applicant but need not
be secured and may be accepted without reference to financial ability to make
repayment.
(iii) Authorizations of payments under this section shall be made by the
persons specified in section (F).
(H) The Board of Directors is hereby empowered, by majority vote of a
quorum consisting of disinterested directors, to cause the Corporation to
indemnify or contract to indemnify any person not specified in section (B) or
(C) of this Article who was, is or may become a party to any proceeding, by
reason of the fact that he is or was an employee, consultant, representative or
agent of the Corporation, or is or was serving at the request of the Corporation
as director, officer, employee, consultant, representative or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, to the same extent as if such person were specified as one to whom
indemnification may be granted in section (C). The provisions of sections (D)
through (G) of this Article shall be applicable to any indemnification provided
hereafter pursuant to this section (H).
<PAGE>
(I) The Corporation may purchase and maintain insurance to indemnify it
against the whole or any portion of the liability assumed by it in accordance
with this Article and may also procure insurance, in such amounts as the Board
of Directors may determine, on behalf of any person who is or was a director,
officer, employee, consultant, representative or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee, consultant, representative or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against any liability asserted against or incurred by him in any such capacity
or arising from his status as such, whether or not the Corporation would have
power to indemnify him against such liability under the provisions of this
Article.
(J) Every reference herein to directors, officers, employees, consultants,
representatives or agents shall include former directors, officers, employees,
consultants, representatives and agents and their respective heirs, executors
and administrators. The indemnification hereby provided and provided hereafter
pursuant to the power hereby conferred by this Article on the Board of Directors
shall not be exclusive of any other rights to which any person may be entitled,
including any right under policies of insurance that may be purchased and
maintained by the Corporation or others, with respect to claims, issues or
matters in relation to which the Corporation would not have the power to
indemnify such person under the provisions of this Article. Such rights shall
not prevent or restrict the power of the Corporation to make or provide for any
further indemnity, or provisions for determining entitlement to indemnity to the
fullest extent permitted by applicable law, pursuant to one or more
indemnification agreements, bylaws, or other arrangements (including, without
limitation, creation of trust funds or security interests funded by letters of
credit or other means and agreements to reimburse expenses incurred in
connection with any proceeding) approved by the Board of Directors (whether or
not any of the directors of the Corporation shall be a party to or beneficiary
of any such agreements, bylaws or arrangements); provided, however, that any
-----------------
provision of such agreements, bylaws or other arrangements shall not be
effective if and to the extent that it is determined to be prohibited by this
Article or applicable laws of the Commonwealth of Virginia.
(K) Each provision of this Article shall be severable, and an adverse
determination as to any such provision shall in no way affect the validity of
any other provision.
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
ADVANCE HOLDING CORPORATION
ARTICLE I.
----------
Meetings of Shareholders.
-------------------------
1.1 Places of Meetings. All meetings of the shareholders shall be held at
------------------
such place, either within or without the Commonwealth of Virginia, as from time
to time may be fixed by the Board of Directors.
1.2 Annual Meetings. The annual meeting of the shareholders, for the
---------------
election of Directors and the transaction of such other business as may properly
come before the meeting, shall be held in each year in the second week in May,
at 10:00 a.m., if that day is not a legal holiday. If that day is a legal
holiday, the annual meeting shall be held on the next succeeding day not a legal
holiday.
1.3 Special Meetings. A special meeting of the shareholders for any
----------------
purpose or purposes may be called at any time by the Chairman of the Board, the
Vice-Chairman of the Board, the Chief Executive Officer or the President, by a
majority of the Board of Directors, or by shareholders together holding at least
20% of the number of shares of the Corporation at the time outstanding and
entitled to vote with respect to the business to be transacted at such meeting.
At a special meeting no business shall be transacted and no corporate action
shall be taken other than that stated in the notice of the meeting.
<PAGE>
1.4 Notice of Meetings. Written or printed notice stating the place, day
------------------
and hour of every meeting of the shareholders and, in case of a special meeting,
the purpose or purposes for which the meeting is called, shall be mailed not
less than ten nor more than sixty days before the date of the meeting to each
shareholder of record entitled to vote at such meeting, at his address which
appears in the share transfer books of the Corporation. Such further notice
shall be given as may be required by law, but meetings may be held without
notice if all the shareholders entitled to vote at the meeting are present in
person or by proxy, without objection, or if notice is waived in writing by
those not present, either before or after the meeting.
1.5 Quorum. Any number of shareholders together holding at least a
------
majority of the outstanding shares of capital stock entitled to vote with
respect to the business to be transacted, who shall be present in person or
represented by proxy at any meeting duly called, shall constitute a quorum for
the transaction of business. If less than a quorum shall be in attendance at
the time for which a meeting shall have been called, the meeting may be
adjourned from time to time by a majority of the shareholders present or
represented by proxy without notice other than by announcement at the meeting.
1.6 Voting. At any meeting of the shareholders, each shareholder of a
------
class entitled to vote on any matter coming before the meeting shall, unless
otherwise provided in the Articles of Incorporation, as to such matter, have one
vote, in person or by proxy, for each share of capital stock of such class
standing in his name on the books of the Corporation on the date, not more than
seventy days prior to such meeting, fixed by the Board of Directors as the
record date for the purpose of determining shareholders entitled to
2
<PAGE>
vote. Every proxy shall be in writing, dated and signed by the shareholder
entitled to vote or his duly authorized attorney-in-fact.
1.7 Inspectors. An appropriate number of inspectors for any meeting of
----------
shareholders may be appointed by the Chairman of such meeting. Inspectors so
appointed will open and close the polls, will receive and take charge of proxies
and ballots, and will decide all questions as to the qualifications of voters,
validity of proxies and ballots, and the number of votes properly cast.
1.8 Action Without Meeting. Any action required or permitted to be taken
----------------------
at a shareholder's meeting may be taken without a meeting and without action by
the board of directors if the action is taken by all the shareholders entitled
to vote on the action. The action shall be evidenced by one or more written
consents describing the action taken, signed by all shareholders entitled to
vote on the action and delivered to the Secretary of the Corporation. Any
action taken by unanimous consent shall be effective according to its terms when
all consents are in the possession of the Corporation, unless written notice of
withdrawal of any such consent is delivered to the Corporation prior to the time
that all consents are in possession of the Corporation. Any action taken
pursuant to this Section 1.8 shall be effective as of the date specified therein
provided the consent states the date of execution by each shareholder.
ARTICLE II.
-----------
Directors.
----------
2.1 General Powers. The property, affairs and business of the Corporation
--------------
shall
3
<PAGE>
be managed under the direction of the Board of Directors, and, except as
otherwise expressly provided by law, the Articles of Incorporation or these
Bylaws, all of the powers of the Corporation shall be vested in such Board.
2.2 Number of Directors. The number of Directors constituting the Board
-------------------
of Directors shall be not less than five nor more than nine, such number to be
fixed from time to time by resolution of the Board of Directors.
2.3 Election and Removal of Directors; Quorum.
-----------------------------------------
(a) Directors shall be elected at each annual meeting of shareholders to
succeed those Directors whose terms have expired and to fill any vacancies then
existing.
(b) Directors shall hold their offices for terms of one year and until
their successors are elected. Any Director may be removed from office, with or
without cause, at a meeting called expressly for that purpose by the vote of
shareholders holding not less than a majority of the shares entitled to vote at
an election of Directors.
(c) Any vacancy occurring in the Board of Directors may be filled by the
affirmative vote of the majority of the remaining Directors though less than a
quorum of the Board, and the term of office of any Director so elected shall
expire at the next shareholders' meeting at which directors are elected.
(d) A majority of the number of Directors prescribed in these Bylaws shall
constitute a quorum for the transaction of business. The act of a majority of
Directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors. Less than a quorum may adjourn any meeting.
2.4 Meetings of Directors. (a) An annual meeting of the Board of
---------------------
Directors shall
4
<PAGE>
be held as soon as practicable after the adjournment of the annual meeting of
shareholders at such place as the Board may designate. Other meetings of the
Board of Directors shall be held at places within or without the Commonwealth of
Virginia and at times fixed by resolution of the Board, or upon call of the
Chairman of the Board, the Vice-Chairman of the Board, the Chief Executive
Officer or any of the Directors. The Secretary or officer performing the
Secretary's duties shall give not less than twenty-four hours' notice by letter,
telegraph or telephone (or in person) of all meetings of the Board of Directors,
provided that notice need not be given of the annual meeting or of regular
meetings held at times and places fixed by resolution of the Board. Meetings
may be held at any time without notice if all of the Directors are present,
without objection, or if those not present waive notice in writing either before
or after the meeting. The notice of meetings of the Board shall state the
purpose of the meeting.
(b) Any or all Directors may participate in a regular or special meeting
by, or conduct the meeting through, the use of any means of communication by
which all Directors participating may simultaneously hear each other during the
meeting.
(c) Any action required or permitted to be taken at a meeting of the Board
of Directors may be taken without a meeting if the action is taken by all
members of the Board. The action shall be evidenced by one or more written
consents stating the action taken and signed by each Director either before or
after the action taken. Any action taken pursuant to this Section shall be
effective when the last Director executes the consent unless the consent
specifies a different effective date, in which event the action taken is
effective as of the date specified therein, provided the consent states the date
of execution by each
5
<PAGE>
director.
2.5 Compensation. By resolution of the Board, Directors may be allowed a
------------
fee and expenses for attendance at all meetings, but nothing herein shall
preclude Directors from serving the Corporation in other capacities and
receiving compensation for such other services.
2.6 Eligibility for Service as a Director. Except for persons serving as
-------------------------------------
Directors as of January 1, 1998, no person who shall have attained the age of 70
years shall be eligible for election as a Director of the Corporation. Any
person elected a Director prior to age 70 shall retire from the Board upon
attaining that age, provided that any person serving as a Director on the date
of the adoption of this Bylaw shall be entitled to serve out his term regardless
of age.
ARTICLE III.
------------
Committees.
-----------
3.1 Executive Committee. The Board of Directors, by resolution adopted by
-------------------
a majority of the number of Directors fixed by these Bylaws, may elect an
Executive Committee which shall consist of not less than two Directors,
including the Chief Executive Officer. When the Board of Directors is not in
session, the Executive Committee shall have all power vested in the Board of
Directors by law, by the Articles of Incorporation, or by these Bylaws, provided
that the Executive Committee shall not have power to (i) approve or recommend to
shareholders action that the Virginia Stock Corporation Act requires to be
approved by shareholders; (ii) fill vacancies on the Board or on any of its
committees; (iii)
6
<PAGE>
amend the Articles of Incorporation pursuant to (S) 13.1-706 of the Virginia
Code; (iv) adopt, amend, or repeal the Bylaws; (v) approve a plan of merger not
requiring shareholder approval; (vi) authorize or approve a distribution, except
according to a general formula or method prescribed by the Board of Directors;
or (vii) authorize or approve the issuance or sale or contract for sale of
shares, or determine the designation and relative rights, preferences, and
limitations of a class or series of shares, other than within limits
specifically prescribed by the Board of Directors. The Executive Committee
shall report at the next regular or special meeting of the Board of Directors
all action which the Executive Committee may have taken on behalf of the Board
since the last regular or special meeting of the Board of Directors.
3.2 Audit Committee. The Board of Directors, by resolution adopted by a
---------------
majority of the number of Directors fixed by these Bylaws, may elect an Audit
Committee which shall consist of not less than two Directors. The Audit
Committee shall consider and report to the Board with respect to plans for
corporate expansion, capital structure and long-range financial requirements.
The Committee shall also consider and report to the Board with respect to such
other matters relating to the financial affairs of the Corporation as may be
requested by the Board or the appropriate officers of the Corporation. The
Committee shall report periodically to the Board of Directors on all action
which it may have taken.
3.3 Other Committees. The Board of Directors, by resolution adopted by a
----------------
majority of the number of Directors fixed by these Bylaws, may establish such
other standing or special committees of the Board as it may deem advisable,
consisting of not less than two Directors; and the members, terms and authority
of such committees shall be as set forth in
7
<PAGE>
the resolutions establishing the same.
3.4 Meetings. Regular and special meetings of any Committee established
--------
pursuant to this Article may be called and held subject to the same requirements
with respect to time, place and notice as are specified in these Bylaws for
regular and special meetings of the Board of Directors.
3.5 Quorum and Manner of Acting. A majority of the members of any
---------------------------
Committee serving at the time of any meeting thereof shall constitute a quorum
for the transaction of business at such meeting. The action of a majority of
those members present at a Committee meeting at which a quorum is present shall
constitute the act of the Committee.
3.6 Term of Office. Members of any Committee shall be elected as above
--------------
provided and shall hold office until their successors are elected by the Board
of Directors or until such Committee is dissolved by the Board of Directors.
3.7 Resignation and Removal. Any member of a Committee may resign at any
-----------------------
time by giving written notice of his intention to do so to the Chief Executive
Officer or the Secretary of the Corporation, or may be removed, with or without
cause, at any time by such vote of the Board of Directors as would suffice for
his election.
3.8 Vacancies. Any vacancy occurring in a Committee resulting from any
---------
cause whatever may be filled by a majority of the number of Directors fixed by
these Bylaws.
8
<PAGE>
ARTICLE IV.
-----------
Officers.
---------
4.1 Election of Officers; Terms. The officers of the Corporation
---------------------------
shall consist of a Chief Executive Officer, a Secretary and a Chief Financial
Officer. Other officers, including a Chairman of the Board, a President, one or
more Vice-Presidents (whose seniority and titles, including Executive Vice-
Presidents and Senior Vice-Presidents, may be specified by the Board of
Directors), and assistant and subordinate officers, may from time to time be
elected by the Board of Directors. All officers shall hold office until the
next annual meeting of the Board of Directors and until their successors are
elected. The Chief Financial Officer shall be chosen from among the Directors.
Any two officers may be combined in the same person as the Board of Directors
may determine.
4.2 Removal of Officers; Vacancies. Any officer of the Corporation
------------------------------
may be removed summarily with or without cause, at any time, by the Board of
Directors. Vacancies may be filled by the Board of Directors.
4.3 Duties. The officers of the Corporation shall have such duties
------
as generally pertain to their offices, respectively, as well as such powers and
duties as are prescribed by law or are hereinafter provided or as from time to
time shall be conferred by the Board of Directors. The Board of Directors may
require any officer to give such bond for the faithful performance of his duties
as the Board may see fit.
4.4 Duties of the Chief Executive Officer. The Chief Executive
-------------------------------------
Officer shall be the chief executive officer of the Corporation and shall be
primarily responsible for the implementation of policies of the Board of
Directors. He shall have authority over the
9
<PAGE>
general management and direction of the business and operations of the
Corporation and its divisions, if any, subject only to the ultimate authority of
the Board of Directors. He shall be a Director, and, except as otherwise
provided in these Bylaws or in the resolutions establishing such committees, he
shall be ex officio a member of all Committees of the Board. In the absence of
-- -------
the Chairman and the Vice-Chairman of the Board, or if there are no such
officers, the Chief Executive Officer shall preside at all corporate meetings.
He may sign and execute in the name of the Corporation share certificates,
deeds, mortgages, bonds, contracts or other instruments except in cases where
the signing and the execution thereof shall be expressly delegated by the Board
of Directors or by these Bylaws to some other officer or agent of the
Corporation or shall be required by law otherwise to be signed or executed. In
addition, he shall perform all duties incident to the office of the Chief
Executive Officer and such other duties as from time to time may be assigned to
him by the Board of Directors.
4.5 Duties of the President and Vice-Presidents. The President and
-------------------------------------------
each Vice-President, if any, shall have such powers and duties as may from time
to time be assigned to him by the Chief Executive Officer or the Board of
Directors. The President and any Vice-President may sign and execute in the
name of the Corporation deeds, mortgages, bonds, contracts or other instruments
authorized by the Board of Directors, except where the signing and execution of
such documents shall be expressly delegated by the Board of Directors or the
Chief Executive Officer to some other officer or agent of the Corporation or
shall be required by law or otherwise to be signed or executed.
4.6 Duties of the Chief Financial Officer. The Chief Financial
-------------------------------------
Officer shall have
10
<PAGE>
charge of and be responsible for all funds, securities, receipts and
disbursements of the Corporation, and shall deposit all monies and securities of
the Corporation in such banks and depositories as shall be designated by the
Board of Directors. He shall be responsible (i) for maintaining adequate
financial accounts and records in accordance with generally accepted accounting
practices; (ii) for the preparation of appropriate operating budgets and
financial statements; (iii) for the preparation and filing of all tax returns
required by law; and (iv) for the performance of all duties incident to the
office of Chief Financial Officer and such other duties as from time to time may
be assigned to him by the Board of Directors, the Audit Committee or the Chief
Executive Officer. The Chief Financial Officer may sign and execute in the name
of the Corporation share certificates, deeds, mortgages, bonds, contracts or
other instruments, except in cases where the signing and the execution thereof
shall be expressly delegated by the Board of Directors or by these Bylaws to
some other officer or agent of the Corporation or shall be required by law or
otherwise to be signed or executed.
4.7 Duties of the Secretary. The Secretary shall act as secretary of
-----------------------
all meetings of the Board of Directors and shareholders of the Corporation.
When requested, he shall also act as secretary of the meetings of the committees
of the Board. He shall keep and preserve the minutes of all such meetings in
permanent books. He shall see that all notices required to be given by the
Corporation are duly given and served; shall have custody of the seal of the
Corporation and shall affix the seal or cause it to be affixed to all share
certificates of the Corporation and to all documents the execution of which on
behalf of the Corporation under its corporate seal is duly authorized in
accordance with law or the provisions of these Bylaws; shall have custody of all
deeds, leases, contracts and other important corporate
11
<PAGE>
documents; shall have charge of the books, records and papers of the Corporation
relating to its organization and management as a Corporation; shall see that all
reports, statements and other documents required by law (except tax returns) are
properly filed; and shall in general perform all the duties incident to the
office of Secretary and such other duties as from time to time may be assigned
to him by the Board of Directors or the Chief Executive Officer.
4.8 Compensation. The Board of Directors shall have authority to fix
------------
the compensation, if any, of all officers of the Corporation.
ARTICLE V.
----------
Capital Stock.
--------------
5.1 Certificates. The shares of capital stock of the Corporation
------------
shall be evidenced by certificates in forms prescribed by the Board of Directors
and executed in any manner permitted by law and stating thereon the information
required by law. Transfer agents and/or registrars for one or more classes of
shares of the Corporation may be appointed by the Board of Directors and may be
required to countersign certificates representing shares of such class or
classes. If any officer whose signature or facsimile thereof shall have been
used on a share certificate shall for any reason cease to be an officer of the
Corporation and such certificate shall not then have been delivered by the
Corporation, the Board of Directors may nevertheless adopt such certificate and
it may then be issued and delivered as though such person had not ceased to be
an officer of the Corporation.
5.2 Lost, Destroyed and Mutilated Certificates. Holders of the
------------------------------------------
shares of the Corporation shall immediately notify the Corporation of any loss,
destruction or mutilation of the certificate therefor, and the Board of
Directors may in its discretion cause one or more
12
<PAGE>
new certificates for the same number of shares in the aggregate to be issued to
such shareholder upon the surrender of the mutilated certificate or upon
satisfactory proof of such loss or destruction, and the deposit of a bond in
such form and amount and with such surety as the Board of Directors may require.
5.3 Transfer of Shares. The shares of the Corporation shall be
------------------
transferable or assignable only on the books of the Corporation by the holder in
person or by attorney on surrender of the certificate for such shares duly
endorsed and, if sought to be transferred by attorney, accompanied by a written
power of attorney to have the same transferred on the books of the Corporation.
The Corporation will recognize, however, the exclusive right of the person
registered on its books as the owner of shares to receive dividends and to vote
as such owner.
5.4 Fixing Record Date. For the purpose of determining shareholders
------------------
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in order
to make a determination of shareholders for any other proper purpose, the Board
of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than seventy
days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If no record date is fixed for
the determination of shareholders entitled to notice of or to vote at a meeting
of shareholders, or shareholders entitled to receive payment of a dividend, the
date on which notices of the meeting are mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a
13
<PAGE>
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this section, such determination shall apply to any
adjournment thereof unless the Board of Directors fixes a new record date, which
it shall do if the meeting is adjourned to a date more than 120 days after the
date fixed for the original meeting.
ARTICLE VI.
-----------
Miscellaneous Provisions.
-------------------------
6.1 Seal. The seal of the Corporation shall consist of a flat-faced
----
circular die, of which there may be any number of counterparts, on which there
shall be engraved the word "Seal" and the name of the Corporation.
6.2 Fiscal Year. The fiscal year of the Corporation shall end on
-----------
such date and shall consist of such accounting periods as may be fixed by the
Board of Directors.
6.3 Checks, Notes and Drafts. Checks, notes, drafts and other orders
------------------------
for the payment of money shall be signed by such persons as the Board of
Directors from time to time may authorize. When the Board of Directors so
authorizes, however, the signature of any such person may be a facsimile.
6.4 Amendment of Bylaws. Unless proscribed by the Articles of
-------------------
Incorporation, these Bylaws may be amended or altered at any meeting of the
Board of Directors by affirmative vote of a majority of the number of Directors
fixed by these Bylaws. The shareholders entitled to vote in respect of the
election of Directors, however, shall have the power to rescind, amend, alter or
repeal any Bylaws and to enact Bylaws which, if expressly so provided, may not
be amended, altered or repealed by the Board of Directors.
6.5 Voting of Shares Held. Unless otherwise provided by resolution
---------------------
of the Board of
14
<PAGE>
Directors or of the Executive Committee, if any, the Chief Executive Officer may
from time to time appoint an attorney or attorneys or agent or agents of the
Corporation, in the name and on behalf of the Corporation, to cast the vote
which the Corporation may be entitled to cast as a shareholder or otherwise in
any other corporation, any of whose securities may be held by the Corporation,
at meetings of the holders of the shares or other securities of such other
corporation, or to consent in writing to any action by any such other
corporation; and the Chief Executive Officer shall instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent and may execute or cause to be executed on behalf of the Corporation,
and under its corporate seal or otherwise, such written proxies, consents,
waivers or other instruments as may be necessary or proper in the premises. In
lieu of such appointment the Chief Executive Officer may himself attend any
meetings of the holders of shares or other securities of any such other
corporation and there vote or exercise any or all power of the Corporation as
the holder of such shares or other securities of such other corporation.
ARTICLE VII.
------------
Emergency Bylaws.
-----------------
The Emergency Bylaws provided in this Article VII shall be operative
during any emergency, notwithstanding any different provision in the preceding
Articles of these Bylaws or in the Articles of Incorporation of the Corporation
or in the Virginia Stock Corporation Act (other than those provisions relating
to emergency bylaws). An emergency exists if a quorum of the Corporation's
Board of Directors cannot readily be assembled because of some catastrophic
event. To the extent not inconsistent with these Emergency Bylaws, the
15
<PAGE>
Bylaws provided in the preceding Articles shall remain in effect during such
emergency and upon the termination of such emergency the Emergency Bylaws shall
cease to be operative unless and until another such emergency shall occur.
During any such emergency:
(a) Any meeting of the Board of Directors may be called by any
officer of the Corporation or by any Director. The notice thereof shall specify
the time and place of the meeting. To the extent feasible, notice shall be
given in accord with Section 2.4 above, but notice may be given only to such of
the Directors as it may be feasible to reach at the time, by such means as may
be feasible at the time, including publication or radio, and at a time less than
twenty-four hours before the meeting if deemed necessary by the person giving
notice. Notice shall be similarly given, to the extent feasible, to the other
persons referred to in (b) below.
(b) At any meeting of the Board of Directors, a quorum shall consist
of a majority of the number of Directors fixed at the time by Article II of the
Bylaws. If the Directors present at any particular meeting shall be fewer than
the number required for such quorum, other persons present as referred to below,
to the number necessary to make up such quorum, shall be deemed Directors for
such particular meeting as determined by the following provisions and in the
following order of priority:
(i) The President or Vice-Presidents not already serving as
Directors, in the order of their seniority of first election to such offices, or
if two or more shall have been first elected to such offices on the same day, in
the order of their seniority in age;
(ii) All other officers of the Corporation in the order of their
seniority
16
<PAGE>
of first election to such offices, or if two or more shall have been first
elected to such offices on the same day, in the order of their seniority in age;
and
(iii) Any other persons that are designated on a list that shall
have been approved by the Board of Directors before the emergency, such persons
to be taken in such order of priority and subject to such conditions as may be
provided in the resolution approving the list.
(c) The Board of Directors, during as well as before any such
emergency, may provide, and from time to time modify, lines of succession in the
event that during such an emergency any or all officers or agents of the
Corporation shall for any reason be rendered incapable of discharging their
duties.
(d) The Board of Directors, during as well as before any such
emergency, may, effective in the emergency, change the principal office, or
designate several alternative offices, or authorize the officers so to do.
No officer, Director or employee shall be liable for action taken in
good faith in accordance with these Emergency Bylaws.
These Emergency Bylaws shall be subject to repeal or change by further
action of the Board of Directors or by action of the shareholders, except that
no such repeal or change shall modify the provisions of the next preceding
paragraph with regard to action or inaction prior to the time of such repeal or
change. Any such amendment of these Emergency Bylaws may make any further or
different provision that may be practical and necessary for the circumstances of
the emergency.
17
<PAGE>
EXHIBIT 4.1
EXECUTION COPY
================================================================================
ADVANCE HOLDING CORPORATION
-----------------------------
12.875% SENIOR DISCOUNT DEBENTURES DUE 2009
-----------------------------
-----------------------
INDENTURE
-----------------------
DATED AS OF APRIL 15, 1998
-----------------------------
UNITED STATES TRUST COMPANY OF NEW YORK
TRUSTEE
-----------------------------
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
<S> <C>
310 (a)(1).................................................... 7.10
(a)(2).................................................... 7.10
(a)(3).................................................... N.A.
(a)(4).................................................... N.A.
(a)(5).................................................... 7.10
(b)....................................................... 7.03; 7.10
(c)....................................................... N.A.
311 (a)....................................................... 7.11
(b)....................................................... 7.11
(c)....................................................... N.A.
312 (a)....................................................... 2.05
(b)....................................................... 10.03
(c)....................................................... 10.03
313 (a)....................................................... 7.06
(b)(1).................................................... 7.06
(b)(2).................................................... 7.06; 7.07
(c)....................................................... 7.06;10.02
(d)....................................................... 7.06
314 (a)....................................................... 4.03;10.05
(b)....................................................... N.A.
(c)(1).................................................... 10.04
(c)(2).................................................... 10.04
(c)(3).................................................... N.A.
(d)....................................................... N.A.
(e)....................................................... 10.05
(f)....................................................... N.A.
315 (a)....................................................... 7.01
(b)....................................................... 7.05,10.02
(c)....................................................... 7.01
(d)....................................................... 7.01
(e)....................................................... 6.11
316 (a)(last sentence)........................................ 2.09
(a)(1)(A)................................................. 6.05
(a)(1)(B)................................................. 6.04
(a)(2).................................................... 2.13
(b)....................................................... 6.07
(c)....................................................... N.A.
317 (a)(1).................................................... 6.08
(a)(2).................................................... 6.09
(b)....................................................... 2.04
318 (a)....................................................... 10.01
(b)....................................................... N.A.
(c)....................................................... 10.01
</TABLE>
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions............................................. 1
Section 1.02. Other Definitions....................................... 15
Section 1.03. Incorporation by Reference of Trust Indenture Act....... 16
Section 1.04. Rules of Construction................................... 16
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating......................................... 17
Section 2.02. Execution and Authentication............................ 18
Section 2.03. Registrar and Paying Agent.............................. 19
Section 2.04. Paying Agent to Hold Money in Trust..................... 19
Section 2.05. Holder Lists............................................ 19
Section 2.06. Transfer and Exchange................................... 20
Section 2.07. Replacement Notes....................................... 27
Section 2.08. Outstanding Notes....................................... 28
Section 2.09. Treasury Notes.......................................... 28
Section 2.10. Temporary Notes......................................... 28
Section 2.11. Cancellation............................................ 29
Section 2.12. Defaulted Interest...................................... 29
Section 2.13. Record Date............................................. 29
Section 2.14. Computation of Interest................................. 29
Section 2.15. CUSIP Number............................................ 29
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee...................................... 30
Section 3.02. Selection of Notes to be Redeemed or Purchased.......... 30
Section 3.03. Notice of Redemption or Repurchase...................... 30
Section 3.04. Effect of Notice of Redemption or Repurchase............ 31
Section 3.05. Deposit of Redemption or Purchase Price................. 31
Section 3.06. Notes Redeemed in Part.................................. 32
Section 3.07. Optional Redemption..................................... 32
Section 3.08. Mandatory Redemption.................................... 33
Section 3.09. Repurchase Offers....................................... 33
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C> <C>
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes............................................................... 35
Section 4.02. Maintenance of Office or Agency................................................ 35
Section 4.03. Commission Reports............................................................. 35
Section 4.04. Compliance Certificate and Notices of Default.................................. 36
Section 4.05. Taxes.......................................................................... 36
Section 4.06. Stay, Extension and Usury Laws................................................. 37
Section 4.07. Restricted Payments............................................................ 37
Section 4.08. Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries...... 40
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock..................... 40
Section 4.10. Asset Sales.................................................................... 43
Section 4.11. Transactions With Affiliates................................................... 44
Section 4.12. Liens.......................................................................... 44
Section 4.13. Offer to Purchase Upon Change of Control....................................... 44
Section 4.14. Corporate Existence............................................................ 45
Section 4.15. Business Activities............................................................ 45
Section 4.16. Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries. 46
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation or Sale of Assets........................................ 46
Section 5.02. Successor Corporation Substituted.............................................. 46
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.............................................................. 47
Section 6.02. Acceleration................................................................... 48
Section 6.03. Other Remedies................................................................. 49
Section 6.04. Waiver of Defaults............................................................. 49
Section 6.05. Control by Majority............................................................ 49
Section 6.06. Limitation on Suits............................................................ 50
Section 6.07. Rights of Holders of Notes to Receive Payme.................................... 50
Section 6.08. Collection Suit by Trustee..................................................... 50
Section 6.09. Trustee May File Proofs of Claim............................................... 50
Section 6.10. Priorities..................................................................... 51
Section 6.11. Undertaking for Costs.......................................................... 51
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee.............................................................. 52
Section 7.02. Rights of Trustee.............................................................. 53
Section 7.03. Individual Rights of Trustee................................................... 53
</TABLE>
ii
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
Section 7.04. Trustee's Disclaimer........................................................... 54
Section 7.05. Notice of Defaults............................................................. 54
Section 7.06. Reports by Trustee to Holders of the Notes..................................... 54
Section 7.07. Compensation and Indemnity..................................................... 54
Section 7.08. Replacement of Trustee......................................................... 55
Section 7.09. Successor Trustee by Merger, etc............................................... 56
Section 7.10. Eligibility; Disqualification.................................................. 56
Section 7.11. Preferential Collection of Claims Against Holding.............................. 56
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance....................... 57
Section 8.02. Legal Defeasance and Discharge................................................. 57
Section 8.03. Covenant Defeasance............................................................ 57
Section 8.04. Conditions to Legal or Covenant Defeasance..................................... 58
Section 8.05. Deposited Money and U.S. Government Securities to be Held in Trust; Other
Miscellaneous Provisions....................................................... 59
Section 8.06. Repayment to Holding........................................................... 59
Section 8.07. Reinstatement.................................................................. 60
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of the Notes........................................ 60
Section 9.02. With Consent of Holders of Notes............................................... 61
Section 9.03. Compliance with Trust Indenture Act............................................ 62
Section 9.04. Revocation and Effect of Consents.............................................. 62
Section 9.05. Notation on or Exchange of Notes............................................... 62
Section 9.06. Trustee to Sign Amendments, etc................................................ 62
ARTICLE 10
MISCELLANEOUS
Section 10.01. Trust Indenture Act Controls................................................... 63
Section 10.02. Notices........................................................................ 63
Section 10.03. Communication by Holders of Notes with Other Holders of Notes.................. 64
Section 10.04. Certificate and Opinion as to Conditions Precedent............................. 64
Section 10.05. Statements Required in Certificate or Opinion.................................. 64
Section 10.06. Rules by Trustee and Agents.................................................... 65
Section 10.07. No Personal Liability of Directors, Officers, Employees and Stockholders....... 65
Section 10.08. Governing Law.................................................................. 65
Section 10.09. No Adverse Interpretation of Other Agreements.................................. 65
Section 10.10. Successors..................................................................... 65
Section 10.11. Severability................................................................... 65
Section 10.12. Counterpart Originals.......................................................... 65
Section 10.13. Table of Contents, Headings, etc............................................... 66
</TABLE>
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<TABLE>
<S> <C> <C>
Section 10.14. Benefits of Indenture.................................................. 66
</TABLE>
EXHIBITS
Exhibit A-1 FORM OF NOTE
Exhibit A-2 FORM OF REGULATION S TEMPORARY GLOBAL NOTE
Exhibit B-1 FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF
TRANSFER FROM RULE 144A GLOBAL NOTE TO REGULATION S GLOBAL
NOTE
Exhibit B-2 FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF
TRANSFER FROM REGULATION S GLOBAL NOTE TO RULE 144A GLOBAL
NOTE
Exhibit B-3 FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF
TRANSFER OF DEFINITIVE SENIOR SUBORDINATED NOTES
Exhibit B-4 FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF
TRANSFER FROM RULE 144A GLOBAL NOTE OR REGULATION S
PERMANENT GLOBAL NOTE TO DEFINITIVE SENIOR SUBORDINATED
NOTE
Exhibit C FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL ACCREDITED
INVESTOR
SCHEDULES
Schedule 4.11 AFFILIATE TRANSACTIONS
iv
<PAGE>
INDENTURE, dated as of April 15, 1998 between Advance Holding Corporation
("Holding") and United States Trust Company of New York, as trustee (the
"Trustee").
Holding and the Trustee agree as follows for the benefit of each other and
for the equal and ratable benefit of the holders of Holding's 12.875% Senior
Discount Debentures due 2009 (the "Senior Discount Notes") and the Exchange
12.875% Senior Discount Debentures due 2009 (the "Exchange Senior Discount
Notes" and, together with the Senior Discount Notes, the "Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions.
"Accreted Value" means, as of any date of determination prior to April 15,
2003, with respect to any Note, the sum of (a) the initial offering price (which
shall be calculated by discounting the aggregate principal amount at maturity of
such Note, at a rate of 12.875% per annum, compounded semi-annually on each
April 15 and October 15 from April 15, 2003 to the date of issuance) of such
Note and (b) the portion of the excess of the principal amount of such Note over
such initial offering price which shall have been accreted thereon through such
date, such amount to be so accreted on a daily basis at a rate of 12.875% per
annum of the initial offering price of such Note, compounded semi-annually on
each April 15 and October 15 from the date of issuance of the Notes through the
date of determination, computed on the basis of a 360-day year of twelve 30-day
months.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, and (ii)
Indebtedness secured by a Lien encumbering any asset acquired by such specified
Person or assumed in connection with the acquisition of any asset used or useful
in a Permitted Business acquired by such specified Person; provided that such
Indebtedness was not incurred in connection with, or in contemplation of, such
other Person merging with or into or becoming a Subsidiary of such specified
Person, or such acquisition, as the case may be.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or exchange of
beneficial interests in a Global Note, the rules and procedures of the
Depositary that apply to such transfer and exchange.
"Asset Sale" means (i) the sale, lease (other than an operating lease),
conveyance or other disposition of any assets or rights (including, without
limitation, by way of a sale and leaseback) other than in the ordinary course of
business (provided that the sale, lease (other than an operating lease),
conveyance or other disposition of all or substantially all of the assets of
Holding and its Restricted Subsidiaries taken
<PAGE>
as a whole will be governed by the provisions of this Indenture under Section
4.13 and/or the provisions of Section 5.01 hereto and not by the provisions of
Section 4.10), and (ii) the sale by Holding and the issue or sale by any of the
Restricted Subsidiaries of Holding of Equity Interests of any of Holding's
Restricted Subsidiaries, in the case of either clause (i) or (ii), whether in a
single transaction or a series of related transactions that have a fair market
value (as determined in good faith by the Board of Directors) in excess of $1.0
million or for net cash proceeds in excess of $1.0 million. Notwithstanding the
foregoing, the term Asset Sale shall not include (i) a sale, conveyance or other
disposition of assets or rights by Holding to a Wholly Owned Subsidiary of
Holding or an entity that would become a Wholly Owned Subsidiary upon the
consummation of such sale, conveyance or other disposition or by a Wholly Owned
Subsidiary of Holding to Holding or to a Wholly Owned Subsidiary of Holding,
(ii) an issuance of Equity Interests by a Restricted Subsidiary of Holding to
Holding or to a Wholly Owned Subsidiary of Holding, (iii) a Restricted Payment
that is permitted by the covenant described in Section 4.07 of this Indenture,
(iv) the sale and leaseback of any assets within 270 days of the acquisition of
such assets, (v) foreclosures on assets, (vi) the clearance of inventory, (vii)
sales or dispositions of obsolete equipment or other assets in the ordinary
course of business or (viii) the sale, conveyance or other disposition of
accounts receivables and related assets customarily transferred in connection
with a Qualified Receivables Transaction will not be deemed to be Asset Sales.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state
law for the relief of debtors.
"Board of Directors" means the board of directors of Holding or any
authorized committee of such board of directors.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participation, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) securities issued or unconditionally and fully
guaranteed or insured by the full faith and credit of the United States
government or any agency or instrumentality thereof having maturities of not
more than one year from the date of acquisition, (ii) obligations issued or
fully guaranteed by any state of the United States of America or any political
subdivision of any such state or any public instrumentality thereof maturing
within one year from the date of acquisition thereof and, at the time of
acquisition, having one of the two highest ratings obtainable from either
Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc.
("Moody's"), (iii) certificates of deposit and eurodollar time deposits with
maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding one year and overnight bank deposits,
in each case with any lender party to the New Credit Facility or with any
domestic commercial bank having capital and surplus in excess of $250.0 million,
(iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (i) and (iii), above
entered into with any financial institution meeting the qualifications specified
in clause (iii) above, (v) commercial paper having one of the two of the highest
2
<PAGE>
ratings obtainable from either Moody's or S&P and in each case maturing within
one year after the date of acquisition and (vi) investments in funds investing
at least 90% of its assets in investments of the types described in clauses (i)
through (v) above.
"Cedel" means Cedel Bank, societe anonyme.
"Change of Control" means the occurrence of any of the following: (i) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that (A) any "person" (as such term is
defined in Section 3(a)(9) of the Exchange Act), other than the Principals and
their Related Parties, becomes the "beneficial owner" (as such term is defined
in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of
50% or more of the Voting Stock of Holding (measured by voting power rather than
number of shares) or (B) any "person" (as defined above), other than the
Principals and their Related Parties becomes the "beneficial owner" (as defined
above) of more than 33 1/3% of the Voting Stock of Holding (measured by voting
power rather than number of shares) and the Principals and their Related Parties
beneficially own, directly or indirectly, in the aggregate a lesser percentage
of the Voting Stock of Holding than such other "person", (ii) the first day on
which a majority of the members of the Board of Directors of Holding are not
Continuing Directors or (iii) Holding consolidates with, or merges with or into,
any Person, or any Person consolidates with, or merges with or into, Holding, in
any such event pursuant to a transaction in which any of the outstanding Voting
Stock of Holding is converted into or exchanged for cash, securities or other
property, other than any such transaction where (A) the Voting Stock of Holding
outstanding immediately prior to such transaction is converted into or exchanged
for Voting Stock (other than Disqualified Stock) of the surviving or transferee
Person and (B) the "beneficial owners" (as defined above) of the Voting Stock of
Holding immediately prior to such transaction own, directly or indirectly
through one or more subsidiaries not less than a majority of the Voting Stock of
the surviving or transferee corporation immediately after such transaction.
"Chase" means Chase Securities Inc.
"Commission" means the Securities and Exchange Commission.
"Company" means Advance Stores Company, Incorporated, a Virginia
corporation, and its permitted successors.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income of such Person and its Restricted Subsidiaries), plus
(ii) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such provision for
taxes was included in computing such Consolidated Net Income, plus (iii)
consolidated interest expense of such Person and its Restricted Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation and amortization (including amortization of goodwill and other
intangibles but excluding amortization of a prepaid cash expenses that were paid
in a prior period) and other non-cash charges (excluding any such non-cash
charge to the extent that it represents an accrual of or reserve for cash
charges in any future period or amortization of prepaid cash charge that was
paid in a prior period) of such Person and its Subsidiaries for such period
3
<PAGE>
to the extent that such depreciation, amortization and other non-cash expenses
were deducted in computing such Consolidated Net Income, plus (v) any interest
expense on Indebtedness of another Person that is Guaranteed by such Person or
any of its Restricted Subsidiaries or secured by a Lien on assets of such Person
or any of its Restricted Subsidiaries, in each case, to the extent that such
interest expense was deducted in computing such Consolidated Net Income, plus
(vi) (a) fees and expenses incurred in connection with the Recapitalization and
deducted in the calculation of Consolidated Net Income and (b) bonuses paid to
management and other employees of the Company and its subsidiaries in connection
with, and substantially concurrently with, the Recapitalization in an amount not
to exceed in the aggregate $11.5 million, minus (vii) non-cash items increasing
such Consolidated Net Income for such period, in each case, on a consolidated
basis and determined in accordance with GAAP. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation and
amortization and other non-cash charges of, a Restricted Subsidiary of a Person
shall be added to Consolidated Net Income to compute Consolidated Cash Flow only
to the extent (and in the same proportion) that the Net Income of such
Restricted Subsidiary was included in calculating the Consolidated Net Income of
such Person.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP, provided
that (i) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Restricted Subsidiary thereof, (ii) the Net
Income of any Restricted Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that Restricted
Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded, (iv) the
cumulative effect of a change in accounting principles shall be excluded and (v)
the Net Income of, or any dividends or other distributions from, any
Unrestricted Subsidiary, to the extent otherwise included, shall be excluded,
except to the extent actually distributed to Holding or one of its Restricted
Subsidiaries.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of Holding who (i) was a member of such Board of
Directors on the date hereof immediately after consummation of the
Recapitalization or (ii) was nominated for election or elected to such Board of
Directors with the approval of a majority of the Continuing Directors who were
either members of such Board at the time of such nomination or election or are
successor Continuing Directors appointed by such Continuing Directors (or their
successors).
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 10.02 hereof or such other address as to which the
Trustee may give notice to Holding.
"Credit Agent" means The Chase Manhattan Bank in its capacity as
Administrative Agent for the lenders party to the New Credit Facility or any
successor thereto or any person otherwise appointed.
"Credit Facilities" means, with respect to Holding and its Restricted
Subsidiaries, one or more debt facilities (including, without limitation, the
New Credit Facility) or commercial paper facilities with banks or other
institutional lenders providing for revolving credit loans, term loans,
receivables financing (other than a Qualified Receivables Transaction) or
letters of credit and related security and collateral agreements, in each case,
as amended, restated, modified, renewed, refunded, replaced or refinanced in
whole or in part from time to time, including any agreement extending the
maturity of, refinancing, replacing or
4
<PAGE>
otherwise restructuring (including increasing the amount of available borrowings
thereunder; provided that such increase in borrowings is permitted under the
covenant contained in Section 4.09 hereto or adding Restricted Subsidiaries of
Holding as additional borrowers or guarantors thereunder) all or any portion of
the Indebtedness under such agreement or any successor or replacement agreement
and whether by the same or any other agent, lender or group of lenders.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Definitive Notes" means Notes that are in the form of Exhibit A-1 attached
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hereto (but without including the text referred to in footnotes 1 and 3
thereto).
"Depositary" means, with respect to the Notes issuable or issued in whole
or in part in global form, the Person specified in Section 2.03 hereof as the
Depositary with respect to the Notes, until a successor shall have been
appointed and become such pursuant to Section 2.06 of this Indenture, and,
thereafter, "Depositary" shall mean or include such successor.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date on which the Notes mature.
"DLJ" means Donaldson, Lufkin & Jenrette Securities Corporation.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means an offering of Equity Interests (other than
Disqualified Stock) of Holding pursuant to an effective registration statement
filed with the Commission in accordance with the Securities Act, other than an
offering pursuant to Form S-8 (or any successor thereto).
"Euroclear" means Morgan Guaranty Trust Company of New York, the Brussels
office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" means the offer by Holding to Holders to exchange Senior
Discount Notes for Exchange Senior Discount Notes.
"Exchange Offer Registration Statement" has the meaning set forth in the
Registration Rights Agreement.
"Exchange Senior Discount Notes" means Holding's 12.875% Senior Discount
Debentures due 2009, which will be issued in exchange for Holding's Senior
Discount Notes.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations,
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the interest component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations, and (ii) the consolidated interest
expense of such Person and its Restricted Subsidiaries that was capitalized
during such period; provided, however, that in no event shall any amortization
of deferred financing costs incurred in connection with the Recapitalization be
included in Fixed Charges, and (iii) any interest expense on Indebtedness of
another Person to the extent such Indebtedness is Guaranteed by such Person or
one of its Restricted Subsidiaries or secured by a Lien on assets of such Person
or one of its Restricted Subsidiaries (whether or not such Guarantee or Lien is
called upon), and (iv) the product of (a) (without duplication) (1) all
dividends paid or accrued in respect of Disqualified Stock which are not treated
as interest for tax purposes for such period and (2) all cash dividend payments
on any series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable solely in
Equity Interests (other than Disqualified Stock of Holding), times (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person, expressed as a decimal, in each case, on a consolidated basis and
in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that Holding or any
of its Restricted Subsidiaries incurs, assumes, Guarantees, repays or redeems
any Indebtedness (other than revolving credit borrowings) or issues or redeems
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, Guarantee, repayment or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
reference period. In addition, for purposes of making the computation referred
to above, (i) acquisitions that have been made by Holding or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter reference
period or subsequent to such reference period and on or prior to the Calculation
Date shall be deemed to have occurred on the first day of the four-quarter
reference period and Consolidated Cash Flow and Fixed Charges for such reference
period shall be calculated without giving effect to clause (iii) of the proviso
set forth in the definition of Consolidated Net Income and shall reflect any pro
forma expense and cost reductions attributable to such acquisitions (as
determined in good faith by a responsible financial or accounting officer of
Holding and approved by Holding's Board of Directors), and (ii) the Consolidated
Cash Flow and Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded and Consolidated Cash Flow
shall reflect any pro forma expense or cost reductions relating to such
discontinuance or disposition (as determined in good faith by a responsible
financial or accounting officer of Holding and approved by Holding's Board of
Directors), and (iii) the Fixed Charges attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations of the
referent Person or any of its Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date hereof; provided, however, that all
reports and other financial information provided by Holding to the Holders, the
Trustee and/or the Commission shall be prepared in
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accordance with generally accepted accounting principles, as in effect at the
date of such report or such other financial information; provided, further,
however, that if there are any differences between such principles and GAAP
Holding shall provide a written explanation thereof.
"Global Notes" means the Rule 144A Global Notes, the Regulation S Temporary
Global Notes and the Regulation S Permanent Global Notes and any Notes exchanged
for any of the foregoing in the Exchange Offer.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or the value of foreign currencies.
"Holder" means a Person in whose name a Note is registered.
"Holding" means Advance Holding Corporation, the corporate parent of the
Company, or its successors.
"Indebtedness" means, with respect to any Person, any Obligation of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing Indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all Indebtedness of others
secured by a Lien on any asset of such Person (whether or not such Indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any Indebtedness of any other Person to the extent
such Indebtedness is so Guaranteed. The amount of any Indebtedness outstanding
as of any date shall be the accreted value thereof, in the case of any
Indebtedness that does not require current payments of interest.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of direct or indirect
loans (including guarantees of Indebtedness or other obligations), advances or
capital contributions (excluding commission, travel, relocation and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
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Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If Holding or any Restricted Subsidiary of Holding sells or otherwise disposes
of any Equity Interests of any direct or indirect Restricted Subsidiary of
Holding such that, after giving effect to any such sale or disposition, such
Person is no longer a Restricted Subsidiary of Holding, Holding shall be deemed
to have made an Investment on the date of any such sale or disposition equal to
the fair market value of the Equity Interests of such Restricted Subsidiary not
sold or disposed of in an amount determined as provided in the final paragraph
of Section 4.07 hereof.
"Indenture" means this Indenture, as amended or supplemented from time to
time.
"Indirect Participant" means a Person who holds an interest through a
Participant.
"Initial Purchasers" means DLJ and Chase.
"Insolvency or Liquidation Proceedings" means (i) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding, relative to Holding or to the creditors of
Holding, as such, or to the assets of Holding or (ii) any liquidation,
dissolution, reorganization or winding up of Holding, whether voluntary or
involuntary and involving insolvency or bankruptcy, or (iii) any assignment for
the benefit of creditors or any other marshalling of assets and liabilities of
Holding.
"Institutional Accredited Investor" means an "accredited investor" as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
"Issue Date" means the date on which Notes are first issued and
authenticated under this Indenture.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York, the city in which the principal Corporate
Trust Office of the Trustee is located or at a place of payment are authorized
by law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment shall be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, and any option or other agreement to sell or give a security
interest and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Liquidated Damages" means all liquidated damages then owing pursuant to
Section 5 of the Registration Rights Agreement.
"Management Note" means any promissory note given by an employee of Holding
or any Affiliate thereof as part of the purchase price for Equity Interests in
the Company or in Holding.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but not
loss).
"Net Proceeds" means the aggregate cash proceeds received by Holding or any
of its Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or
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other disposition of any non-cash consideration received in any Asset Sale), net
of the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness (other than Indebtedness under the Credit
Facilities) secured by a Lien on the asset or assets that were the subject of
such Asset Sale and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"New Credit Facility" means that certain credit facility with The Chase
Manhattan Bank, as administrative agent, DLJ Capital Funding, Inc., as
syndication agent, First Union National Bank, as documentation agent, and Chase
Securities Inc., as advisor and arranger, pursuant to which a syndicate of
lenders will lend to the Company up to $375.0 million in the form of senior
secured credit facilities, consisting of (i) a $50.0 million senior secured
delayed draw term loan facility, (ii) a $75.0 million senior secured delayed
draw term loan facility, (iii) a $125.0 million Tranche B senior secured term
loan facility, and (iv) a $125.0 million senior secured revolving credit
facility.
"Non-Recourse Debt" means Indebtedness (i) as to which neither Holding nor
any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), or (b) is directly or indirectly liable (as a guarantor or
otherwise), and (ii) as to which the lenders have been notified in writing that
they will not have any recourse to the stock or assets of Holding or any of its
Restricted Subsidiaries, including the stock of any Unrestricted Subsidiary.
"Note Custodian" means the Trustee when serving as custodian for the
Depositary with respect to the Notes in global form, or any successor entity
thereto.
"Obligations" means, with respect to any Indebtedness, any principal of,
premium, if any, and interest on such Indebtedness and all other amounts,
including without limitation, penalties, fees, indemnifications, reimbursements,
damages and other liabilities payable under the documentation governing,
evidencing or securing any Indebtedness.
"Offering" means the offer and sale of the Notes of Holding.
"Offerings" means the Offering and the concurrent offering of the 10.25%
Senior Subordinated Notes due 2008 by the Company pursuant to an offering
memorandum dated as of April 7, 1998.
"Offering Memorandum" means the Offering Memorandum dated April 7, 1998,
relating to Holding's offering and placement of the Notes.
"Officer" means, with respect to any Person, the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of Holding by
two Officers of Holding, one of whom must be the principal executive officer,
the principal financial officer, the treasurer or the principal accounting
officer of Holding, that meets the requirements of Section 10.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably
acceptable to the Trustee, that meets the requirements of Section 10.05 hereof.
The counsel may be an employee of or counsel to Holding, any Subsidiary of
Holding or the Trustee.
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"Participant" means, with respect to DTC, Euroclear or Cedel, a Person who
has an account with DTC, Euroclear or Cedel, respectively (and, with respect to
DTC, shall include Euroclear and Cedel).
"Pari Passu Indebtedness" means Indebtedness that ranks pari passu in right
of payment with the Notes.
"Permitted Asset Swap" means any transfer of properties or assets by
Holding or any of its Restricted Subsidiaries in which 80% of the consideration
received by the transferor consists of properties or assets (other than cash)
that will be used in the business of such transferor; provided, that (i) the
aggregate fair market value (as determined in good faith by the Board of
Directors of Holding, and in the event that the aggregate fair market value as
so determined exceeds $2.5 million, evidenced by a board resolution, a copy of
which shall be delivered to the Trustee) of the property or assets (including
cash) being transferred by Holding or such Restricted Subsidiary, as the case
may be, is not greater than the aggregate fair market value (as determined in
good faith by the Board of Directors of Holding) of the property or assets
(including cash) received by Holding or such Restricted Subsidiary, as the case
may be, in such exchange and (ii) the aggregate fair market value (as determined
in good faith by the Board of Directors of Holding) of all property or assets
transferred by Holding and any of its Restricted Subsidiaries in connection with
exchanges in any period of twelve consecutive months shall not exceed $20
million.
"Permitted Business" means the business conducted (or proposed to be
conducted, including activities referred to as being contemplated by Holding, as
described or referred to in the Offering Memorandum) by Holding and the
Restricted Subsidiaries as of the Issue Date and any and all business that in
the good faith judgment of the Board of Directors of Holding are reasonably
related businesses, including reasonably related extensions or expansions
thereof.
"Permitted Investments" means (a) any Investment in Holding or in a
Restricted Subsidiary of Holding; (b) any Investment in Cash and Cash
Equivalents; (c) any Investment by Holding or any Restricted Subsidiary in a
Person, if as a result of such Investment (i) such Person becomes a Restricted
Subsidiary of Holding or (ii) such Person is merged, consolidated or amalgamated
with or into, or transfers or conveys substantially all of its assets to, or is
liquidated into, Holding or a Restricted Subsidiary of Holding; (d) any
Restricted Investment made as a result of the receipt of non-cash consideration
from an Asset Sale that was made pursuant to and in compliance with Section 4.10
hereto or any transaction not constituting an Asset Sale by reason of the $1.0
million threshold contained in the definition thereof; (e) any acquisition of
assets solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of Holding; (f) Hedging Obligations entered into in the
ordinary course of Holding's or its Restricted Subsidiaries' businesses and
otherwise in compliance with this Indenture; (g) loans and advances to employees
and officers of Holding and its Restricted Subsidiaries in the ordinary course
of business for bona fide business purposes not in excess of $1 million at any
one time outstanding; (h) Management Notes in an aggregate amount not to exceed
$3 million at any one time outstanding; (i) Investments received in settlement
of obligations or pursuant to any plan of reorganization or similar arrangement
upon the bankruptcy or insolvency of customers or other third parties; and (j)
additional Investments not to exceed $15.0 million at any one time outstanding.
"Permitted Liens" means (i) Liens existing as of the Issue Date to the
extent and in the manner such Liens are in effect on the Issue Date; (ii) Liens
on assets of Restricted Subsidiaries securing Indebtedness of Restricted
Subsidiaries permitted to be incurred under this Indenture; (iii) Liens securing
the Notes; (iv) Liens in favor of Holding or a Wholly Owned Restricted
Subsidiary on assets of any Restricted Subsidiary of Holding; (v) Liens securing
Permitted Refinancing Indebtedness which is incurred to refinance any
Indebtedness which has been secured by a Lien permitted under this Indenture and
which has been incurred in accordance with the provisions hereof, provided,
however, that such Liens (A) are
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not materially less favorable to the Holders and are not materially more
favorable to the lienholders with respect to such Liens than the Liens in
respect of the Indebtedness being refinanced and (B) do not extend to or cover
any property or assets of Holding or any of its Restricted Subsidiaries not
securing the Indebtedness so refinanced; (vi) Liens for taxes, assessments or
governmental charges or claims either (A) not delinquent or (B) contested in
good faith by appropriate proceedings and as to which Holding or its Restricted
Subsidiaries shall have set aside on its books such reserves as may be required
pursuant to GAAP; (vii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens
imposed by law incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been made
in respect thereof; (viii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security or similar obligations, including
any Lien securing letters of credit issued in the ordinary course of business
consistent with past practice in connection therewith, or to secure the
performance of tenders, statutory obligations, surety and appeal bonds, bids,
leases, government contracts, indemnity, surety, performance and return-of-money
bonds and other similar obligations (exclusive of obligations for the payment of
borrowed money); (ix) judgment Liens not giving rise to an Event of Default so
long as such Lien is adequately bonded and any appropriate legal proceedings
which may have been duly initiated for the review of such judgement shall not
have been finally terminated or the period within which such proceedings may be
initiated shall not have expired; (x) easements, rights-of-way, zoning
restrictions and other similar charges or encumbrances in respect of real
property not interfering in any material respect with the ordinary conduct of
the business of Holding or any of its Restricted Subsidiaries; (xi) any interest
or title of a lessor under any lease, whether or not characterized as capital or
operating; provided that such Liens do not extend to any property or assets
which is not leased property subject to such lease; (xii) Liens securing Capital
Lease Obligations and Indebtedness incurred in accordance with Section 4.09
hereof; provided, however, that (A) the Indebtedness shall not exceed the cost
(including installation and delivery charges and related sales taxes) of such
property or assets being acquired, remodeled or constructed and shall not be
secured by any property or assets of Holding or any Restricted Subsidiary of
Holding other than the property or assets of Holding or any Restricted
Subsidiary of Holding other than the property and assets being acquired,
remodeled or constructed and (B) the Lien securing such Indebtedness shall be
created within 180 days of such acquisition or the completion of such
construction or remodeling; (xiii) Liens upon specific items of inventory or
other goods and proceeds of any Person securing such Person's obligations in
respect of bankers acceptances issued or created for the account of such Person
to facilitate the purchase, shipment or storage of such inventory or other
goods; (xiv) Liens securing reimbursement obligations with respect to letters of
credit which encumber documents and other property relating to such letters of
credit and products and proceeds thereof; (xv) Liens encumbering deposits made
to secure obligations arising from statutory, regulatory, contractual, or
warranty requirements of Holding or any of its Restricted Subsidiaries,
including rights of offset and set-off; (xvi) Liens securing Hedging Obligations
which Hedging Obligations relate to Indebtedness that is otherwise permitted
under this Indenture; (xvii) Liens securing Acquired Debt incurred in accordance
with Section 4.09 hereof; provided that (A) such Liens secured such Acquired
Debt at the time of and prior to the incurrence of such Acquired Debt by Holding
or a Restricted Subsidiary of Holding and were not granted in connection with,
or in anticipation of, the incurrence of such Acquired Debt by Holding or a
Restricted Subsidiary of Holding and (B) such Liens do not extend to or cover
any property or assets of Holding or any of its Restricted Subsidiaries other
than the property or assets that secured the Acquired Debt prior to the time
such Indebtedness became Acquired Debt of Holding or a Restricted Subsidiary of
Holding and are not more favorable to the lienholders than those securing the
Acquired Debt prior to the incurrence of such Acquired Debt by Holding or a
Restricted Subsidiary of Holding; (xviii) leases or subleases granted to others
not interfering in any material respect with the business of Holding or its
Restricted Subsidiaries; (xix) Liens arising out of consignment or similar
arrangements for the sale of goods entered into by Holding or any Restricted
Subsidiary in the ordinary course of business; (xx) Liens arising
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from filing Uniform Commercial Code financing statements as a precautionary
matter with respect to leases; and (xxi) Liens on accounts receivable and any
asset related thereto in connection with a Qualified Receivables Transaction.
"Permitted Refinancing Indebtedness" means any Indebtedness of Holding or
any of its Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, prepay, retire, renew, replace, defease
or refund Indebtedness of Holding or any of its Restricted Subsidiaries;
provided that: (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest on, the Indebtedness
so extended, refinanced, renewed, prepaid, retired, replaced, defeased or
refunded (plus the amount of reasonable expenses incurred in connection
therewith including premiums paid, if any, to the holders thereof); (ii) such
Permitted Refinancing Indebtedness has a final maturity date at or later than
the final maturity date of, and has a Weighted Average Life to Maturity equal to
or greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, prepaid, retired, replaced, defeased or refunded;
(iii) if the Indebtedness being extended, refinanced, renewed, prepaid, retired,
replaced, defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by
Holding or by the Restricted Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision thereof.
"Principals" means Freeman Spogli & Co. Incorporated.
"Private Placement Legend" means the legend initially set forth on the
Senior Discount Notes in the form set forth in Section 2.06(g) hereof.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A under
the Securities Act.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by Holding or any Restricted Subsidiary
pursuant to which Holding or any Restricted Subsidiary may sell, convey or
otherwise transfer to any Person, or may grant a security interest in, any
accounts receivable (whether now existing or arising in the future) of Holding
or any Restricted Subsidiary and any asset related thereto including, without
limitation, all collateral securing such accounts receivable, all contracts and
all guarantees or other obligations in respect of such accounts receivable,
proceeds of such accounts receivable and other assets which are customarily
transferred, or in respect of which security interests are customarily granted,
in connection with asset securitization transactions involving accounts
receivable.
"Recapitalization" shall have the meaning set forth in the Offering
Memorandum.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the date hereof, among Holding and the Initial Purchasers.
"Regulation S" means Regulation S promulgated under the Securities Act.
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"Regulation S Global Notes" means the Regulation S Temporary Global Notes
or the Regulation S Permanent Global Notes as applicable.
"Regulation S Permanent Global Notes" means the permanent global notes that
do not contain the paragraphs referred to in footnote 1 to the form of Note
attached hereto as Exhibit A-2 and that are deposited with and registered in the
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name of the Depositary or its nominee, representing a series of Notes sold in
reliance on Regulation S.
"Regulation S Temporary Global Notes" means the temporary global notes that
contain the paragraphs referred to in footnote 1 to the form of Note attached
hereto as Exhibit A-2 and that are deposited with and registered in the name of
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the Depositary or its nominee, representing a series of Notes sold in reliance
on Regulation S.
"Related Party" with respect to any Principal means (A) any controlling
stockholder or a majority (or more) owned Subsidiary of such Principal or, in
the case of an individual, any spouse or immediate family member of such
Principal, or (B) any fund, trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding a
majority (or more) controlling interest that consists of such Principal and/or
such other Persons referred to in the immediately preceding clause (A).
"Responsible Officer" when used with respect to the Trustee, means any
officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Beneficial Interest" means any beneficial interest of a
Participant or Indirect Participant in the Rule 144A Global Note or the
Regulation S Global Note.
"Restricted Broker Dealer" has the meaning set forth in the Registration
Rights Agreement.
"Restricted Global Notes" means the Rule 144A Global Notes and the
Regulation S Global Notes, all of which shall bear the Private Placement Legend.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of Holding other than an
Unrestricted Subsidiary.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 144A Global Notes" means the permanent global notes that contain the
paragraph referred to in footnote 1 and the additional schedule referred to in
footnote 3 to the form of the Note attached hereto as Exhibit A-1, and that is
-----------
deposited with and registered in the name of the Depositary or its nominee,
representing a series of Notes sold in reliance on Rule 144A.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Discount Notes" means Holding's 12.875% Senior Discount Debentures
due 2009.
13
<PAGE>
"Senior Subordinated Note Indenture" means the Indenture dated as of the
date hereof among the Company, LARALEV, Inc., as a subsidiary guarantor, and the
Trustee.
"Senior Subordinated Notes" means the Company's 10.25% Senior Subordinated
Notes due 2008.
"Shelf Registration Statement" means the Shelf Registration Statement as
defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness (including any scheduled sinking fund payment), and
shall not include any contingent obligations to repay, redeem or repurchase any
such interest or principal prior to the date originally scheduled for the
payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total Voting
Stock thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
"Tax Sharing Agreement" means, the tax sharing agreement among Holding, the
Company and any one or more of Holding's subsidiaries, as amended from time to
time, so long as the method of calculating the amount of Holding's (or any
Restricted Subsidiary's) payments, if any, to be made thereunder is not less
favorable to Holding than as provided in such agreement as in effect on the
Issue Date, as determined in good faith by the Board of Directors of Holding.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-
77bbbb), as amended, as in effect on the date hereof.
"Transfer Restricted Securities" means Notes or beneficial interests
therein that bear or are required to bear the Private Placement Legend.
"Trustee" means United States Trust Company of New York until a successor
replaces it in accordance with the applicable provisions of this Indenture, and
thereafter means the successor.
"Unrestricted Global Notes" means one or more Global Notes that do not and
are not required to bear the Private Placement Legend.
"Unrestricted Subsidiary" means any Subsidiary of Holding that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
board resolution, a copy of which shall be delivered to the Trustee; but only to
the extent that such Subsidiary: (a) has no Indebtedness other than Non-
Recourse Debt; (b) is not party to any agreement, contract, arrangement or
understanding with Holding or any Restricted Subsidiary unless the terms of any
such agreement, contract, arrangement or understanding are no less favorable to
Holding or such Restricted Subsidiary than those that might be obtained at the
time from Persons who are not Affiliates of Holding; (c) is a Person with
respect to which
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<PAGE>
neither Holding nor any of its Restricted Subsidiaries has any direct or
indirect obligation (x) to subscribe for additional Equity Interests or (y) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; and (d) has not guaranteed
or otherwise directly or indirectly provided credit support for any Indebtedness
of Holding or any of its Restricted Subsidiaries. Any such designation by the
Board of Directors shall be evidenced to the Trustee by filing with a Trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted hereunder. If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of Holding
as of such date. The Board of Directors of Holding may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness and issuance of
preferred stock by a Restricted Subsidiary of Holding of any outstanding
Indebtedness or outstanding issue of preferred stock of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such Indebtedness
and preferred stock is permitted to be incurred or issued under this Indenture
and (ii) no Default or Event of Default would exist following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Restricted Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Restricted Subsidiaries of such
Person or by such Person and one or more Wholly Owned Restricted Subsidiaries of
such Person.
<TABLE>
<CAPTION>
Section 1.02. Other Definitions.
Defined in
Term Section
<S> <C>
"Affiliate Transaction"............................... 4.11
"Asset Sale Offer".................................... 4.10
"Asset Sale Offer Triggering Event"................... 4.10
"Change of Control Offer"............................. 4.13
"Change of Control Payment"........................... 4.13
"Change of Control Payment Date"...................... 4.13
"Covenant Defeasance"................................. 8.03
"Custodian"........................................... 6.01
"DTC"................................................. 2.03
"Event of Default".................................... 6.01
"Excess Proceeds"..................................... 4.10
"incur"............................................... 4.09
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
"Legal Defeasance".................................... 8.02
"Offer Amount"........................................ 3.09
"Offer Period"........................................ 3.09
"Pari Passu Indebtedness"............................. 4.10
"Paying Agent"........................................ 2.03
"Payment Default"..................................... 6.01
"Permitted Debt"...................................... 4.09
"Purchase Date"....................................... 3.09
"Registrar"........................................... 2.03
"Repurchase Offer".................................... 3.09
"Restricted Payments"................................. 4.07
</TABLE>
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means Holding and any successor obligor upon
the Notes.
All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by the Commission rule under the
TIA have the meanings so assigned to them therein.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it herein;
(2) an accounting term not otherwise defined herein has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural include the
singular;
(5) provisions apply to successive events and transactions; and
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<PAGE>
(6) references to sections of or rules under the Securities Act shall be
deemed to include substitute, replacement or successor sections or rules
adopted by the Commission from time to time.
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A-1 or Exhibit A-2 attached hereto. The
----------- -----------
Notes may have notations, legends or endorsements required by law, stock
exchange rule or usage. Each Note shall be dated the date of its
authentication. The Notes initially shall be issued in denominations of $1,000
and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute, and are
hereby expressly made, a part of this Indenture and Holding and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
(a) Global Notes. Notes offered and sold to QIBs in reliance on Rule
144A shall be issued initially in the form of Rule 144A Global Notes, which
shall be deposited on behalf of the purchasers of the Notes represented thereby
with a custodian of the Depositary, and registered in the name of the Depositary
or a nominee of the Depositary, duly executed by Holding and authenticated by
the Trustee as hereinafter provided. The aggregate principal amount of the Rule
144A Global Notes may from time to time be increased or decreased by adjustments
made on the records of the Trustee and the Depositary or its nominee as
hereinafter provided.
Notes offered and sold in reliance on Regulation S shall be issued
initially in the form of the Regulation S Temporary Global Note, which shall be
deposited on behalf of the purchasers of the Notes represented thereby with the
Trustee, as custodian for the Depositary, and registered in the name of the
Depositary or the nominee of the Depositary for the accounts of designated
agents holding on behalf of Euroclear or Cedel, duly executed by Holding and
authenticated by the Trustee as hereinafter provided. The "40-day restricted
period" (as defined in Regulation S) shall be terminated upon the receipt by the
Trustee of (i) a written certificate from the Depositary, together with copies
of certificates from Euroclear and Cedel certifying that they have received
certification of non-United States beneficial ownership of 100% of the aggregate
principal amount of the Regulation S Temporary Global Notes (except to the
extent of any beneficial owners thereof who acquired an interest therein
pursuant to another exemption from registration under the Securities Act and who
will take delivery of a beneficial ownership interest in a Rule 144A Global
Note, all as contemplated by Section 2.06(a)(ii) hereof), and (ii) an Officers'
Certificate from Holding certifying as to the same matters covered in clause (i)
above. Following the termination of the 40-day restricted period, beneficial
interests in the Regulation S Temporary Global Note shall be exchanged for
beneficial interests in Regulation S Permanent Global Notes pursuant to the
Applicable Procedures. Simultaneously with the authentication of Regulation S
Permanent Global Notes, the Trustee shall cancel the Regulation S Temporary
Global Notes. The aggregate principal amount of the Regulation S Temporary
Global Notes and the Regulation S Permanent Global Notes may from time to time
be increased or decreased by adjustments made on the records of the Trustee and
the Depositary or its nominee, as the case may be, in connection with transfers
of interest as hereinafter provided.
Each Global Note shall represent such of the outstanding Notes as shall be
specified therein and each shall provide that it shall represent the aggregate
amount of outstanding Notes from time to time
17
<PAGE>
endorsed thereon and that the aggregate amount of outstanding Notes represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges, redemptions and transfers of interests. Any endorsement of a
Global Note to reflect the amount of any increase or decrease in the amount of
outstanding Notes represented thereby shall be made by the Trustee or the Note
Custodian, at the direction of the Trustee, in accordance with instructions
given by the Holder thereof as required by Section 2.06 hereof.
The provisions of the "Operating Procedures of the Euroclear System" and
"Terms and Conditions Governing Use of Euroclear" and the "Management
Regulations" and "Instructions to Participants" of Cedel shall be applicable to
interests in the Regulation S Temporary Global Notes and the Regulation S
Permanent Global Notes that are held by Participants through Euroclear or Cedel.
The Trustee shall have no obligation to notify Holders of any such procedures or
to monitor or enforce compliance with the same.
Except as set forth in Section 2.06 hereof, the Global Notes may be
transferred, in whole and not in part, only to another nominee of the Depositary
or to a successor of the Depositary or its nominee.
(b) Book-Entry Provisions. This Section 2.01(b) shall apply to Rule
144A Global Notes and Regulation S Permanent Global Notes deposited with or on
behalf of the Depositary.
Holding shall execute and the Trustee shall, in accordance with this
Section 2.01(b) and Section 2.02, authenticate and deliver the Global Notes that
(i) shall be registered in the name of the Depositary or the nominee of the
Depositary and (ii) shall be delivered by the Trustee to the Depositary or
pursuant to the Depositary's instructions or held by the Trustee as custodian
for the Depositary.
Participants shall have no rights either under this Indenture with respect
to any Global Note held on their behalf by the Depositary or by the Note
Custodian as custodian for the Depositary or under such Global Note, and the
Depositary may be treated by Holding, the Trustee and any agent of Holding or
the Trustee as the absolute owner of such Global Note for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall prevent
Holding, the Trustee or any agent of Holding or the Trustee from giving effect
to any written certification, proxy or other authorization furnished by the
Depositary or impair, as between the Depositary and its Participants, the
operation of customary practices of such Depositary governing the exercise of
the rights of an owner of a beneficial interest in any Global Note.
(c) Definitive Notes. Notes issued in certificated form shall be
substantially in the form of Exhibit A-1 attached hereto (but without including
-----------
the text referred to in footnotes 1 and 3 thereto).
Section 2.02. Execution and Authentication.
One Officer of Holding shall sign the Notes for Holding by manual or
facsimile signature. Holding's seal shall be reproduced on the Notes and may be
in facsimile form.
If an Officer of Holding whose signature is on a Note no longer holds that
office at the time the Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual signature of
the Trustee. The signature of the Trustee shall be conclusive evidence, and the
only evidence, that the Note has been authenticated under this Indenture. The
form of Trustee's certificate of authentication to be borne by the Notes shall
be substantially as set forth in Exhibit A-1 or Exhibit A-2 hereto.
----------- -----------
18
<PAGE>
The Trustee shall, upon a written order of Holding signed by an Officer of
Holding, authenticate Notes for up to $112,000,000 in aggregate principal amount
of Notes. The aggregate principal amount at Stated Maturity of Notes
outstanding at any time shall not exceed such amount except as provided in
Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to Holding to
authenticate Notes. Unless limited by the terms of such appointment, an
authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with Holding or an Affiliate of Holding.
Section 2.03. Registrar and Paying Agent.
Holding shall maintain (i) an office or agency where Notes may be presented
for registration of transfer or for exchange ("Registrar") and (ii) an office or
agency where Notes may be presented for payment ("Paying Agent"). The Registrar
shall keep a register of the Notes and of their transfer and exchange. Holding
may appoint one or more additional paying agents. The term "Paying Agent"
includes any additional paying agent. Holding may change any Paying Agent or
Registrar without notice to any Holder. Holding shall notify the Trustee in
writing of the name and address of any Agent not a party to this Indenture. If
Holding fails to appoint or maintain another entity as Registrar or Paying
Agent, the Trustee shall act as such. Holding or any of its Subsidiaries may
act as Paying Agent or Registrar.
Holding initially appoints The Depository Trust Company ("DTC") to act as
Depositary with respect to the Global Notes.
Holding initially appoints the Trustee to act as the Registrar and Paying
Agent and to act as Note Custodian with respect to the Global Notes. Holding
initially appoints the Trustee to act as the Registrar and Paying Agent with
respect to the Definitive Notes.
Section 2.04. Paying Agent to Hold Money in Trust.
Holding shall require each Paying Agent other than the Trustee to agree in
writing that the Paying Agent shall hold in trust for the benefit of Holders or
the Trustee all money held by the Paying Agent for the payment of principal,
premium or Liquidated Damages, if any, or interest on the Notes, and shall
notify the Trustee of any default by Holding in making any such payment. While
any such default continues, the Trustee may require a Paying Agent to pay all
money held by it to the Trustee. Holding at any time may require a Paying Agent
to pay all money held by it to the Trustee. Upon payment over to the Trustee,
the Paying Agent (if other than Holding or a Subsidiary) shall have no further
liability for the money. If Holding or a Subsidiary acts as Paying Agent, it
shall segregate and hold in a separate trust fund for the benefit of the Holders
all money held by it as Paying Agent. Upon the occurrence of events specified
in Section 6.01(vii) or (viii) hereof, the Trustee shall serve as Paying Agent
for the Notes.
Section 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA (S) 312(a). If the Trustee is
not the Registrar, Holding shall furnish to the Trustee at least seven (7)
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes and Holding shall otherwise comply with TIA (S) 312(a).
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<PAGE>
Section 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Global Notes. The transfer and exchange of
Global Notes or beneficial interests therein shall be effected through the
Depositary, in accordance with this Indenture and the procedures of the
Depositary therefor, which shall include restrictions on transfer comparable to
those set forth herein to the extent required by the Securities Act. Beneficial
interests in a Global Note may be transferred to Persons who take delivery
thereof in the form of a beneficial interest in the same Global Note in
accordance with the transfer restrictions set forth in the legend in subsection
(g) of this Section 2.06. Transfers of beneficial interests in the Global Notes
to Persons required to take delivery thereof in the form of an interest in
another Global Note shall be permitted as follows:
(i) Rule 144A Global Note to Regulation S Global Note. If, at any time, an
owner of a beneficial interest in a Rule 144A Global Note deposited with
the Depositary (or the Trustee as custodian for the Depositary) wishes to
transfer its beneficial interest in such Rule 144A Global Note to a
Person who is required or permitted to take delivery thereof in the form
of an interest in a Regulation S Global Note, such owner shall, subject
to the Applicable Procedures, exchange or cause the exchange of such
interest for an equivalent beneficial interest in a Regulation S Global
Note as provided in this Section 2.06(a)(i). Upon receipt by the Trustee
of (1) instructions given in accordance with the Applicable Procedures
from a Participant directing the Trustee to credit or cause to be
credited a beneficial interest in the Regulation S Global Note in an
amount equal to the beneficial interest in the Rule 144A Global Note to
be exchanged, (2) a written order given in accordance with the Applicable
Procedures containing information regarding the Participant account of
the Depositary and the Euroclear or Cedel account to be credited with
such increase, and (3) a certificate in the form of Exhibit B-1 hereto
-----------
given by the owner of such beneficial interest stating that the transfer
of such interest has been made in compliance with the transfer
restrictions applicable to the Global Notes and pursuant to and in
accordance with Rule 903 or Rule 904 of Regulation S, then the Trustee,
as Registrar, shall instruct the Depositary to reduce or cause to be
reduced the aggregate principal amount at maturity of the applicable Rule
144A Global Note and to increase or cause to be increased the aggregate
principal amount at maturity of the applicable Regulation S Global Note
by the principal amount at maturity of the beneficial interest in the
Rule 144A Global Note to be exchanged or transferred, to credit or cause
to be credited to the account of the Person specified in such
instructions, a beneficial interest in the Regulation S Global Note equal
to the reduction in the aggregate principal amount at maturity of the
Rule 144A Global Note, and to debit, or cause to be debited, from the
account of the Person making such exchange or transfer the beneficial
interest in the Rule 144A Global Note that is being exchanged or
transferred.
(ii) Regulation S Global Note to Rule 144A Global Note. If, at any time, after
the expiration of the 40-day restricted period, an owner of a beneficial
interest in a Regulation S Global Note deposited with the Depositary or
with the Trustee as custodian for the Depositary wishes to transfer its
beneficial interest in such Regulation S Global Note to a Person who is
required or permitted to take delivery thereof in the form of an interest
in a Rule 144A Global Note, such owner shall, subject to the Applicable
Procedures, exchange or cause the exchange of such interest for an
equivalent beneficial interest in a Rule 144A Global Note as provided in
this Section 2.06(a)(ii). Upon receipt by the Trustee of
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<PAGE>
(1) instructions from Euroclear or Cedel, if applicable, and the
Depositary, directing the Trustee, as Registrar, to credit or cause to be
credited a beneficial interest in the Rule 144A Global Note equal to the
beneficial interest in the Regulation S Global Note to be exchanged, such
instructions to contain information regarding the Participant account
with the Depositary to be credited with such increase, (2) a written
order given in accordance with the Applicable Procedures containing
information regarding the participant account of the Depositary and (3) a
certificate in the form of Exhibit B-2 attached hereto given by the owner
-----------
of such beneficial interest stating (A) if the transfer is pursuant to
Rule 144A, that the Person transferring such interest in a Regulation S
Global Note reasonably believes that the Person acquiring such interest
in a Rule 144A Global Note is a QIB and is obtaining such beneficial
interest in a transaction meeting the requirements of Rule 144A and any
applicable blue sky or securities laws of any state of the United States,
(B) that the transfer complies with the requirements of Rule 144 under
the Securities Act, (C) if the transfer is to an Institutional Accredited
Investor that such transfer is in compliance with the Securities Act and
a certificate in the form of Exhibit C attached hereto and, if such
---------
transfer is in respect of an aggregate principal amount at Stated
Maturity of less than $250,000, an Opinion of Counsel acceptable to
Holding that such transfer is in compliance with the Securities Act or
(D) if the transfer is pursuant to any other exemption from the
registration requirements of the Securities Act, that the transfer of
such interest has been made in compliance with the transfer restrictions
applicable to the Global Notes and pursuant to and in accordance with the
requirements of the exemption claimed, such statement to be supported by
an Opinion of Counsel from the transferee or the transferor in form
reasonably acceptable to Holding and to the Registrar and in each case,
in accordance with any applicable securities laws of any state of the
United States or any other applicable jurisdiction, then the Trustee, as
Registrar, shall instruct the Depositary to reduce or cause to be reduced
the aggregate principal amount at maturity of such Regulation S Global
Note and to increase or cause to be increased the aggregate principal
amount at maturity of the applicable Rule 144A Global Note by the
principal amount at maturity of the beneficial interest in the Regulation
S Global Note to be exchanged or transferred, and the Trustee, as
Registrar, shall instruct the Depositary, concurrently with such
reduction, to credit or cause to be credited to the account of the Person
specified in such instructions a beneficial interest in the applicable
Rule 144A Global Note equal to the reduction in the aggregate principal
amount at maturity of such Regulation S Global Note and to debit or cause
to be debited from the account of the Person making such transfer the
beneficial interest in the Regulation S Global Note that is being
exchanged or transferred.
(b) Transfer and Exchange of Definitive Notes. When Definitive Notes are
presented by a Holder to the Registrar with a request to register the transfer
of the Definitive Notes or to exchange such Definitive Notes for an equal
principal amount of Definitive Notes of other authorized denominations, the
Registrar shall register the transfer or make the exchange as requested only if
the Definitive Notes are presented or surrendered for registration of transfer
or exchange, are endorsed and contain a signature guarantee or accompanied by a
written instrument of transfer in form satisfactory to the Registrar duly
executed by such Holder or by his attorney and contains a signature guarantee,
duly authorized in writing and the Registrar received the following
documentation (all of which may be submitted by facsimile):
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<PAGE>
(i) in the case of Definitive Notes that are Transfer Restricted
Securities, such request shall be accompanied by the following
additional information and documents, as applicable:
(A) if such Transfer Restricted Security is being delivered to the
Registrar by a Holder for registration in the name of such Holder,
without transfer, or such Transfer Restricted Security is being
transferred to Holding or any of its Subsidiaries, a certification
to that effect from such Holder (in substantially the form of
Exhibit B-3 hereto); or
-----------
(B) if such Transfer Restricted Security is being transferred to a QIB
in accordance with Rule 144A under the Securities Act or pursuant
to an exemption from registration in accordance with Rule 144 under
the Securities Act or pursuant to an effective registration
statement under the Securities Act, a certification to that effect
from such Holder (in substantially the form of Exhibit B-3 hereto);
-----------
or
(C) if such Transfer Restricted Security is being transferred to a Non-
U.S. Person in an offshore transaction in accordance with Rule 904
under the Securities Act, a certification to that effect from such
Holder (in substantially the form of Exhibit B-3 hereto);
-----------
(D) if such Transfer Restricted Security is being transferred to an
Institutional Accredited Investor in reliance on an exemption from
the registration requirements of the Securities Act other than
those listed in subparagraphs (B) and (C) above, a certification to
that effect from such Holder (in substantially the form of Exhibit
-------
B-3 hereto), a certification substantially in the form of Exhibit
--- -------
C hereto, and, if such transfer is in respect of an aggregate
-
principal amount of Notes of less than $250,000, an Opinion of
Counsel acceptable to Holding that such transfer is in compliance
with the Securities Act; or
(E) if such Transfer Restricted Security is being transferred in
reliance on any other exemption from the registration requirements
of the Securities Act, a certification to that effect from such
Holder (in substantially the form of Exhibit B-3 hereto) and an
-----------
Opinion of Counsel from such Holder or the transferee reasonably
acceptable to Holding and to the Registrar to the effect that such
transfer is in compliance with the Securities Act.
(c) Transfer of a Beneficial Interest in a Rule 144A Global Note or Regulation
S Permanent Global Note for a Definitive Note.
(i) Any Person having a beneficial interest in a Rule 144A Global Note or
Regulation S Permanent Global Note may upon request, subject to the
Applicable Procedures, exchange such beneficial interest for a
Definitive Note. Upon receipt by the Trustee of written instructions or
such other form of instructions as is customary for the Depositary (or
Euroclear or Cedel, if applicable), from the Depositary or its nominee
on behalf of any Person having a beneficial interest in a Rule 144A
Global Note or Regulation S Permanent Global Note, and, in the case of a
22
<PAGE>
Transfer Restricted Security, the following additional
information and documents (all of which may be submitted by
facsimile):
(A) if such beneficial interest is being transferred to the
Person designated by the Depositary as being the beneficial
owner, a certification to that effect from such Person (in
substantially the form of Exhibit B-4 hereto);
-----------
(B) if such beneficial interest is being transferred to a QIB in
accordance with Rule 144A under the Securities Act or
pursuant to an exemption from registration in accordance with
Rule 144 under the Securities Act or pursuant to an effective
registration statement under the Securities Act, a
certification to that effect from the transferor (in
substantially the form of Exhibit B-4 hereto);
-----------
(C) if such beneficial interest is being transferred to an
Institutional Accredited Investor, pursuant to a private
placement exemption from the registration requirements of the
Securities Act (and based on an opinion of counsel if Holding
so requests), a certification to that effect from such Holder
(in substantially the form of Exhibit B-4 hereto) and a
-----------
certificate from the applicable transferee (in substantially
the form of Exhibit C hereto); or
---------
(D) if such beneficial interest is being transferred in reliance
on any other exemption from the registration requirements of
the Securities Act, a certification to that effect from the
transferor (in substantially the form of Exhibit B-4 hereto)
-----------
and an Opinion of Counsel from the transferee or the
transferor reasonably acceptable to Holding and to the
Registrar to the effect that such transfer is in compliance
with the Securities Act, in which case the Trustee or the
Note Custodian, at the direction of the Trustee, shall, in
accordance with the standing instructions and procedures
existing between the Depositary and the Note Custodian, cause
the aggregate principal amount of Rule 144A Global Notes or
Regulation S Permanent Global Notes, as applicable, to be
reduced accordingly and, following such reduction, Holding
shall execute and, the Trustee shall authenticate and deliver
to the transferee a Definitive Note in the appropriate
principal amount.
(ii) Definitive Notes issued in exchange for a beneficial interest in
a Rule 144A Global Note or Regulation S Permanent Global Note, as
applicable, pursuant to this Section 2.06(c) shall be registered
in such names and in such authorized denominations as the
Depositary, pursuant to instructions from its direct or Indirect
Participants or otherwise, shall instruct the Trustee. The
Trustee shall deliver such Definitive Notes to the Persons in
whose names such Notes are so registered. Following any such
issuance of Definitive Notes, the Trustee, as Registrar, shall
instruct the Depositary to reduce or cause to be reduced the
aggregate principal amount at maturity of the applicable Global
Note to reflect the transfer.
(d) Restrictions on Transfer and Exchange of Global Notes. Notwithstanding
any other provision of this Indenture (other than the provisions set forth in
subsection (g) of this Section 2.06), a Global Note may not be transferred as a
whole except by the Depositary to a nominee of the Depositary
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<PAGE>
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any such nominee to a successor Depositary or
a nominee of such successor Depositary.
(e) Transfer and Exchange of a Definitive Note for a Beneficial Interest in
a Global Note. A Definitive Note may not be transferred or exchanged for a
beneficial interest in a Global Note.
(f) Authentication of Definitive Notes in Absence of Depositary. If at any
time:
(i) the Depositary for the Notes notifies Holding that the Depositary
is unwilling or unable to continue as Depositary for the Global
Notes and a successor Depositary for the Global Notes is not
appointed by Holding within 90 days after delivery of such
notice; or
(ii) Holding, at its sole discretion, notifies the Trustee in writing
that it elects to cause the issuance of Definitive Notes under
this Indenture,
then Holding shall execute, and the Trustee shall, upon receipt of an
authentication order in accordance with Section 2.02 hereof, authenticate and
deliver, Definitive Notes in an aggregate principal amount equal to the
principal amount of the Global Notes in exchange for such Global Notes.
(g) Legends.
(i) Except as permitted by the following paragraphs (ii), (iii) and
(iv), each Note certificate evidencing Global Notes and Definitive
Notes (and all Notes issued in exchange therefor or substitution
thereof) shall bear the legend (the "Private Placement Legend") in
substantially the following form:
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED
OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR
FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET
FORTH IN THE THIRD SENTENCE HEREOF. BY ITS ACQUISITION
HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER"
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A
"QIB"), (B) IT IS ACQUIRING THIS NOTE IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OR
REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), (2)
AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS
NOTE EXCEPT (A) TO HOLDING OR ANY OF ITS SUBSIDIARIES, (B)
TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C)
IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE
903 OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES
ACT, (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES
THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS
24
<PAGE>
RELATING TO THE TRANSFER OF THIS NOTE (THE FORM OF WHICH CAN
BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN
RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAT
$250,000, AN OPINION OF COUNSEL ACCEPTABLE TO HOLDING THAT
SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F)
IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN
OPINION OF COUNSEL ACCEPTABLE TO HOLDING) OR (G) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION
AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM
THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN,
THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE
THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER
THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION
REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF
THIS NOTE IN VIOLATION OF THE FOREGOING.
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a
Global Note) pursuant to Rule 144 under the Securities Act or
pursuant to an effective registration statement under the
Securities Act:
(A) in the case of any Transfer Restricted Security that is a
Definitive Note, the Registrar shall permit the Holder
thereof to exchange such Transfer Restricted Security for a
Definitive Note that does not bear the legend set forth in
(i) above and rescind any restriction on the transfer of such
Transfer Restricted Security upon receipt of a certification
from the transferring holder substantially in the form of
Exhibit B-4 hereto; and
-----------
(B) in the case of any Transfer Restricted Security represented
by a Global Note, such Transfer Restricted Security shall not
be required to bear the legend set forth in (i) above, but
shall continue to be subject to the provisions of Section
2.06(a) and (b) hereof; provided, however, that with respect
to any request for an exchange of a Transfer Restricted
Security that is represented by a Global Note for a
Definitive Note that does not bear the legend set forth in
(i) above, which request is made in reliance upon Rule 144,
the Holder thereof shall certify in writing to the Registrar
that such request is being made pursuant to Rule 144 (such
certification to be substantially in the form of Exhibit B-4
hereto). -----------
(iii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a
Global Note) in reliance on any exemption from the registration
requirements of the Securities Act (other than exemptions
pursuant to Rule 144A or Rule 144 under the Securities Act) in
which the Holder or the transferee provides an Opinion of
Counsel to Holding and the Registrar in form and substance
reasonably acceptable to Holding and the Registrar (which
Opinion of Counsel shall also state that the transfer
restrictions contained in the legend are no longer applicable):
25
<PAGE>
(A) in the case of any Transfer Restricted Security that is a
Definitive Note, the Registrar shall permit the Holder
thereof to exchange such Transfer Restricted Security for a
Definitive Note that does not bear the legend set forth in
(i) above and rescind any restriction on the transfer of such
Transfer Restricted Security; and
(B) in the case of any Transfer Restricted Security represented
by a Global Note, such Transfer Restricted Security shall not
be required to bear the legend set forth in (i) above, but
shall continue to be subject to the provisions of Section
2.06(a) and (b) hereof.
(iv) Notwithstanding the foregoing, upon the consummation of the
Exchange Offer in accordance with the Registration Rights
Agreement, Holding shall issue and, upon receipt of an
authentication order in accordance with Section 2.02 hereof, the
Trustee shall authenticate (i) one or more Unrestricted Global
Notes in aggregate principal amount equal to the principal
amount of the Restricted Beneficial Interests tendered for
acceptance by persons that are not (x) broker-dealers, (y)
Persons participating in the distribution of the Notes or (z)
Persons who are affiliates (as defined in Rule 144) of Holding
and accepted for exchange in the Exchange Offer and (ii)
Definitive Notes that do not bear the Private Placement Legend
in an aggregate principal amount equal to the principal amount
of the Restricted Definitive Notes accepted for exchange in the
Exchange Offer. The Trustee shall be entitled to rely upon the
authentication order when authenticating the Notes without any
obligation to verify that the restrictions in the preceding
sentence have been complied with. Concurrently with the issuance
of such Notes, the Trustee shall cause the aggregate principal
amount of the applicable Restricted Global Notes to be reduced
accordingly and Holding shall execute and the Trustee shall
authenticate and deliver to the Persons designated by the
Holders of Definitive Notes so accepted Definitive Notes in the
appropriate principal amount.
(v) Original Issue Discount Legend. Each Note shall bear a legend in
substantially the following form:
"FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED, THIS SECURITY IS BEING ISSUED WITH ORIGINAL
ISSUE DISCOUNT; FOR EACH $1,000 PRINCIPAL AMOUNT OF THIS SECURITY, THE
ISSUE PRICE IS $535.86, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS
$1,236.64, THE ISSUE DATE IS APRIL 15, 1998 AND THE YIELD TO MATURITY
IS 12.875% PER ANNUM."
(h) Cancellation and/or Adjustment of Global Notes. At such time as all
beneficial interests in Global Notes have been exchanged for Definitive Notes,
redeemed, repurchased or cancelled, all Global Notes shall be returned to or
retained and cancelled by the Trustee in accordance with Section 2.11 hereof. At
any time prior to such cancellation, if any beneficial interest in a Global Note
is exchanged for Definitive Notes, redeemed, repurchased or cancelled, the
principal amount of Notes represented by such Global Note shall be reduced
accordingly and an endorsement may be made on such Global Note, by the Trustee
or the Notes Custodian, at the direction of the Trustee, to reflect such
reduction but any failure to make such an endorsement shall not affect the
reductions.
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<PAGE>
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, Holding
shall execute and the Trustee shall authenticate Global Notes
and Definitive Notes at the Registrar's request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but Holding may require
payment of a sum sufficient to cover any stamp or transfer tax
or similar governmental charge payable in connection therewith
(other than any such stamp or transfer taxes or similar
governmental charge payable upon exchange or transfer pursuant
to Sections 2.10, 3.06, 4.10, 4.13 and 9.05 hereto).
(iii) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or
Definitive Notes shall be the valid obligations of Holding,
evidencing the same debt, and entitled to the same benefits
under this Indenture, as the Global Notes or Definitive Notes
surrendered upon such registration of transfer or exchange.
(iv) The Registrar shall not be required: (A) to issue, to register
the transfer of or to exchange Notes during a period beginning
at the opening of fifteen (15) days before the day of any
selection of Notes for redemption under Section 3.02 hereof and
ending at the close of business on the day of selection, (B) to
register the transfer of or to exchange any Note so selected
for redemption in whole or in part, except the unredeemed
portion of any Note being redeemed in part, or (C) to register
the transfer of or to exchange a Note between a record date and
the next succeeding interest payment date.
(v) Prior to due presentment for the registration of a transfer of
any Note, the Trustee, any Agent and Holding may deem and treat
the Person in whose name any Note is registered as the absolute
owner of such Note for the purpose of receiving payment of
principal of and interest on such Notes and for all other
purposes, and neither the Trustee, any Agent nor Holding shall
be affected by notice to the contrary.
(vi) The Trustee shall authenticate Global Notes and Definitive
Notes in accordance with the provisions of Section 2.02 hereof.
Section 2.07. Replacement Notes.
If any mutilated Note is surrendered to the Trustee, or Holding and the
Trustee receives evidence to their satisfaction of the destruction, loss or
theft of any Note, Holding shall issue and the Trustee, upon the written order
of Holding signed by an Officer of Holding, shall authenticate a replacement
Note if the Trustee's requirements are met. If required by the Trustee or
Holding, an indemnity bond must be supplied by the Holder that is sufficient in
the judgment of the Trustee and Holding to protect Holding, the Trustee, any
Agent and any authenticating agent from any loss that any of them may suffer if
a Note is replaced. Holding and the Trustee may charge for their expenses
(including reasonable attorney's fees and expenses) and any amount sufficient to
cover any tax or other governmental charge that may be imposed in connection
with replacing a Note.
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<PAGE>
Every replacement Note is an additional obligation of Holding and shall be
entitled to all of the benefits of this Indenture equally and proportionately
with all other Notes duly issued hereunder.
Section 2.08. Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section 2.08 as not outstanding. Except as set forth in Section 2.09 hereof, a
Note does not cease to be outstanding because Holding or an Affiliate of Holding
holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section 4.01
hereof, it ceases to be outstanding and interest on it ceases to accrue.
Notes for whose payment or redemption money in the necessary amount has
been theretofore deposited with the Trustee or any Paying Agent (other than
Holding or its Affiliates) in trust or set aside and segregated in trust by
Holding or one of its Subsidiaries (if Holding or one of its Subsidiaries shall
act as Paying Agent) for the Holders of such Notes shall be deemed to be no
longer outstanding on and after the date for such payment or redemption and
shall cease to accrue interest; provided, that Holding shall first have
delivered to the Trustee an Officers' Certificate (i) stating the amount of
money so set aside or segregated in trust and (ii) designating the account into
which such money has been so set aside or segregated.
Section 2.09. Treasury Notes.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by
Holding, or by any Affiliate of Holding shall be considered as though not
outstanding, except that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Notes shown on the Trustee's register as being so owned shall be so disregarded.
Notes so owned which have been pledged in good faith may be regarded as
outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Notes and that the pledgee is not
Holding or any other obligor upon the Notes or any Affiliate of Holding or of
such other obligor. Notwithstanding the foregoing, Notes that are to be
acquired by Holding or an Affiliate of Holding pursuant to an exchange offer,
tender offer or other agreement shall not be deemed to be owned by such entity
until legal title to such Notes passes to such entity.
Section 2.10. Temporary Notes.
Until Definitive Notes are ready for delivery, Holding may prepare and the
Trustee shall authenticate temporary Notes upon a written order of Holding
signed by an Officer of Holding. Temporary Notes shall be substantially in the
form of Definitive Notes but may have variations that Holding considers
appropriate for temporary Notes. Without unreasonable delay, Holding shall
prepare and the Trustee shall upon receipt of a written order of Holding signed
by an Officer authenticate Definitive Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of this
Indenture.
28
<PAGE>
Section 2.11. Cancellation.
Holding at any time may deliver to the Trustee for cancellation any Notes
previously authenticated and delivered hereunder or which Holding may have
acquired in any manner whatsoever, and all Notes so delivered shall be promptly
cancelled by the Trustee. All Notes surrendered for registration of transfer,
exchange or payment, if surrendered to any Person other than the Trustee, shall
be delivered to the Trustee. The Trustee and no one else shall cancel all Notes
surrendered for registration of transfer, exchange, payment, replacement or
cancellation. Subject to Section 2.07 hereof, Holding may not issue new Notes
to replace Notes that it has redeemed or paid or that have been delivered to the
Trustee for cancellation. All cancelled Notes held by the Trustee shall be
destroyed (subject to the record retention requirements of the Exchange Act) and
certification of their destruction delivered to Holding, unless by a written
order, signed by an Officer of Holding, Holding shall direct that cancelled
Notes be returned to it.
Section 2.12. Defaulted Interest.
If Holding defaults in a payment of interest on the Notes, it shall pay the
defaulted interest in any lawful manner plus, to the extent lawful, interest
payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, which date shall be at the earliest practicable
date but in all events at least five (5) Business Days prior to the payment
date, in each case at the rate provided in the Notes and in Section 4.01 hereof.
Holding shall fix or cause to be fixed each such special record date and payment
date, and shall promptly thereafter, notify the Trustee of any such date. At
least fifteen (15) days before the special record date, Holding (or the Trustee,
in the name and at the expense of Holding) shall mail or cause to be mailed to
Holders a notice that states the special record date, the related payment date
and the amount of such interest to be paid. Notwithstanding the foregoing, any
interest which is paid prior to the expiration of the grace period provided for
in Section 6.01(i) hereof shall be paid to the Holders of the Notes as of the
regular record date for the interest payment date for which interest has not
been paid.
Section 2.13. Record Date.
The record date for purposes of determining the identity of Holders of the
Notes entitled to vote or consent to any action by vote or consent authorized or
permitted under this Indenture shall be determined as provided for in TIA (S)
316 (c).
Section 2.14. Computation of Interest.
Interest on the Notes shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Section 2.15. CUSIP Number.
Holding in issuing the Notes may use a "CUSIP" number, and if it does so,
the Trustee shall use the CUSIP number in notices of redemption or exchange as a
convenience to Holders; provided that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Notes and that reliance may be placed only on
the other identification numbers printed on the Notes. Holding shall promptly
notify the Trustee of any change in the CUSIP number.
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<PAGE>
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.
If Holding elects to redeem Notes pursuant to the optional redemption
provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 45
days but not more than 60 days before a redemption date (unless a shorter period
is acceptable to the Trustee) an Officers' Certificate setting forth (i) the
Section of this Indenture pursuant to which the redemption shall occur, (ii) the
redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the
redemption price.
If Holding is required to make an offer to purchase Notes pursuant to
Section 4.10 or 4.13 hereof, it shall furnish to the Trustee, at least 30 days
before the scheduled purchase date, an Officers' Certificate setting forth (i)
the section of this Indenture pursuant to which the offer to purchase shall
occur, (ii) the terms of the offer, (iii) the principal amount of Notes to be
purchased, (iv) the purchase price, (v) the purchase date and (vi) and further
setting forth a statement to the effect that (a) Holding or one its Subsidiaries
has affected an Asset Sale and there are Excess Proceeds aggregating more than
$10.0 million or (b) a Change of Control has occurred, as applicable.
Section 3.02. Selection of Notes to be Redeemed or Purchased.
If less than all of the Notes are to be redeemed or repurchased at any
time, selection of Notes for redemption or repurchase will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which the Notes are listed, or, if the Notes are not so
listed, on a pro rata basis, by lot or by such other method as the Trustee shall
deem fair and appropriate; provided that no Notes of $1,000 principal amount at
Stated Maturity or less shall be redeemed or repurchased in part. Notices of
redemption or repurchase shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date or repurchase date to each Holder
of Notes to be redeemed or repurchased at its registered address. Notices of
redemption or repurchase may not be conditional. If any Note is to be redeemed
or repurchased in part only, the notice of redemption or repurchase that relates
to such Note shall state the portion of the principal amount thereof to be
redeemed or repurchased. A new Note in principal amount equal to the unredeemed
or unpurchased portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note. Notes called for redemption or
repurchase become due on the date fixed for redemption or repurchase. On and
after the redemption date or repurchase date, the Notes will cease to accrete in
value or interest and Liquidated Damages, if any, will cease to accrue on Notes
or portions of them called for redemption or repurchase unless Holding defaults
in making the redemption or repurchase payment.
Section 3.03. Notice of Redemption or Repurchase.
At least 30 days but not more than 60 days before a redemption date or
repurchase date, Holding shall mail or cause to be mailed by first class mail, a
notice of redemption or notice of repurchase to each Holder whose Notes are to
be redeemed.
The notice shall identify the Notes to be redeemed and shall state:
(1) the redemption date or repurchase date, as the case may be;
(2) the redemption price or repurchase price, as the case may be, for
the Notes and accrued and unpaid interest, and Liquidated
Damages, if any;
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(3) if any Note is being redeemed or repurchased in part, the portion
of the principal amount of such Notes to be redeemed and that,
after the redemption date, upon surrender of such Note, a new
Note or Notes in principal amount equal to the unredeemed portion
shall be issued upon surrender of the original Note;
(4) the name and address of the Paying Agent;
(5) that Notes called for redemption or repurchase must be
surrendered to the Paying Agent to collect the redemption price
or repurchase price, as the case may be;
(6) that, unless Holding defaults in making such payment on and after
the redemption date or repurchase date, as the case may be, with
respect to the Notes called for redemption or repurchase, as the
case may be, such Notes will cease to accrete in value or
interest and Liquidated Damages, if any, on such Notes shall
cease to accrue;
(7) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being
redeemed; and
(8) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on
the Notes.
At Holding's request, the Trustee shall give the notice of redemption or
notice of repurchase in Holding's name and at Holding's expense; provided,
however, that Holding shall have delivered to the Trustee, at least 45 days
prior to the redemption date or repurchase date (or such shorter period as shall
be acceptable to the Trustee), an Officers' Certificate requesting that the
Trustee give such notice and setting forth the information to be stated in the
notice as provided in the preceding paragraph. The notice mailed in the manner
herein provided shall be conclusively presumed to have been duly given whether
or not the Holder receives such notice. In any case, failure to give such
notice by mail or any defect in the notice to the Holder of any Note shall not
affect the validity of the proceeding for the redemption or repurchase of any
other Note.
Section 3.04. Effect of Notice of Redemption or Repurchase.
Once notice of redemption or notice of repurchase is mailed in accordance
with Section 3.03 hereof, Notes called for redemption or repurchase, as the case
may be, become irrevocably due and payable on the redemption date at the
redemption price or repurchase date at the repurchase price, as the case may be,
plus accrued and unpaid interest and Liquidated Damages, if any, to such date.
Any such notice may not be conditional.
Section 3.05. Deposit of Redemption or Purchase Price.
On or before 10:00 a.m. (New York City time) on each redemption date or the
date on which Notes must be accepted for purchase pursuant to Section 4.10 or
4.13, Holding shall deposit with the Trustee or with the Paying Agent (or, if
Holding or any of its Subsidiaries is Paying Agent, shall segregate and hold in
trust) money sufficient to pay the redemption price of and accrued and unpaid
interest and Liquidated Damages, if any, on all Notes to be redeemed or
purchased on that date. The Trustee or the Paying Agent shall promptly return
to Holding upon its written request any money deposited with the Trustee or the
Paying Agent by Holding in excess of the amounts necessary to pay the redemption
price
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<PAGE>
of (including any applicable premium), accrued interest and Liquidated Damages,
if any, on all Notes to be redeemed or purchased.
If Notes called for redemption or tendered in an Asset Sale Offer or Change
of Control Offer are paid or if Holding has deposited with the Trustee or Paying
Agent (or, if Holding or any of its Subsidiaries is Paying Agent, shall
segregate and hold in trust) money sufficient to pay the redemption or purchase
price of, unpaid and accrued interest and Liquidated Damages, if any, on all
Notes to be redeemed or purchased, on and after the redemption or purchase date
the Notes or portions of Notes called for redemption or tendered for repurchase
and not withdrawn shall cease to accrete in value or interest and Liquidated
Damages, if any, shall cease to accrue on the Notes or the portions of Notes
called for redemption or tendered and not withdrawn in an Asset Sale Offer or
Change of Control Offer (regardless of whether certificates for such securities
are actually surrendered), as applicable. If a Note is redeemed or purchased on
or after an interest record date but on or prior to the related interest payment
date, then any accrued and unpaid interest and Liquidated Damages, if any, shall
be paid to the Person in whose name such Note was registered at the close of
business on such record date. If any Note called for redemption shall not be so
paid upon surrender for redemption because of the failure of Holding to comply
with the preceding paragraph, interest shall be paid on the unpaid principal and
Liquidated Damages, if any, from the redemption or purchase date until such
principal and Liquidated Damages, if any, is paid, and to the extent lawful on
any interest not paid on such unpaid principal, in each case, at the rate
provided in the Notes and in Section 4.01 hereof.
Section 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, Holding shall issue and,
upon Holding's written request, the Trustee shall authenticate for the Holder at
the expense of Holding a new Note equal in principal amount to the unredeemed
portion of the Note surrendered.
Section 3.07. Optional Redemption.
(a) Except as set forth in the Section 3.07(b), the Notes will not be
redeemable at Holding's option prior to April 15, 2003. Thereafter, the Notes
will be subject to redemption at any time at the option of Holding, in whole or
in part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest and Liquidated Damages, if any, thereon, to the
applicable redemption date, if redeemed during the twelve-month period beginning
on April 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2003.................................... 106.438%
2004.................................... 104.292%
2005.................................... 102.146%
2006 and thereafter..................... 100.000%
</TABLE>
(b) Notwithstanding the foregoing, at any time on or prior to April 15,
2001, Holding may (but shall not have the obligation to) redeem, on one or more
occasions, up to an aggregate of 35% of the principal amount at Stated Maturity
of Notes originally issued at a redemption price equal to 112.875% of the
Accreted Value thereof, plus Liquidated Damages, if any, thereon to the
redemption date, with the net proceeds of one or more Equity Offerings; provided
that, in each case, at least 65% of the aggregate principal amount at Stated
Maturity of the Notes originally issued remains outstanding immediately after
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the occurrence of such redemption; and provided further, that such redemption
shall occur within 90 days of the date of the closing of such Equity Offering.
Section 3.08. Mandatory Redemption.
Except as set forth under Sections 3.09, 4.10 and 4.13 hereof, Holding
shall not be required to make mandatory redemption or sinking fund payments with
respect to the Notes.
Section 3.09. Repurchase Offers.
In the event that Holding shall be required to commence an offer to all
Holders to repurchase Notes (a "Repurchase Offer") pursuant to Section 4.10
hereof, an "Asset Sale," or pursuant to Section 4.13 hereof, a "Change of
Control Offer," Holding shall follow the procedures specified below.
A Repurchase Offer shall commence no earlier than 30 days and no later than
60 days after a Change of Control (unless Holding is not required to make such
offer pursuant to the last paragraph of Section 4.13 hereof) or an Asset Sale
Offer Triggering Event (as defined in Section 4.10), as the case may be, and
remain open for a period of twenty (20) Business Days following its commencement
and no longer, except to the extent that a longer period is required by
applicable law (the "Offer Period"). No later than five (5) Business Days after
the termination of the Offer Period (the "Purchase Date"), Holding shall
purchase the principal amount of Notes required to be purchased pursuant to
Section 4.10 hereof, in the case of an Asset Sale Offer, or 4.13 hereof, in the
case of a Change of Control Offer (the "Offer Amount") or, if less than the
Offer Amount has been tendered, all Notes tendered in response to the Repurchase
Offer. Payment for any Notes so purchased shall be made in the same manner as
interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest and
Liquidated Damages, if any, shall be paid to the Person in whose name a Note is
registered at the close of business on such record date, and no additional
interest or Liquidated Damages, if any, shall be payable to Holders who tender
Notes pursuant to the Repurchase Offer.
Upon the commencement of a Repurchase Offer, Holding shall send, by first
class mail, a notice to the Trustee and each of the Holders. The notice shall
contain all instructions and materials necessary to enable such Holders to
tender Notes pursuant to such Repurchase Offer. The Repurchase Offer shall be
made to all Holders. The notice, which shall govern the terms of the Repurchase
Offer, shall describe the transaction or transactions that constitute the Change
of Control or Asset Sale Offer Triggering Event, as the case may be, and shall
state:
(a) that the Repurchase Offer is being made pursuant to this Section 3.09
and Section 4.10 or 4.13 hereof, as the case may be, and the length of time
the Repurchase Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall continue to
accrue interest and Liquidated Damages, if any, or to accrete in value;
(d) that, unless Holding defaults in making such payment, any Note accepted
for payment pursuant to the Repurchase Offer shall cease to accrue interest
and Liquidated Damages, if any, or to accrete in value, as applicable,
after the Purchase Date;
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(e) that Holders electing to have a Note purchased pursuant to a Repurchase
Offer shall be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note, duly
completed, or transfer by book-entry transfer, to Holding, the Depositary,
or the Paying Agent at the address specified in the notice not later than
the close of business on the last day of the Offer Period;
(f) that Holders shall be entitled to withdraw their election if Holding,
the Depositary or the Paying Agent, as the case may be, receives, not later
than three Business Days prior to the expiration of the Offer Period, a
telegram, telex, facsimile transmission or letter setting forth the name of
the Holder, the principal amount of the Note the Holder delivered for
purchase and a statement that such Holder is withdrawing his election to
have such Note purchased;
(g) that, if the aggregate principal amount of Notes surrendered by Holders
exceeds the Offer Amount, Holding shall select the Notes to be purchased on
a pro rata basis (with such adjustments as may be deemed appropriate by
Holding so that only Notes in denominations of $1,000, or integral
multiples thereof, shall be purchased); and
(h) that Holders whose Notes were purchased only in part shall be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered (or transferred by book-entry transfer).
On or before 10:00 a.m. (New York City time) on each Purchase Date,
Holding shall irrevocably deposit with the Trustee or Paying Agent in
immediately available funds the aggregate purchase price with respect to an
aggregate principal amount of Notes equal to the Offer Amount, together with
accrued and unpaid interest and Liquidated Damages, if any, thereon, to be held
for payment in accordance with the terms of this Section 3.09. On the Purchase
Date, Holding shall, to the extent lawful, (i) accept for payment, on a pro rata
basis to the extent necessary, the Offer Amount in aggregate principal amount of
Notes or portions thereof tendered pursuant to the Repurchase Offer, or if less
than the Offer Amount has been tendered, all Notes tendered, (ii) deliver or
cause the Paying Agent or Depositary, as the case may be, to deliver to the
Trustee Notes so accepted and (iii) deliver to the Trustee an Officers'
Certificate stating that such Notes or portions thereof were accepted for
payment by Holding in accordance with the terms of this Section 3.09. Holding,
the Depositary or the Paying Agent, as the case may be, shall promptly (but in
any case not later than three (3) Business Days after the Purchase Date) mail or
deliver to each tendering Holder an amount equal to the purchase price of the
Notes tendered by such Holder and accepted by Holding for purchase, plus any
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
Purchase Date, and Holding shall promptly issue a new Note, and the Trustee,
shall authenticate and mail or deliver such new Note, to such Holder, equal in
principal amount to any unpurchased portion of such Holder's Notes surrendered.
Any Note not so accepted shall be promptly mailed or delivered by Holding to the
Holder thereof. So long as no Default has occurred and is continuing, any money
earned on funds held in trust by the Trustee or any Paying Agent and any excess
or remaining funds that may exist following the termination of the Offer Period
shall be promptly remitted to the Company. If any such excess or remaining funds
shall be held by the Company or any of its Subsidiaries in trust, in its
capacity as Paying Agent, then, so long as no Default has occurred and is
continuing, such funds shall be discharged from such trust and, thereafter,
Holders entitled to such funds must look to the Company as a general creditor.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01, 3.02, 3.05 and 3.06 hereof.
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ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes.
Holding shall pay or cause to be paid the principal of, premium, if any,
and interest on the Notes on the dates and in the manner provided in the Notes.
Holding shall pay all Liquidated Damages, if any, in the same manner on the
dates and in the amounts set forth in the Registration Rights Agreement.
Principal, premium and Liquidated Damages, if any, and interest, shall be
considered paid for all purposes hereunder on the date the Paying Agent if other
than Holding or a Subsidiary thereof holds, as of 10:00 a.m. (New York City
time) money deposited by Holding in immediately available funds and designated
for and sufficient to pay all such principal, premium and Liquidated Damages, if
any, and interest, then due.
Holding shall pay interest (including, to the extent permitted by
applicable law, post-petition interest in any proceeding under any Bankruptcy
Law) on overdue principal (or Accreted Value, if applicable) at the rate equal
to 1% per annum in excess of the then applicable interest rate on the Notes to
the extent lawful; it shall pay interest (including, to the extent permitted by
applicable law, post-petition interest in any proceeding under any Bankruptcy
Law) on overdue installments of interest and Liquidated Damages (without regard
to any applicable grace period) at the same rate to the extent lawful.
Section 4.02. Maintenance of Office or Agency.
Holding shall maintain in the Borough of Manhattan, The City of New York an
office or agency (which may be an office of the Trustee or an affiliate of the
Trustee or Registrar) where Notes may be surrendered for registration of
transfer or for exchange and where notices and demands to or upon Holding in
respect of the Notes and this Indenture may be served. Holding shall give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time Holding shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee.
Holding may also from time to time designate one or more other offices or
agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided, however,
that no such designation or rescission shall in any manner relieve Holding of
its obligation to maintain an office or agency in the Borough of Manhattan, the
City of New York for such purposes. Holding shall give prompt written notice to
the Trustee of any such designation or rescission and of any change in the
location of any such other office or agency.
Holding hereby designates the Corporate Trust Office of the Trustee as one
such office or agency of Holding in accordance with Section 2.03 hereof.
Section 4.03. Commission Reports.
From and after the earlier of the effective date of the Exchange Offer
Registration Statement or the effective date of the Shelf Registration
Statement, whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding, Holding shall furnish to the
Holders of Notes (i) all quarterly and annual financial information that would
be required to be contained in a filing with the Commission on Forms 10-Q and
10-K if Holding were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
describes
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the financial condition and results of operations of Holding and its
consolidated Subsidiaries and, with respect to the annual information only, a
report thereon by Holding's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if Holding were required to file such reports, in each case within the time
periods set forth in the Commission's rules and regulations (the "Required
Filing Dates"). In addition, whether or not required by the rules and
regulations of the Commission, at any time after the consummation of the
Exchange Offer contemplated by the Registration Right Agreement, Holding shall
file a copy of all such information and reports with the Commission for public
availability by the Required Filing Dates (unless the Commission will not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request. In addition, at all times that the
Commission does not accept the filings provided for in the preceding sentence,
Holding has agreed that, for so long as any Notes remain outstanding, it shall
furnish to the Holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
The financial information to be distributed to Holders of Notes shall be
filed with the Trustee and mailed to the Holders at their addresses appearing in
the register of Notes maintained by the Registrar, promptly after each Required
Filing Date, but in any event no later than 15 days following any such Required
Filing Date.
Holding shall provide the Trustee with a sufficient number of copies of all
reports and other documents and information and, if requested by Holding and at
Holding's expense, the Trustee will deliver such reports to the Holders under
this Section 4.03.
Section 4.04. Compliance Certificate and Notices of Default.
Holding shall deliver to the Trustee, within 90 days after the end of each
fiscal year and on or before 45 days after the end of the first, second and
third fiscal quarters of each fiscal year, an Officers' Certificate stating that
a review of the activities of Holding and its Subsidiaries during the preceding
fiscal year or fiscal quarter, as the case may be, has been made under the
supervision of the signing Officers with a view to determining whether each has
kept, observed, performed and fulfilled its obligations under this Indenture
(including, with respect to any Restricted Payments made during such fiscal year
or fiscal quarter, as the case may be, the basis upon which the calculations
required by Section 4.07 hereof were computed, which calculations may be based
on Holding's latest available financial statements), and further stating, as to
each such Officer signing such certificate, that, to the best of his or her
knowledge, each entity has kept, observed, performed and fulfilled each and
every covenant contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and conditions of this
Indenture (or, if a Default or Event of Default shall have occurred, describing
all such Defaults or Events of Default of which he or she may have knowledge and
what action Holding is taking or proposes to take with respect thereto) and
that, to the best of his or her knowledge, no event has occurred and remains in
existence by reason of which payments on account of the principal of, premium or
Liquidated Damages, if any, or interest on the Notes is prohibited or if such
event has occurred, a description of the event and what action Holding is taking
or proposes to take with respect thereto.
Holding shall, so long as any of the Notes are outstanding, deliver to the
Trustee, forthwith upon any Officer becoming aware of any Default or Event of
Default, an Officers' Certificate specifying such Default or Event of Default
and what action Holding is taking or proposes to take with respect thereto.
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Section 4.05. Taxes.
Holding shall pay, and shall cause each of its Subsidiaries to pay, prior
to delinquency all material taxes, assessments and governmental levies, except
such as are contested in good faith and by appropriate proceedings and with
respect to which appropriate reserves have been taken in accordance with GAAP.
Section 4.06. Stay, Extension and Usury Laws.
Holding covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law wherever enacted,
now or at any time hereafter in force, that may affect the covenants or the
performance of this Indenture; and Holding (to the extent that it may lawfully
do so) hereby expressly waives all benefit or advantage of any such law, and
covenants that it shall not, by resort to any such law, hinder, delay or impede
the execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law has been enacted.
Section 4.07. Restricted Payments.
From and after the date hereof Holding shall not, and shall not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of Holding's
or any of its Restricted Subsidiaries' Equity Interests (including, without
limitation, any such dividend, distribution or other payment made as a payment
in connection with any merger or consolidation involving Holding), other than
dividends or distributions payable in Equity Interests (other than Disqualified
Stock) of Holding or dividends or distributions payable to Holding or any Wholly
Owned Subsidiary of Holding; (ii) purchase, redeem or otherwise acquire or
retire for value (including, without limitation, any such purchase, redemption
or other acquisition or retirement for value made as a payment in connection
with any merger or consolidation involving Holding) any Equity Interests of
Holding or any Restricted Subsidiary (other than any such Equity Interests owned
by Holding or any Restricted Subsidiary of Holding); (iii) make any principal
payment on or with respect to, or purchase, redeem, defease or otherwise acquire
or retire for value any Indebtedness that is subordinated to the Notes, except a
payment of principal at Stated Maturity in the applicable amounts so required;
or (iv) make any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and immediately after giving
effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) Holding would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of Section 4.09
hereof; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by Holding and its Restricted Subsidiaries
after the Issue Date (excluding Restricted Payments permitted by clauses
(ii), (iii), (v), (vi) and (viii) of the next succeeding paragraph), is
less than the sum (without duplication) of (i) 50% of the Consolidated Net
Income of Holding for the period (taken as one accounting period) from the
beginning of the first fiscal quarter commencing after the Issue Date to
the end of Holding's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted Payment
(or, if
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such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus (ii) 100% of the aggregate net cash proceeds received
by Holding from the issue or sale subsequent to the Issue Date of Equity
Interests of Holding (other than Disqualified Stock) or of Disqualified
Stock or debt securities of Holding that have been converted into or
exchanged for such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Restricted
Subsidiary of Holding and other than Disqualified Stock or convertible debt
securities that have been converted into Disqualified Stock), plus (iii)
with respect to any Restricted Investment that was made after the Issue
Date (A) to the extent that such Restricted Investment is sold for cash or
otherwise liquidated or repaid for cash, the amount of cash proceeds
received with respect to such Restricted Investments and (B), without
duplication of any amount included in Consolidated Net Income, 100% of any
cash dividends or other cash distributions received in respect of such
Restricted Investment, plus (iv) to the extent not otherwise included in
clause (iii) above, 100% of the net cash proceeds realized upon the sale of
any Unrestricted Subsidiary (less the amount of any reserve established for
purchase price adjustments and less the maximum amount of any
indemnification or similar contingent obligation for the benefit of the
purchaser, any of its Affiliates or any other third party in such sale, in
each case as adjusted for any permanent reduction in any such amount on or
after the date of such sale, other than by virtue of a payment made to such
Person following the Issue Date), plus (v) upon the redesignation of an
Unrestricted Subsidiary as a Restricted Subsidiary, the lesser of (x) the
fair market value of such Subsidiary or (y) the aggregate amount of all
Investments made in such Subsidiary subsequent to the Issue Date by Holding
and its Restricted Subsidiaries, plus (vi) $10.0 million.
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of this Indenture;
(ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of Holding
or any Restricted Subsidiary in exchange for, or in an amount not in excess
of the net cash proceeds of the substantially concurrent sale (other than
to a Restricted Subsidiary of Holding) of, other Equity Interests of
Holding (other than any Disqualified Stock); provided that the amount of
any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition and any Net Income
resulting therefrom shall be excluded from clauses (c)(i) and (c)(ii) of
the preceding paragraph;
(iii) the defeasance, redemption, repurchase, retirement or other
acquisition of subordinated Indebtedness in exchange for, or in an amount
not in excess of the net cash proceeds from, an incurrence of Permitted
Refinancing Indebtedness;
(iv) so long as no Default or Event of Default shall have occurred
and is continuing, the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of Holding or any Restricted
Subsidiary of Holding, held by any member of Holding's (or any of its
subsidiaries') management, employees, directors or consultants pursuant to
any management, employee, director or consultant equity subscription
agreement or stock option agreement; provided that the aggregate price paid
for all such repurchased, redeemed, acquired or retired Equity Interests
shall not exceed the sum of (A) $3.0 million and (B) the aggregate cash
proceeds received by Holding from any issuance of Equity Interests by
Holding to members of management, employees, directors or consultants of
Holding and its subsidiaries (provided that the cash proceeds
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referred to in this clause (B) shall be excluded from clause (c)(ii) of the
preceding paragraph); provided, further, that Management Notes may be
forgiven or returned without regard to the limitation set forth above and
the forgiveness or return thereof shall not be treated as Restricted
Payments for purposes of determining compliance with such limitation;
(v) the payment of any dividend (or the making of a similar
distribution or redemption) by a Restricted Subsidiary of Holding to the
holders of its common Equity Interests on a pro rata basis;
(vi) (A) payments required to be made under the Tax Sharing
Agreement or (B) distributions made by Holding on the date of this
Indenture, the proceeds of which are utilized solely to consummate the
Recapitalization;
(vii) so long as no Default or Event of Default has occurred and is
continuing, the declaration and payment of dividends to holders of any
class or series of Disqualified Stock of Holding or any Restricted
Subsidiary issued after the date of this Indenture in accordance with the
covenant contained in Section 4.09 hereof; and
(viii) the purchase or redemption of subordinated indebtedness
pursuant to a change of control of provision contained in the indenture or
other governing instrument relating thereto; provided, however, that (A) no
offer or purchase obligation may be triggered in respect of such
Indebtedness unless a corresponding obligation also arises for the Notes
and (B) in all events, no repurchase or redemption of such Indebtedness may
be consummated unless and until Holding shall have satisfied all repurchase
obligations with respect to any required purchase offer made with respect
to the Notes.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default or an
Event of Default. For purposes of making such determination, all outstanding
Investments by Holding and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the greater of (i) the net book value of such Investments at the time
of such designation and (ii) the fair market value of such Investments at the
time of such designation. Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by Holding or such Restricted Subsidiary,
as the case may be, pursuant to the Restricted Payment. The fair market value
of any non-cash Restricted Payment shall be determined by the Board of Directors
whose resolution with respect thereto shall be delivered to the Trustee, such
determination to be based upon a fairness opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if such
fair market value exceeds $10.0 million. Not later than the date of making any
Restricted Payment, Holding shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by Section 4.07 were computed,
together with a copy of any fairness opinion or appraisal, if any, required by
this Indenture.
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Section 4.08. Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries.
Holding shall not, and shall not permit any of its Restricted Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to (i)(a) pay dividends or make any other distributions to Holding or
any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect
to any other interest or participation in, or measured by, its profits, or (b)
pay any Indebtedness owed to Holding or any of its Restricted Subsidiaries, (ii)
make loans or advances to Holding or any of its Restricted Subsidiaries or (iii)
transfer any of its properties or assets to Holding or any of its Restricted
Subsidiaries, except for such encumbrances or restrictions existing under or by
reason of (a) the New Credit Facility, (b) the Senior Subordinated Notes and the
Senior Subordinated Note Indenture, as in effect as of the date hereof, and any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are no more restrictive with respect to such
dividend and other payment restrictions than those contained in the New Credit
Facility or the Senior Subordinated Notes, as the case may be, as in effect on
the date hereof, (c) this Indenture and the Notes, (d) applicable law or any
applicable rule, regulation or order, (e) any agreement or instrument governing
Indebtedness or Capital Stock of a Person acquired by Holding or any of its
Restricted Subsidiaries as in effect at the time of such acquisition (except to
the extent such agreement or instrument was created or entered into in
connection with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired, (f) by reason of customary non-assignment provisions in leases,
licenses, encumbrances, contracts or similar assets entered into or acquired in
the ordinary course of business and consistent with industry practices, (g)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (f) above on
the property so acquired, (h) Permitted Refinancing Indebtedness, provided that
the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced, (i) contracts for the
sale of assets containing customary restrictions with respect to a Restricted
Subsidiary pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Restricted Subsidiary and (j) customary restrictions in security agreements or
mortgages securing Indebtedness of Holding or a Restricted Subsidiary to the
extent such restrictions restrict the transfer of the property subject to such
security agreements and mortgages.
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock.
Holding shall not, and shall not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt) and that
Holding will not issue any Disqualified Stock and will not permit any of its
Restricted Subsidiaries to issue any shares of preferred stock or Disqualified
Stock other than to Holding or another Restricted Subsidiary; provided, however,
that Holding or any of its Restricted Subsidiaries may incur Indebtedness
(including Acquired Debt) or issue shares of Disqualified Stock if (i) the Fixed
Charge Coverage Ratio for Holding's most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on which such additional Indebtedness is incurred or such
Disqualified Stock is issued would have been at least 1.75 to 1.0 commencing on
the Issue Date and at any time thereafter, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued or in the case of any Restricted Subsidiary, such preferred stock had
been issued, as the case may be, at the beginning of such four-quarter period
and (ii) no Default or Event of Default will have occurred or
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be continuing or would occur as a consequence thereof, provided further, that
prior to the second anniversary of the Issue Date, the Company and its
Restricted Subsidiaries may incur Indebtedness permitted to be incurred pursuant
to the Senior Subordinated Note Indenture.
Holding shall not incur any Indebtedness that is contractually subordinated
in right of payment to any other Indebtedness of Holding unless such
Indebtedness is also contractually subordinated in right of payment to the Notes
on substantially identical terms; provided, however, that no Indebtedness of
Holding shall be deemed to be contractually subordinated in right of payment to
any other Indebtedness of Holding solely by virtue of being unsecured.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by Holding and the Restricted Subsidiaries of
Indebtedness under the Credit Facilities and any Guarantees thereof; provided
that the aggregate principal amount of all Indebtedness (with letters of credit
being deemed to have a principal amount equal to the maximum potential liability
of Holding and the Restricted Subsidiaries for reimbursement of drawings that
may be made thereunder) outstanding under all Credit Facilities after giving
effect to such incurrence, including all Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred pursuant to this clause (i), does
not exceed at any time (A) with respect to the term loan portion of such Credit
Facilities, $125 million in an aggregate principal amount and (B) with respect
to the revolving credit facility and deferred term loan portion of such Credit
Facilities, an aggregate principal amount equal to the greater of fifty percent
of the amount of inventory shown on the consolidated balance sheet of Holding
for the then most recently ended fiscal quarter and $250 million less, in the
case of clause (A) or (B), the aggregate principal of all principal payments
thereunder constituting permanent reductions of such Indebtedness pursuant to
such Credit Facilities or in accordance with Section 4.10;
(ii) the incurrence by Holding of Indebtedness represented by the Notes
and the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness represented by the Senior Subordinated Notes and any Guarantee
thereof;
(iii) the incurrence by Holding or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings or
other obligations, in each case incurred for the purpose of financing all or any
part of the acquisition cost or cost of construction, remodeling or improvements
of assets or property used in the business of Holding or any Restricted
Subsidiary, in an aggregate principal amount not to exceed $25.0 million at any
time outstanding;
(iv) other Indebtedness of Holding and its Restricted Subsidiaries
outstanding on the Issue Date;
(v) the incurrence by Holding or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which
are used to refund, refinance or replace Indebtedness (other than intercompany
Indebtedness) that was permitted by this Indenture to exist or be incurred;
(vi) the incurrence by Holding or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among Holding and any of its Wholly Owned
Subsidiaries or between or among any Wholly Owned Subsidiaries; provided, that
(A) any subsequent issuance or transfer of Equity Interests that results in any
such Indebtedness being held by a Person other than a Wholly Owned Subsidiary
and (B) any sale or other transfer of any such Indebtedness to a Person that is
not either Holding or a Wholly
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Owned Subsidiary will be deemed, in each case, to constitute an incurrence of
such Indebtedness by Holding or such Restricted Subsidiary, as the case may be;
(vii) the incurrence by Holding or any Restricted Subsidiary of Hedging
Obligations that are incurred for the purpose of fixing or hedging (i) interest
rate risk with respect to any floating rate Indebtedness that is permitted by
the terms of this Indenture to be outstanding or (ii) the value of foreign
currencies purchased or received by Holding or any Restricted Subsidiary in the
ordinary course of business;
(viii) Indebtedness incurred in respect of workers' compensation claims,
self-insurance obligations, performance, surety and similar bonds and completion
guarantees provided by Holding or any Restricted Subsidiary in the ordinary
course of business;
(ix) Indebtedness arising from guarantees of Indebtedness of Holding or
any Restricted Subsidiary or the agreements of Holding or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with the
disposition of any business, assets or Capital Stock of a Restricted Subsidiary,
or other guarantees of Indebtedness incurred by any person acquiring all or any
portion of such business, assets or Capital Stock of a Restricted Subsidiary for
the purpose of financing such acquisition, provided that the maximum aggregate
liability in respect of all such Indebtedness shall at no time exceed 25% of the
gross proceeds (with proceeds other than cash or Cash Equivalents being valued
at the fair market value thereof as determined by the Board of Directors of
Holding in good faith) actually received by Holding and its Restricted
Subsidiaries in connection with such disposition;
(x) the guarantee by Holding or any of the Restricted Subsidiaries of
Indebtedness of Holding or a Restricted Subsidiary that was permitted to be
incurred by another provision of this covenant;
(xi) the incurrence by Holding or any of its Restricted Subsidiaries of
Acquired Debt in an aggregate principal amount at any time outstanding not to
exceed $10.0 million;
(xii) Indebtedness incurred in connection with a Qualified Receivables
Transaction except to the extent that such Indebtedness is recourse to Holding
or any other Restricted Subsidiary of Holding; and
(xiii) the incurrence by Holding or any Restricted Subsidiary of
additional Indebtedness in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding, including all Indebtedness incurred to
refund, refinance or replace any Indebtedness incurred pursuant to this clause
(xiii), not to exceed $25.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xiii) above or is
entitled to be incurred pursuant to the first paragraph of this covenant,
Holding shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest, the accretion of accreted
value and the payment of interest in the form of additional Indebtedness will
not be deemed to be an incurrence of Indebtedness for purposes of this covenant.
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Section 4.10. Asset Sales.
Holding shall not, and shall not permit any of its Restricted Subsidiaries
to, engage in or consummate an Asset Sale unless (i) Holding (or the Restricted
Subsidiary, as the case may be) receives consideration at the time of such Asset
Sale at least equal to the fair market value of the assets sold or otherwise
disposed of (as determined by the Board of Directors in good faith, whose
determination shall be conclusive evidence thereof and shall be evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) and (ii) at least 75% of the consideration therefor
received by Holding or such Restricted Subsidiary is in the form of cash or Cash
Equivalents other than in the case where Holding or such Restricted Subsidiary
is undertaking a Permitted Asset Swap; provided that the amount of (x) any
liabilities (as shown on Holding's or such Restricted Subsidiary's most recent
balance sheet), of Holding or any Restricted Subsidiary (other than contingent
liabilities and liabilities that are by their terms subordinated to the Notes)
that are assumed by the transferee of any such assets pursuant to a customary
agreement that releases Holding or such Restricted Subsidiary from further
liability and (y) any securities, notes or other obligations received by Holding
or any such Restricted Subsidiary from such transferee that are converted within
15 days by Holding or such Restricted Subsidiary into cash (to extent of the
cash received) shall be deemed to be cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
Holding or its Restricted Subsidiaries may apply such Net Proceeds, at its
option, (a) to repay Indebtedness of a Restricted Subsidiary of Holding, or (b)
to the investment in, or the making of a capital expenditure or the acquisition
of, other property or assets in each case used or useable in a Permitted
Business, or Capital Stock of any Person primarily engaged in a Permitted
Business if, as a result of the investment in or acquisition by Holding or any
Restricted Subsidiary thereof, such Person becomes a Restricted Subsidiary, or
(c) a combination of the uses described in clauses (a) and (b). Pending the
final application of any such Net Proceeds, Holding or its Restricted
Subsidiaries may temporarily reduce Indebtedness of a Restricted Subsidiary of
Holding or otherwise invest such Net Proceeds in any manner that is not
prohibited by this Indenture. Any Net Proceeds from Asset Sales, that are not
applied or invested as provided in the first sentence of this paragraph within
the 360-day period after receipt of such Net Proceeds will be deemed to
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $10.0 million (an "Asset Sale Offering Triggering Event"), Holding will
be required to make an offer to all Holders of Notes and, to the extent required
by the terms of any Pari Passu Indebtedness to all holders of such Pari Passu
Indebtedness (an "Asset Sale Offer") to purchase the maximum principal amount of
Notes and any such Pari Passu Indebtedness that may be purchased out of the
Excess Proceeds, at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the date of purchase (or, in the case of repurchase of Notes
prior to April 15, 2003, at a purchase price equal to 100% of the Accreted Value
thereof plus Liquidated Damages, if any, as of the date of repurchase), in
accordance with the procedures set forth in Section 3.09 hereof or such Pari
Passu Indebtedness, as applicable. To the extent that the aggregate principal
amount at Stated Maturity of Notes (or Accreted Value, as the case may be) and
any such Pari Passu Indebtedness tendered pursuant to an Asset Sale Offer is
less than the Excess Proceeds, Holding or its Restricted Subsidiaries may use
any remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount at Stated Maturity of Notes (or Accreted Value, as the case may
be) and any such Pari Passu Indebtedness surrendered by holders thereof exceeds
the amount of Excess Proceeds, the Trustee shall select the Notes to be
purchased on a pro rata basis. Upon completion of such Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
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Section 4.11. Transactions With Affiliates.
Holding shall not, and shall not permit any of its Restricted Subsidiaries
to, make any payment to or Investment in, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless
(i) the terms of such Affiliate Transaction are fair and reasonable to Holding
or such Restricted Subsidiary, as the case may be, and are at least as favorable
as the terms which could be obtained by Holding or such Restricted Subsidiary,
as the case may be, in a comparable transaction made on an arm's-length basis
between unaffiliated parties and (ii) Holding delivers to the Trustee (a) with
respect to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $2.0 million, a resolution of the
Board of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such Affiliate
Transaction has been approved by a majority of the disinterested members of the
Board of Directors and (b) with respect to any Affiliate Transaction or series
of related Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing; provided that the following shall
not be deemed Affiliate Transactions: (v) certain leases and other arrangements
of the Company in effect on the Issue Date and specified in Schedule 4.11 to
this Indenture, (w) any employment agreements, stock option or other
compensation agreements or plans (and the payment of amounts or the issuance of
securities thereunder) and other reasonable fees, compensation, benefits and
indemnities paid or entered into by Holding or any of its Restricted
Subsidiaries in the ordinary course of business of Holding or such Restricted
Subsidiary to or with the officers, directors or employees of Holding or its
Restricted Subsidiaries, (x) transactions between or among Holding and/or its
Restricted Subsidiaries, (y) Restricted Payments (other than Restricted
Investments) that are permitted by the provisions of this Indenture described in
Section 4.07 and (z) sales of Capital Stock (other than Disqualified Stock) of
Holding, when such sales are exclusively for cash.
Section 4.12. Liens.
Holding shall not, and shall not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, assume or suffer to exist any Lien on
any asset now owned or hereafter acquired, or any income or profits therefrom or
assign or convey any right to receive income therefrom for purposes of securing
Indebtedness, except Permitted Liens, unless the Obligations due hereunder and
the Notes are secured by a Lien on such property, assets or proceeds on an equal
and ratable basis (or on a senior basis, in the case of Indebtedness subordinate
in right of payment to the Notes), with the Obligations so secured, so long as
such Obligations are secured.
Section 4.13. Offer to Purchase Upon Change of Control.
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require Holding to repurchase all or any part (equal to $1,000
principal amount at Stated Maturity or an integral multiple thereof) of such
Holder's Notes pursuant to the offer described below (the "Change of Control
Offer") at an offer price in cash equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest and Liquidated Damages thereon,
if any, to the date of purchase or, in the case of repurchase of Notes prior to
April 15, 2003, at a purchase price equal to 101% of the Accreted Value thereof
as of the date of repurchase plus Liquidated Damages, if any, (the "Change of
Control Payment"). Within 30 days following any Change of Control, Holding shall
mail, or cause to be mailed, a notice to each Holder describing the transaction
or transactions that constitute the Change of Control and offering
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to repurchase Notes on the date specified in such notice, which date shall be no
earlier than 30 days (or such shorter time period as may be permitted under
applicable law, rules and regulations) and no later than 60 days from the date
such notice is mailed (the "Change of Control Payment Date"), pursuant to the
procedures required by Section 3.09 hereof and described in such notice. Holding
will comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the provisions hereof relating to
such Change of Control Offer, Holding will comply with the applicable securities
laws and regulations and shall not be deemed to have breached its obligations
described hereof by virtue thereof.
On the Change of Control Payment Date, Holding shall, to the extent lawful,
(1) accept for payment all Notes or portions thereof properly tendered pursuant
to the Change of Control Offer, (2) deposit with the Paying Agent an amount
equal to the Change of Control Payment in respect of all Notes or portions
thereof so tendered and (3) deliver or cause to be delivered to the Trustee the
Notes so accepted together with an Officers' Certificate stating the aggregate
principal amount of Notes or portions thereof being purchased by Holding. The
Paying Agent will promptly mail to each Holder of Notes so tendered the Change
of Control Payment for such Notes, and the Trustee will promptly authenticate
and mail (or cause to be transferred by book entry) to each Holder a new Note
equal in principal amount to any unpurchased portion of the Notes surrendered,
if any; provided that each such new Note will be in a principal amount at Stated
Maturity of $1,000 or an integral multiple thereof. Holding will publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of this Indenture are applicable.
Holding will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
herein applicable to a Change of Control Offer made by Holding and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.
Section 4.14. Corporate Existence.
Subject to Section 4.13 and Article 5 hereof, as the case may be, Holding
shall do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence and the corporate, partnership or other
existence of each of its Subsidiaries in accordance with the respective
organizational documents (as the same may be amended from time to time) of
Holding or any such Subsidiary and the rights (charter and statutory), licenses
and franchises of Holding and its Subsidiaries; provided that Holding shall not
be required to preserve any such right, license or franchise, or the corporate,
partnership or other existence of any of its Subsidiaries, if the Board of
Directors of Holding shall determine that the preservation thereof is no longer
desirable in the conduct of the business of Holding and its Subsidiaries, taken
as a whole, and that the loss thereof is not adverse in any material respect to
the Holders of the Notes.
Section 4.15. Business Activities.
Holding shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, engage to a substantial extent in any business other
than a Permitted Business.
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Section 4.16. Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries.
Holding will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, transfer, convey, lease, sell or otherwise dispose
of any shares (other than directors' qualifying shares) of Capital Stock of a
Restricted Subsidiary to any Person, except (i) to Holding or a Wholly Owned
Subsidiary or (ii) in a transfer, conveyance, lease, sale or other disposition
of all the Capital Stock of such Restricted Subsidiary owned by Holding or
another Restricted Subsidiary; provided, that in connection with any such
transfer, conveyance, lease, sale or other disposition of Capital Stock, Holding
or any such Restricted Subsidiary complies with Section 4.10; provided, further
that the foregoing shall not restrict (a) any Lien on Capital Stock of a
Restricted Subsidiary that is not otherwise prohibited under the Indenture or
(b) any transfer, sale or other disposition of Capital Stock pursuant to a
foreclosure of any such Lien or similar exercise of remedies in respect thereof.
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation or Sale of Assets.
Holding shall not consolidate or merge with or into (whether or not Holding
is the surviving corporation), or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets in one
or more related transactions, to another Person unless (i) Holding is the
surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than Holding) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation or limited liability company organized or existing under
the laws of the United States, any state thereof or the District of Columbia;
(ii) the Person formed by or surviving any such consolidation or merger (if
other than Holding) or the Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of Holding under the Notes and this Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee; (iii)
immediately prior to and immediately after such transaction no Default or Event
of Default exists; and (iv) except in the case of a merger of Holding with or
into a Wholly Owned Subsidiary of Holding, Holding or the entity or Person
formed by or surviving any such consolidation or merger (if other than Holding),
or to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made at the time of such transaction and after
giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of Section 4.09 hereof.
For purposes of this Section 5.01, the sale, lease, conveyance, assignment,
transfer, or other disposition of all or substantially all of the properties and
assets of one or more Subsidiaries of Holding, which properties and assets, if
held by Holding instead of such Subsidiaries, would constitute all or
substantially all of the properties and assets of Holding on a consolidated
basis, shall be deemed to be the transfer of all or substantially all of the
properties and assets of Holding. Clause (iv) of the foregoing paragraph will
not prohibit (a) a merger between Holding and a Wholly Owned Subsidiary of
Holding or (b) a merger between Holding and an Affiliate incorporated solely for
the purpose of reincorporating Holding in another State of the United States so
long as, in the case of each of clause (a) and (b), the amount of Indebtedness
of Holding and its Restricted Subsidiaries is not increased thereby.
Section 5.02. Successor Corporation Substituted.
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Upon any consolidation or merger, or any sale, assignment, transfer, lease,
conveyance or other disposition of all or substantially all of the assets of
Holding in accordance with Section 5.01 hereof, the successor corporation formed
by such consolidation or into or with which Holding is merged or to which such
sale, assignment, transfer, lease, conveyance or other disposition is made shall
succeed to, and be substituted for (so that from and after the date of such
consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to "Holding" shall refer instead to the
successor corporation and not to Holding), and shall exercise every right and
power of Holding under this Indenture with the same effect as if such successor
Person had been named as Holding herein and thereafter the predecessor company
shall be discharged from all obligations and covenants under this Indenture and
the Notes; provided, that, (i) solely for the purposes of computing Consolidated
Net Income for purposes of clause (b) of the first paragraph of Section 4.07
hereof, the Consolidated Net Income of any person other than Holding and its
Subsidiaries shall be included only for periods subsequent to the effective time
of such merger, consolidation, combination or transfer of assets; and (ii) in
the case of any sale, assignment, transfer, lease, conveyance, or other
disposition of less than all of the assets of the predecessor company that does
not meet the requirements of Section 5.01, the predecessor company shall not be
released or discharged from the obligation to pay the principal of or interest
and Liquidated Damages, if any, on the Notes.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
Each of the following constitutes an "Event of Default":
(i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Notes;
(ii) default in payment when due of the principal of or premium, if any,
on the Notes;
(iii) failure by Holding or any of its Restricted Subsidiaries for 30 days
after notice by the Trustee or by the Holders of at least 25% in
aggregate principal amount of the Notes then outstanding to comply
with the provisions described under Sections 4.07, 4.09, 4.10 or
4.13;
(iv) failure by Holding or any of its Restricted Subsidiaries for 60 days
after notice by the Trustee or by the Holders of at least 25% in
aggregate principal amount of Notes then outstanding to comply with
any of its other agreements in this Indenture or the Notes;
(v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by Holding or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by
Holding or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date
hereof, which default (a) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness at final
maturity (a "Payment Default") or (b) results in the acceleration of
such Indebtedness prior to its Stated Maturity and, in each case,
the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there
has been a
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Payment Default or the maturity of which has been so accelerated,
aggregates $20.0 million or more in the case of clause (a) or (b);
(vi) failure by Holding or any of its Restricted Subsidiaries to pay
final judgments aggregating in excess of $20.0 million (net of any
amounts with respect to which a reputable and credit worthy
insurance company has acknowledged liability in writing), which
judgments are not paid, discharged or stayed for a period of 60
days;
(vii) Holding or any of its Significant Subsidiaries or any group of
Subsidiaries that, taken as a whole would constitute a Significant
Subsidiary, pursuant to or within the meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in an
involuntary case,
(c) consents to the appointment of a Custodian of it or for all or
substantially all of its property,
(d) makes a general assignment for the benefit of its creditors, or
(e) generally is not paying its debts as they become due; or
(viii) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(a) is for relief against Holding or any of its Significant
Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary in an
involuntary case;
(b) appoints a Custodian of Holding or any of its Significant
Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary or for all or
substantially all of the property of Holding or any of its
Significant Subsidiaries or any group of Subsidiaries that,
taken as a whole, would constitute a Significant Subsidiary; or
(c) orders the liquidation of Holding or any of its Significant
Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60
consecutive days.
The term "Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
Section 6.02. Acceleration.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of the then outstanding
Notes may declare all the Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default as described
in clause (vii) or (viii) of Section 6.01 hereof, all outstanding Notes will
become due and payable without further action
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or notice. Upon any acceleration of maturity of the Notes, all principal of and
accrued interest and Liquidated Damages, if any, on (if on or after April 15,
2003), or Accreted Value of and Liquidated Damages, if any, on (if prior to
April 15, 2003), the Notes shall be due and payable immediately. Holders of the
Notes may not enforce this Indenture or the Notes except as provided in this
Indenture. In the event of a declaration of acceleration of the Notes because an
Event of Default has occurred and is continuing as a result of the acceleration
of any Indebtedness described in clause (v) of Section 6.01 hereof, the
declaration of acceleration of the Notes shall be automatically annulled if the
holders of any Indebtedness described in clause (v) of Section 6.01 hereof have
rescinded the declaration of acceleration in respect of such Indebtedness within
30 days of the date of such declaration and if (y) the annulment of the
acceleration of the Notes would not conflict with any judgment or decree of a
court of competent jurisdiction and (z) all existing Events of Default, except
nonpayment of principal or interest on the Notes that became due solely because
of the acceleration of the Notes, have been cured or waived.
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy to collect the payment of principal, premium, if any, interest
and Liquidated Damages, if any, on the Notes or to enforce the performance of
any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
Holding is required to deliver to the Trustee annually a statement
regarding compliance with this Indenture, and Holding is required upon becoming
aware of any Default or Event of Default, to deliver to the Trustee a statement
specifying such Default or Event of Default.
Section 6.04. Waiver of Defaults.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
this Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes, which shall require the consent of
all of the Holders of the Notes then outstanding.
Section 6.05. Control by Majority.
The Holders of a majority in aggregate principal amount of the then
outstanding Notes may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust power conferred on it. However, (i) the Trustee may refuse to follow any
direction that conflicts with law or this Indenture, that the Trustee determines
may be unduly prejudicial to the rights of other Holders of Notes or that may
involve the Trustee in personal liability, and (ii) the Trustee may take any
other action deemed proper by the Trustee which is not inconsistent with such
direction. In case an Event of Default shall occur (which shall not be cured),
the Trustee will be required, in the exercise of its power, to use the degree of
care of a prudent man in the conduct of his own affairs. Notwithstanding any
provision to the contrary in this Indenture, the Trustee is under no obligation
to exercise any of its rights or powers under this Indenture at the request of
any Holder of Notes, unless such
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Holder shall offer to the Trustee security and indemnity satisfactory to it
against any loss, liability or expense.
Section 6.06. Limitation on Suits.
A Holder of a Note may pursue a remedy with respect to this Indenture or
the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default or the Trustee receives such notice from
Holding;
(b) the Holders of at least 25% in aggregate principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the
remedy;
(c) such Holder of a Note or Holders of Notes offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision
of indemnity; and
(e) during such 60-day period the Holders of a majority in aggregate
principal amount of the then outstanding Notes do not give the Trustee
a direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of
another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
Section 6.07. Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium, if any, interest, and
Liquidated Damages, if any, on such Note, on or after the respective due dates
expressed in such Note (including in connection with an offer to purchase), or
to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of such
Holder.
Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(i) or (ii) hereof occurs
and is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against Holding (or any other obligor on the
Notes) for the whole amount of principal of, premium and Liquidated Damages, if
any, and interest remaining unpaid on the Notes and interest on overdue
principal and, to the extent lawful, interest and such further amount as shall
be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
Section 6.09. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to Holding (or
any other obligor upon the Notes), its creditors or its property and shall be
entitled and empowered to collect, receive and
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distribute any money or other securities or property payable or deliverable upon
the conversion or exchange of the Notes or on any such claims and any Custodian
in any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07 hereof. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof out
of the estate in any such proceeding, shall be denied for any reason, payment of
the same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties that the
Holders may be entitled to receive in such proceeding whether in liquidation or
under any plan of reorganization or arrangement or otherwise. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article 6, it shall pay
out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium, if any, interest, and Liquidated Damages, if any,
ratably, without preference or priority of any kind, according to the amounts
due and payable on the Notes for principal, premium, if any, interest, and
Liquidated Damages, if any, respectively;
Third: without duplication, to the Holders for any other Obligations
owing to the Holders under this Indenture and the Notes; and
Fourth: to Holding or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section 6.11
does not apply to a suit by the Trustee, Holding, a suit by a Holder of a Note
pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
aggregate principal amount of the then outstanding Notes.
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ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing of which a
Responsible Officer of the Trustee has knowledge, the Trustee shall
exercise such of the rights and powers vested in it by this Indenture
and use the same degree of care and skill in its exercise, as a
prudent man would exercise or use under the circumstances in the
conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture or the TIA and the Trustee
need perform only those duties that are specifically set forth in
this Indenture or the TIA and no others, and no implied covenants
or obligations shall be read into this Indenture against the
Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates
or opinions furnished to the Trustee and conforming to the
requirements of this Indenture. However, the Trustee shall
examine the certificates and opinions to determine whether or not
they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own negligent
action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section 7.01;
(ii) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts;
and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), (c), (e) and (f) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this
Indenture at the request of any Holders, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it
against any loss, liability or expense.
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(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with Holding. Money
held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
Section 7.02. Rights of Trustee.
(a) The Trustee may conclusively rely on the truth of the statements and
correctness of the opinions contained in, and shall be protected from
acting or refraining from acting upon, any document reasonably
believed by it to be genuine and to have been signed or presented by
the proper Person. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good
faith in reliance on such Officers' Certificate or Opinion of Counsel.
Prior to taking, suffering or admitting any action, the Trustee may
consult with counsel of the Trustee's own choosing and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection from liability in respect of any
action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not be
responsible for the misconduct or negligence of any agent (other than
an agent who is an employee of the Trustee) appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it reasonably believes to be authorized or
within the rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from Holding shall be sufficient if
signed by an Officer of Holding.
(f) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction
of any of the Holders unless such Holders shall have offered to the
Trustee reasonable security or indemnity satisfactory to the Trustee
against the costs, expenses and liabilities that might be incurred by
it in compliance with such request or direction.
(g) Except with respect to Section 4.01 hereof, the Trustee shall have no
duty to inquire as to the performance of Holding's covenants in
Article 4 hereof. In addition, the Trustee shall not be deemed to
have knowledge of any Default or Event of Default except (i) any Event
of Default occurring pursuant to Sections 6.01(a) (except that the
Trustee shall not be deemed to have knowledge of a default in the
payment of Liquidated Damages) or 6.01(b), or (ii) any Default or
Event of Default of which a Responsible Office of the Trustee shall
have received written notification or obtained actual knowledge.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner of
Notes and may otherwise deal with Holding or any Affiliate of Holding with the
same rights it would have if it were not Trustee. The Trustee shall comply with
TIA Section 310(b); provided, however, that there shall be
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excluded from the operation of TIA Section 310(b)(1) any indenture or indentures
under which other securities or certificates of interest or participation in
other securities of Holding are outstanding if the requirements for such
exclusion set forth in TIA Section 310(b)(1) are met. Any Agent may do the same
with like rights and duties. The Trustee is also subject to Sections 7.10 and
7.11 hereof.
Section 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for Holding's use of the proceeds from the Notes or any money paid
to Holding or upon Holding's direction under any provision of this Indenture, it
shall not be responsible for the use or application of any money received by any
Paying Agent other than the Trustee, and it shall not be responsible for any
statement or recital herein or any statement in the Notes or any other document
in connection with the sale of the Notes or pursuant to this Indenture other
than its certificate of authentication.
Section 7.05. Notice of Defaults.
If a Default or an Event of Default occurs and is continuing and if it is
known to a Responsible Officer of the Trustee, the Trustee shall mail to Holders
of Notes a notice of the Default or Event of Default within 90 days after it
occurs, unless such Default or Event of Default has been cured or waived. Except
in the case of a Default or Event of Default in payment on any Note pursuant to
Section 6.01(i) or (ii) hereof, the Trustee may withhold the notice if and so
long as a committee of its Responsible Officers in good faith determines that
withholding the notice is in the interests of the Holders of the Notes.
Section 7.06. Reports by Trustee to Holders of the Notes.
Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture, and for so long as Notes remain outstanding, the Trustee
shall mail to the Holders of the Notes a brief report dated as of such reporting
date that complies with TIA (S) 313(a) (but if no event described in TIA (S)
313(a) has occurred within the twelve months preceding the reporting date, no
report need be transmitted). The Trustee also shall comply with TIA (S) 313(b).
The Trustee shall also transmit by mail all reports as required by TIA (S)
313(c).
A copy of each report at the time of its mailing to the Holders of Notes
shall be mailed to Holding and filed with the Commission and each stock exchange
on which Holding has informed the Trustee in writing the Notes are listed in
accordance with TIA (S) 313(d). Holding shall promptly notify the Trustee when
the Notes are listed on any stock exchange and of any delisting thereof.
Section 7.07. Compensation and Indemnity.
Holding shall pay to the Trustee from time to time reasonable compensation
for its acceptance of this Indenture and services hereunder. To the extent
permitted by law, the Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. Holding shall reimburse the
Trustee promptly upon request for all reasonable disbursements, advances and
expenses incurred or made by it in addition to the compensation for its
services. Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel. Holding need
not reimburse any expense incurred by the Trustee or any of its agents or
counsel through the wilful misconduct, negligence or bad faith of the Trustee or
any such agent or counsel.
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Holding shall indemnify the Trustee against any and all losses, liabilities
or expenses incurred by it arising out of or in connection with the acceptance
or administration of its duties under this Indenture, including the costs and
expenses of enforcing this Indenture against Holding (including this Section
7.07) and defending itself against any claim (whether asserted by Holding or any
Holder or any other person) or liability in connection with the exercise or
performance of any of its powers or duties hereunder except to the extent any
such loss, liability or expense may be attributable to its negligence, wilful
misconduct or bad faith. The Trustee shall notify Holding promptly of any claim
for which it may seek indemnity. Failure by the Trustee to so notify Holding
shall not relieve Holding of its obligations hereunder, except to the extent
such failure shall have materially prejudiced Holding. Holding shall defend the
claim and the Trustee shall cooperate in the defense. The Trustee may have
separate counsel and Holding shall pay the reasonable fees and expenses of such
counsel. Holding need not pay for any settlement made without its consent,
which consent shall not be unreasonably withheld.
The obligations of Holding under this Section 7.07 shall survive the
resignation and removal of the Trustee and the satisfaction and discharge of
this Indenture.
To secure Holding's payment obligations in this Section 7.07, the Trustee
shall have a Lien prior to the Notes on all money or property held or collected
by the Trustee, except that held in trust to pay principal, interest and
Liquidated Damages, if any, on particular Notes. Such Lien shall survive the
satisfaction and discharge of this Indenture and the resignation or removal of
the Trustee.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01 (vii) or (viii) hereof occurs, the expenses
and the compensation for the services (including the fees and expenses of its
agents and counsel) are intended to constitute expenses of administration under
any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA (S) 313(b)(2) to the
extent applicable.
Section 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.08.
The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying Holding. The Holders of a majority in
aggregate principal amount of the then outstanding Notes may remove the Trustee
by so notifying the Trustee and Holding in writing. Holding may remove the
Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy
Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, Holding shall promptly appoint a successor Trustee.
Within one year after the successor Trustee takes
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office, the Holders of a majority in aggregate principal amount of the then
outstanding Notes may appoint a successor Trustee to replace the successor
Trustee appointed by Holding.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, Holding, or the
Holders of at least 10% in aggregate principal amount of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after written request by any Holder of a Note who has been
a Holder of a Note for at least six months, fails to comply with Section 7.10
hereof, such Holder of a Note may petition any court of competent jurisdiction
for the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to Holding. Thereupon, the resignation or removal
of the retiring Trustee shall become effective, and the successor Trustee shall
have all the rights, powers and the duties of the Trustee under this Indenture.
The successor Trustee shall mail a notice of its succession to the Holders of
the Notes. The retiring Trustee shall promptly transfer all property held by it
as Trustee to the successor Trustee, provided that all sums owing to the Trustee
hereunder have been paid and subject to the Lien provided for in Section 7.07
hereof. Notwithstanding replacement of the Trustee pursuant to this Section
7.08, Holding's obligations under Section 7.07 hereof shall continue for the
benefit of the retiring Trustee.
Section 7.09. Successor Trustee by Merger, etc.
If the Trustee or any Agent consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee or any Agent, as applicable.
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof, is authorized under such laws to exercise corporate
trustee power, and is subject to supervision or examination by federal or state
authorities. The Trustee and its direct parent shall at all times have a
combined capital surplus of at least $50.0 million as set forth in its most
recent annual report of condition.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA (S) 310(a)(1), (2) and (5). The Trustee is subject to TIA (S) 310(b);
provided, however, that there shall be excluded from the operation of TIA
Section 310(b)(1) any indenture or indentures under which other securities or
certificates of interest or participation in other securities of Holding are
outstanding if the requirements for such exclusion set forth in TIA Section
310(b)(1) are met.
Section 7.11. Preferential Collection of Claims Against Holding.
The Trustee is subject to TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
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ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.
Holding may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or Section 8.03 hereof be applied to all Notes then
outstanding upon compliance with the conditions set forth below in this Article
8.
Section 8.02. Legal Defeasance and Discharge.
Upon Holding's exercise under Section 8.01 hereof of the option applicable
to this Section 8.02, Holding shall, subject to the satisfaction of the
conditions set forth in Section 8.04 hereof, be deemed to have been discharged
from their respective obligations with respect to all Notes then outstanding on
the date the conditions set forth below are satisfied ("Legal Defeasance"). For
this purpose, Legal Defeasance means that Holding shall be deemed to have paid
and discharged the entire Indebtedness represented by the Notes outstanding,
which shall thereafter be deemed to be "outstanding" only for the purposes of
Section 8.05 and the other Sections of this Indenture referred to in (a) and (b)
below, and to have satisfied all of Holding's other obligations under such Notes
and this Indenture (and the Trustee, on demand of and at the expense of Holding,
shall, subject to Section 8.07, execute proper instruments acknowledging the
same), except for the following provisions which shall survive until otherwise
terminated or discharged hereunder: (a) the rights of Holders of outstanding
Notes to receive payments in respect of the principal amount at maturity,
premium, if any, and interest and Liquidated Damages on such Notes when such
payments are due from the trust referred to in Section 8.04(a); (b) Holding's
obligations with respect to such Notes under Sections 2.03, 2.04, 2.05, 2.06,
2.07, 2.10, 4.02 and 4.03 hereof; (c) the rights, powers, trusts, duties and
immunities of the Trustee and Holding's obligations in connection therewith; and
(d) the provisions of this Section 8.02.
Section 8.03. Covenant Defeasance.
Upon Holding's exercise under Section 8.01 hereof of the option applicable
to this Section 8.03, Holding shall, subject to the satisfaction of the
conditions set forth in Section 8.04 hereof, be released from its obligations
under the covenants contained in Article 5 and in Sections 4.03, 4.07, 4.08,
4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16 and 5.01 hereof with respect to the
outstanding Notes on and after the date the conditions set forth below are
satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter
be deemed not "outstanding" for the purposes of any direction, waiver, consent
or declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Notes shall not
be deemed outstanding for accounting purposes). For this purpose, Covenant
Defeasance means that, with respect to the outstanding Notes, Holding or any of
its Subsidiaries may omit to comply with and shall have no liability in respect
of any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such covenant to any other
provision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 6.01 hereof, but,
except as specified above, the remainder of this Indenture and such Notes shall
be unaffected thereby. In addition, upon Holding's exercise under Section 8.01
hereof of the option applicable to this Section 8.03, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, Sections
6.01(iii), 6.01(iv) (with respect to the covenants specified in the first
sentence hereof) and 6.01(v) hereof shall not constitute Events of Default.
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Section 8.04. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either Section
8.02 or Section 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) Holding must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the Notes, cash in U.S. dollars, non-
callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the
principal amount at maturity or Accreted Value (as applicable) of,
premium, if any, and interest and Liquidated Damages on the
outstanding Notes on the stated maturity or on the applicable
redemption date, as the case may be, and Holding must specify whether
the Notes are being defeased to maturity or to a particular redemption
date;
(b) in the case of Legal Defeasance, Holding shall have delivered to the
Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) Holding has received
from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date hereof, there has been a change in the
applicable federal income tax law, in either case to the effect that,
and based thereon such opinion of counsel shall confirm that, subject
to customary assumptions and exclusions, the Holders of the
outstanding Notes shall not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(c) in the case of Covenant Defeasance, Holding shall have delivered to
the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, the Holders of the outstanding Notes shall
not recognize income, gain or loss for federal income tax purposes as
a result of such Covenant Defeasance and shall be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(d) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit (other than a Default or Event of Default
resulting from the financing of amounts to be applied to such deposit)
or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after
the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than this Indenture) to which Holding
or any of its Subsidiaries is a party or by which Holding or any of
its Subsidiaries is bound;
(f) Holding shall have delivered to the Trustee an opinion of counsel to
the effect that, subject to customary assumptions and exclusions
(which assumptions and exclusions shall not relate to the operation of
Section 547 of the United States Bankruptcy Code or any analogous New
York State law provision), after the 91st day following the deposit,
the
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trust funds shall not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(g) Holding shall have delivered to the Trustee an Officers' Certificate
stating that the deposit was not made by Holding with the intent of
preferring the Holders of Notes over the other creditors of Holding
with the intent of defeating, hindering, delaying or defrauding
creditors of Holding or others; and
(h) Holding shall have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
Section 8.05. Deposited Money and U.S. Government Securities to be Held in
Trust; Other Miscellaneous Provisions.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the then outstanding
Notes shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including Holding or any Subsidiary acting as Paying
Agent) as the Trustee may determine, to the Holders of such Notes of all sums
due and to become due thereon in respect of principal of, premium, if any, and
interest and Liquidated Damages, if any, on such Notes but such money need not
be segregated from other funds except to the extent required by law.
Holding shall pay and indemnify the Trustee against any tax, fee or other
charge imposed on or assessed against the cash or non-callable Government
Securities deposited pursuant to Section 8.04 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the Trustee
shall deliver or pay to Holding from time to time at Holding's written request
and be relieved of all liability with respect to any money or non-callable
Government Securities held by it as provided in Section 8.04 hereof which, in
the opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee (which may
be the opinion delivered under Section 8.04(a) hereof), are in excess of the
amount thereof that would then be required to be deposited to effect an
equivalent Legal Defeasance or Covenant Defeasance.
Section 8.06. Repayment to Holding.
Any money deposited with the Trustee or any Paying Agent, or then held by
Holding, in trust for the payment of the principal of, premium, if any, interest
and Liquidated Damages, if any, on any Note and remaining unclaimed for one year
after such principal, and premium, if any, or interest, if any, or Liquidated
Damages, if any, have become due and payable shall be paid to Holding on its
written request or (if then held by Holding) shall be discharged from such
trust; and the Holder of such Note shall thereafter, as an unsecured general
creditor, look only to Holding for payment thereof, and all liability of the
Trustee or such Paying Agent with respect to such trust money, and all liability
of Holding as trustee thereof, shall thereupon cease; provided, however, that
the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of Holding cause to be published once, in the New
York Times and The Wall Street Journal (national edition), notice that such
money remains unclaimed
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and that, after a date specified therein, which shall not be less than 30 days
from the date of such notification or publication, any unclaimed balance of such
money then remaining shall be repaid to Holding.
Section 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States dollars
or non-callable Government Securities in accordance with Section 8.02 hereof or
Section 8.03 hereof, as the case may be, by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the obligations of Holding under this
Indenture, and the Notes shall be revived and reinstated as though no deposit
had occurred pursuant to Section 8.02 hereof or Section 8.03 hereof, as the case
may be, until such time as the Trustee or Paying Agent is permitted to apply all
such money in accordance with Section 8.02 hereof or Section 8.03 hereof, as the
case may be; provided, however, that, if Holding makes any payment of principal
of, premium, if any, interest or Liquidated Damages, if any, on any Note
following the reinstatement of its obligations, Holding shall be subrogated to
the rights of the Holders of such Notes to receive such payment from the money
held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of the Notes.
Notwithstanding Section 9.02 of this Indenture, without the consent of any
Holder of Notes, Holding and the Trustee may amend or supplement this Indenture
or the Notes:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(c) to provide for the assumption of Holding's obligations to the Holders
of the Notes in the case of a merger or consolidation pursuant to
Article 5 hereof;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not materially
adversely affect the legal rights hereunder of any Holder of the
Notes; or
(e) to comply with requirements of the Commission in order to effect or
maintain the qualification of this Indenture under the TIA.
Upon the written request of Holding accompanied by a resolution of its
Board of Directors of Holding authorizing the execution of any such amended or
supplemental indenture, and upon receipt by the Trustee of the documents
described in Section 9.06 hereof, the Trustee shall join with Holding in the
execution of any amended or supplemental indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.
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<PAGE>
Section 9.02. With Consent of Holders of Notes.
Except as provided below in this Section 9.02, this Indenture and the Notes
issued hereunder may be amended or supplemented with the consent of the Holders
of at least a majority in aggregate principal amount of the Notes then
outstanding (including, without limitation, consents obtained in connection with
a purchase of, or a tender offer or exchange offer for, Notes), and subject to
Sections 6.04 and 6.07 hereof, any existing default or compliance with any
provision of this Indenture or the Notes may be waived with the consent of the
Holders of a majority in aggregate principal amount of the then outstanding
Notes (including, without limitation, consents obtained in connection with a
purchase of, or a tender offer or exchange offer for, the Notes).
Upon the request of Holding accompanied by a resolution of its Board of
Directors authorizing the execution of any such amended or supplemental
indenture, and upon the filing with the Trustee of evidence reasonably
satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid,
and upon receipt by the Trustee of an Officers' Certificate and an Opinion of
Counsel, the Trustee shall join with Holding in the execution of such amended or
supplemental indenture unless such amended or supplemental inden ture affects
the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may, but shall not be obligated to, enter
into such amended or supplemental indenture.
It shall not be necessary for the consent of the Holders of Notes under
this Section 9.02 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof. After an amendment, supplement or waiver under this Section 9.02
becomes effective, Holding shall mail to the Holders of each Note affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of Holding to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental indenture or waiver.
Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in
aggregate principal amount of the Notes then outstanding may amend or waive
compliance in a particular instance by Holding with any provision of this
Indenture or the Notes. However, without the consent of each Holder affected,
an amendment, or waiver may not (with respect to any Note held by a non-
consenting Holder):
(a) reduce the principal amount of Notes whose Holders must consent to an
amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Notes or
alter the provisions with respect to the redemption of the Notes
(other than provisions relating to Sections 3.09, 4.10 and 4.13
hereof) or amend or modify the calculation of Accreted Value so as to
reduce the amount of Accreted Value of the Notes;
(c) reduce the rate of or change the time for payment of interest on any
Note;
(d) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in
aggregate principal amount of the Notes and a waiver of the payment
default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in the Notes;
(f) make any change in Section 6.04 or 6.07 hereof;
61
<PAGE>
(g) waive a redemption or repurchase payment with respect to any Note
(other than a payment required by Section 4.10 or 4.13 hereof); or
(h) make any change in the amendment and waiver provisions of this Article
9.
Section 9.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes shall be set
forth in an amended or supplemental indenture that complies with the TIA as then
in effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent to it
by a Holder of a Note is a continuing consent by the Holder and every subsequent
Holder of a Note or portion of a Note that evidences the same debt as the
consenting Holder's Note, even if notation of the consent is not made on any
Note. However, any such Holder or subsequent Holder of a Note may revoke the
consent as to its Note if the Trustee receives written notice of revocation
before the date the waiver, supplement or amendment becomes effective. When an
amendment, supplement or waiver becomes effective in accordance with its terms,
it thereafter binds every Holder.
Holding may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders entitled to give their consent or take any
other action described above or required or permitted to be taken pursuant to
this Indenture. If a record date is fixed, then notwithstanding the immediately
preceding paragraph, those Persons who were Holders at such record date (or
their duly designated proxies), and only those Persons, shall be entitled to
give such consent or to revoke any consent previously given or to take any such
action, whether or not such Persons continue to be Holders after such record
date.
Section 9.05. Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. Holding in exchange
for all Notes may issue and the Trustee shall authenticate new Notes that
reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
Section 9.06. Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. Holding
may not sign an amendment or supplemental indenture until its Boards of
Directors approves it. In signing or refusing to sign any amended or
supplemental indenture the Trustee shall be entitled to receive and (subject to
Section 7.01 hereof) shall be fully protected in relying upon an Officers'
Certificate and an Opinion of Counsel stating that the execution of such amended
or supplemental indenture is authorized or permitted by this Indenture, that it
is not inconsistent herewith, and that it will be valid and binding upon Holding
in accordance with its terms.
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<PAGE>
ARTICLE 10
MISCELLANEOUS
Section 10.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by TIA (S)318(c), the imposed duties shall control.
Section 10.02. Notices.
Any notice or communication by Holding or the Trustee to the others is duly
given if in writing and delivered in Person or mailed by first class mail
(registered or certified, return receipt requested), tele copier or overnight
air courier guaranteeing next day delivery, to the others' address:
If to Holding:
Advance Holding Corporation
5673 Airport Road
Roanoke, Virginia 24012
Telecopier: 540.561.1699
Attention: Chief Financial Officer
If to the Trustee:
United States Trust Company of New York
114 West 47th Street, 25th Floor
New York, New York 10036-1532
Telecopier No.: 212.852.1626
Attention: Corporate Trust Department
Holding or the Trustee, by notice to the others may designate additional or
different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when receipt acknowledged, if telecopied; and the next
Business Day after timely delivery to the courier, if sent by overnight air
courier promising next Business Day delivery.
Any notice or communication to a Holder shall be mailed by first class mail
or by overnight air courier promising next Business Day delivery to its address
shown on the register kept by the Registrar. Any notice or communication shall
also be so mailed to any Person described in TIA (S) 313(c), to the extent
required by the TIA. Failure to mail a notice or communication to a Holder or
any defect in it shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it,
or notice or communication, however, shall not be effective unless, in the case
of the Trustee, actually received.
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<PAGE>
If Holding mails a notice or communication to Holders, it shall mail a copy
to the Trustee and each Agent at the same time.
Section 10.03. Communication by Holders of Notes with Other Holders of Notes.
Holders may communicate pursuant to TIA (S) 312(b) with other Holders with
respect to their rights under this Indenture or the Notes. Holding, the
Trustee, the Registrar and anyone else shall have the protection of TIA (S)
312(c).
Section 10.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by Holding to the Trustee to take any
action under this Indenture (other than the initial issuance of the Notes),
Holding shall furnish to the Trustee upon request:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 10.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 10.05 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been satisfied.
Section 10.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA (S) 314(a)(4)) shall comply with the provisions of TIA (S)
314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
Any certificate or opinion of an Officer of Holding may be based, insofar
as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such Officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous, and provided that any such certificate or opinion names the Trustee
as an addressee and is furnished to the Trustee at the time of delivery of such
certificate or opinion. Any such certificate or Opinion of Counsel may be
based, insofar as it relates to factual matters, upon a certificate or opinion
of, or representations by, an officer or officers of Holding stating that the
information with respect to such factual matters is in the possession of
Holding,
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<PAGE>
unless such counsel knows, or in the exercise of reasonable care should know,
that the certificate or opinion or representations with respect to such matters
are erroneous. Opinions of Counsel required to be delivered to the Trustee may
have qualifications customary for opinions of the type required and counsel
delivering such Opinions of Counsel may rely on certificates of Holding or
government or other officials customary for opinions of the type required,
including certificates certifying as to matters of fact, including that various
financial covenants have been complied with.
Section 10.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 10.07. No Personal Liability of Directors, Officers, Employees and
Stockholders.
No director, officer, employee, incorporator or stockholder of Holding, as
such, shall have any liability for any obligations of Holding under the Notes,
this Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes.
Section 10.08. Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE AND THE NOTES.
Section 10.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan or
debt agreement of Holding or its Subsidiaries or of any other Person. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
Section 10.10. Successors.
All agreements of Holding in this Indenture and the Notes shall bind their
respective successors and assigns. All agreements of the Trustee in this
Indenture shall bind its successors and assigns.
Section 10.11. Severability.
In case any provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
Section 10.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
65
<PAGE>
Section 10.13. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part of this Indenture and shall in no way
modify or restrict any of the terms or provisions hereof.
Section 10.14. Benefits of Indenture.
Nothing in this Indenture or in the Notes, express or implied, shall give
to any Person, other than the parties hereto, the Holders of the Notes, any
benefits or any legal or equitable right, remedy or claim under this Indenture
or the Securities.
[Signatures commence on following page]
66
<PAGE>
SIGNATURES
Dated as of April 15, 1998
ADVANCE HOLDING CORPORATION
By: /s/ J. O'Neil Leftwich
-----------------------------------------
Name: J. O'Neil Leftwich
Title: Senior Vice President and Chief
Financial Officer, Secretary and
Treasurer
UNITED STATES TRUST COMPANY OF NEW YORK
as Trustee
By: /s/ Louis P. Young
---------------------------------
Name: Louis P. Young
Title: Trustee
<PAGE>
Exhibit A-1
-----------
(Face of Note)
12.875% Senior Discount Debentures due 2009
No. ___ $[_______________]
CUSIP NO. [______]
ADVANCE HOLDING CORPORATION
promises to pay to _________________ or registered assigns, the principal sum of
___________ Dollars ($___________) on April 15, 2009.
Interest Payment Dates: April 15 and October 15
Record Dates: April 1 and October 1
Cash payments of interest commence: October 15, 2003
ADVANCE HOLDING CORPORATION
By:______________________________
Name:
Title:
This is one of the 12.875% Senior Discount Debentures
referred to in the within-mentioned Indenture:
Dated: ____________________
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
By:__________________________________
Authorized Signatory
A-1-1
<PAGE>
(Back of Note)
12.875% Senior Discount Debentures
due 2009
[Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) ("DTC"), to the issuer or its agent for registration of transfer, exchange
or payment, and any certificate issued is registered in the name of Cede & Co.
or such other name as may be requested by an authorized representative of DTC
(and any payment is made to Cede & Co. or such other entity as may be requested
by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL in as much as the
registered owner hereof, Cede & Co., has an interest herein.]/1/
[THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS, EXCEPT AS SET FORTH IN THE THIRD SENTENCE HEREOF. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS ACQUIRING THIS
NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(A) (1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT (AN "IAI")), (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO HOLDING OR ANY OF ITS SUBSIDIARIES, (B) TO
A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN
IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER
OF THIS NOTE (THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF
SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS
THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO HOLDING THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
(AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO HOLDING) OR (G)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES
ACT. THE INDENTURE CONTAINS A
- ----------------------------
/1/ This paragraph should be included only if the Note is issued in global
form.
A-1-2
<PAGE>
PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS
NOTE IN VIOLATION OF THE FOREGOING.]/2/
FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED, THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE
DISCOUNT; FOR EACH $1,000 PRINCIPAL AMOUNT OF THIS SECURITY, THE ISSUE
PRICE IS $535.86, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $1,236.64, THE
ISSUE DATE IS APRIL 15, 1998 AND THE YIELD TO MATURITY IS 12.875% PER
ANNUM.
- ---------------------
/2/ This paragraph should be removed upon the exchange of Senior Discount
Debentures for New Senior Discount Debentures in the Exchange Offer or upon
the registration of the Senior Discount Debentures pursuant to the terms of
the Registration Rights Agreement.
A-1-3
<PAGE>
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. Principal and Interest. If all of the Notes issuable under the Indenture
are issued, such Notes will accrete in value in the manner specified in
the Indenture to an aggregate principal amount of $112,000,000 by April
15, 2003. The principal amount at Stated Maturity of this Note is set
forth on the face hereof. Advance Holding Corporation or its successor
("Holding"), promises to pay interest as and to the extent provided
below in this paragraph 1 on the principal amount of this Note at the
rate of 12.875% per annum, commencing to accrue on April 15, 2003, and
shall pay the Liquidated Damages, if any, payable pursuant to Section 5
of the Registration Rights Agreement referred to below. Holding will pay
interest and Liquidated Damages, if any, in United States dollars
(except as otherwise provided herein) semi-annually in arrears on April
15 and October 15, commencing on October 15, 2003, or if any such day is
not a Business Day, on the next succeeding Business Day (each an
"Interest Payment Date"). Interest on the Notes shall accrue from the
most recent date to which interest has been paid or, if no interest has
been paid, from April 15, 2003; provided that if there is no existing
Default or Event of Default in the payment of interest, and if this Note
is authenticated between a record date referred to on the face hereof
and the next succeeding Interest Payment Date, interest shall accrue
from such next succeeding Interest Payment Date, except in the case of
the original issuance of Notes, in which case interest shall accrue from
April 15, 2003. Holding shall pay interest (including, to the extent
permitted by applicable law, post-petition interest in any proceeding
under any Bankruptcy Law) on overdue principal (or Accreted Value, if
applicable) at the rate equal to 1% per annum in excess of the then
applicable interest rate on the Notes to the extent lawful; it shall pay
interest (including, to the extent permitted by applicable law, post-
petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest and Liquidated Damages (without regard to any
applicable grace period) at the same rate to the extent lawful. Interest
shall be computed on the basis of a 360-day year comprised of twelve 30-
day months.
2. Method of Payment. Holding will pay interest on the Notes and Liquidated
Damages, if any, on the applicable Interest Payment Date to the Persons
who are registered Holders of Notes at the close of business on the
April 1 or October 1 next preceding the Interest Payment Date, even if
such Notes are cancelled after such record date and on or before such
Interest Payment Date, provided that defaulted interest shall be paid in
accordance with Section 2.12 of the Indenture. The Notes shall be
payable as to principal, premium and Liquidated Damages, if any, and
interest at the office or agency of Holding maintained for such purpose
within or without the City and State of New York, or, at the option of
Holding, payment of interest and Liquidated Damages, if any, may be made
by check mailed to the Holders at their addresses set forth in the
register of Holders; provided that payment by wire transfer of
immediately available funds shall be required with respect to principal
of, premium and Liquidated Damages, if any, and interest on, all Global
Notes. Such payment shall be in such coin or currency of the United
States of America as at the time of payment is legal tender for payment
of public and private debts.
3. Paying Agent and Registrar. Initially, United States Trust Company of
New York, the Trustee under the Indenture, shall act as Paying Agent and
Registrar. Holding may change any Paying Agent or Registrar without
notice to any Holder. Holding or any of its Subsidiaries may act in any
such capacity.
A-1-4
<PAGE>
4. Indenture. Holding issued the Notes under an Indenture dated as of April
15, 1998 ("Indenture") between Holding and the Trustee. The terms of the
Notes include those stated in the Indenture and those made a part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended
(15 U.S. Code (S)(S) 77aaa-77bbbb) (the "TIA"). The Notes are subject to
all such terms, and Holders are referred to the Indenture and such Act
for a statement of such terms. The Notes are general unsecured
Obligations of Holding limited to $112 million in aggregate principal
amount at maturity.
5. Optional Redemption.
Except as set forth in the next paragraph, the Notes shall not be
redeemable at Holding's option prior to April 15, 2003. Thereafter, the
Notes shall be subject to redemption at any time at the option of Holding,
in whole or in part, upon not less than 30 nor more than 60 days' notice,
at the redemption prices (expressed as percentages of principal amount) set
forth below together with accrued and unpaid interest and any Liquidated
Damages, if any, thereon to the applicable redemption date, if redeemed
during the twelve-month period beginning on April 15 of the years indicated
below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003........................................ 106.438%
2004........................................ 104.292%
2005........................................ 102.146%
2006 and thereafter......................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to April
15, 2001, Holding may (but shall not have the obligation to) redeem, on one
or more occasions, up to an aggregate of 35% of the principal amount at
maturity of the Notes originally issued at a redemption price equal to
112.875% of the Accreted Value thereof, plus accrued and unpaid Liquidated
Damages thereon, if any, to the redemption date, with the net proceeds of
one or more Equity Offerings; provided that, in each case, at least 65% of
the aggregate principal amount at maturity of the Notes originally issued
remains outstanding immediately after the occurrence of such redemption;
and provided, further, that such redemption shall occur within 90 days of
the date of the closing of such Equity Offering.
6. Mandatory Redemption.
Except as set forth in paragraph 7 below, Holding shall not be
required to make mandatory redemption or sinking fund payments with respect
to the Notes.
7. Repurchase at Option of Holder.
(a) Upon the occurrence of a Change of Control, each Holder of Notes
will have the right to require Holding to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant
to the offer described below (the "Change of Control Offer") at an offer
price in cash equal to 101% of the aggregate principal amount thereof at
maturity plus accrued and unpaid interest and Liquidated Damages, if any,
thereon, to the date of purchase or, in the case of repurchases prior to
April 15, 2003 at a purchase price equal to 101% of the Accreted Value
thereof on the
A-1-5
<PAGE>
date of purchase plus accrued and unpaid Liquidated Damages, if any,
thereon to the date of repurchase. Within 30 days following any Change of
Control, Holding will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control setting
forth the procedures governing the Change of Control Offer required by the
Indenture.
(b) In connection with any Asset Sale, when the aggregate amount of
Excess Proceeds exceeds $10.0 million, Holding will be required to make an
offer to all Holders of Notes and, to the extent required by the terms of
any Pari Passu Indebtedness to all holders of such Pari Passu Indebtedness
(an "Asset Sale Offer") to purchase the maximum principal amount of Notes
and any such Pari Passu Indebtedness that may be purchased out of the
Excess Proceeds, at an offer price in cash in an amount equal to 100% of
the Accreted Value thereof plus accrued and unpaid Liquidated Damages, if
any, thereon on the date of purchase (if such date of purchase is prior to
April 15, 2003) or 100% of the principal amount thereof at maturity plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the
date of purchase (if such date of purchase is on or after April 15, 2003),
in accordance with the procedures set forth in the Indenture or such Pari
Passu Indebtedness, as applicable. To the extent that the aggregate
principal amount at maturity of (or Accreted Value, as the case may be) and
any such Pari Passu Indebtedness tendered pursuant to an Asset Sale Offer
is less than the Excess Proceeds, Holding or its Restricted Subsidiaries
may use any remaining Excess Proceeds for general corporate purposes. If
the aggregate principal amount at maturity (or Accreted Value, as the case
may be) of the Notes and any such Pari Passu Indebtedness surrendered by
holders thereof exceeds the amount of Excess Proceeds, the Trustee shall
select the Notes to be purchased on a pro rata basis. Upon completion of
such offer to purchase, the amount of Excess Proceeds shall be reset at
zero.
(c) Holders of the Notes that are the subject of an offer to purchase
will receive a Change of Control Offer or Asset Sale Offer from Holding
prior to any related purchase date and may elect to have such Notes
purchased by completing the form titled "Option of Holder to Elect
Purchase" appearing below.
8. Notice of Redemption or Repurchase. Notice of redemption or repurchase
shall be mailed at least 30 days but not more than 60 days before the
redemption date or the repurchase date to each Holder whose Notes are to be
redeemed or repurchased at its registered address. Notes in denominations
larger than $1,000 may be redeemed or repurchased in part but only in whole
multiples of $1,000 principal amount at maturity, unless all of the Notes
held by a Holder are to be redeemed or repurchase. On and after the
redemption date or repurchase date, as the case may be, interest and
Liquidated Damages, if any, ceases to accrue on the Notes or portions
thereof called for redemption or repurchase, as the case may be, or the
Notes will cease to accrete in value, if applicable, unless Holding
defaults in making the redemption payment or repurchase payment, as the
case may be.
9. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in initial denominations of $1,000 and integral multiples
of $1,000. The transfer of the Notes may be registered and the Notes may
be exchanged as provided in the Indenture. The Registrar and the Trustee
may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and Holding may require a Holder to
A-1-6
<PAGE>
pay any taxes and fees required by law or permitted by the Indenture.
Holding need not exchange or register the transfer of any Note or portion
of a Note selected for redemption, except for the unredeemed portion of any
Note being redeemed in part. Also, it need not exchange or register the
transfer of any Notes for a period of 15 days before a selection of Notes
to be redeemed or during the period between a record date and the
corresponding Interest Payment Date.
10. Persons Deemed Owners. The registered Holder of a Note may be treated as
its owner for all purposes.
11. Amendment, Supplement and Waiver. Subject to the following paragraphs and
to the provisions of the Indenture, the Indenture and the Notes may be
amended or supplemented with the consent of the Holders of at least a
majority in aggregate principal amount of the Notes then outstanding
(including, without limitation, consents obtained in connection with a
purchase of, or tender offer or exchange offer for, Notes), and any
existing default or compliance with any provision of the Indenture or the
Notes may be waived with the consent of the Holders of a majority in
aggregate principal amount of the then outstanding Notes (including
consents obtained in connection with a purchase of, or a tender offer or
exchange offer for, Notes).
Without the consent of any Holder of Notes, Holding and the Trustee may
amend or supplement the Indenture or the Notes to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Notes in addition to
or in place of certificated Notes, to provide for the assumption of
Holding's obligations to Holders of Notes in the case of a merger or
consolidation, to make any change that would provide any additional rights
or benefits to the Holders of Notes or that does not materially adversely
affect the legal rights under the Indenture of any such Holder, to comply
with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act or to allow
any Subsidiary to guarantee the Notes.
12. Defaults and Remedies. Events of Default include: (i) default for 30 days
in the payment when due of interest on, or Liquidated Damages, if any, with
respect to, the Notes (whether or not prohibited by the subordination
provisions of the Indenture); (ii) default in payment when due of the
principal of or premium, if any, on the Notes (whether or not prohibited by
the subordination provisions of the Indenture); (iii) failure by Holding or
any of its Restricted Subsidiaries for 30 days after notice from the
Trustee or at least 25% in aggregate principal amount of the Notes then
outstanding to comply with the provisions described in Sections 4.07, 4.09,
4.10 and 4.13 of the Indenture; (iv) failure by Holding or any of its
Restricted Subsidiaries for 60 days after notice from the Trustee or the
Holders of at least 25% in aggregate principal amount of the Notes then
outstanding to comply with its other agreements in the Indenture or the
Notes; (v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by Holding or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by Holding or any of
its Restricted Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the Indenture, which default (a) is
caused by a failure to pay principal of or premium, if any, or interest on
such Indebtedness at final maturity (a "Payment Default") or (b) results in
the acceleration of such Indebtedness prior to its Stated Maturity and, in
each case, the principal amount of any such Indebtedness, together with the
A-1-7
<PAGE>
principal amount of any other such Indebtedness under which there has been
a Payment Default or the maturity of which has been so accelerated,
aggregates $20.0 million or more in the case of clause (a) or (b); (vi)
failure by Holding or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $20.0 million (net of any amounts with
respect to which a reputable and creditworthy insurance company has
acknowledged liability in writing), which judgments are not paid,
discharged or stayed for a period of 60 days; and (vii) certain events of
bankruptcy or insolvency with respect to Holding or any of its Significant
Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or
the Holders of at least 25% in principal amount of the then outstanding
Notes may declare all the Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising
from certain events of bankruptcy or insolvency, with respect to Holding,
all outstanding Notes will become due and payable without further action or
notice. Upon any acceleration of maturity of the Notes, all principal of
and accrued and unpaid interest and Liquidated Damages, if any, on (if on
or after April 15, 2003), or Accreted Value of and Liquidated Damages, if
any, on (if prior to April 15, 2003), the Notes shall be due and payable
immediately. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or
Event of Default (except a Default or Event of Default relating to the
payment of principal or interest) if it determines that withholding notice
is in their interest. In the event of a declaration of acceleration of the
Notes because an Event of Default has occurred and is continuing as a
result of the acceleration of any Indebtedness described in clause (v) of
the preceding paragraph, the declaration of acceleration of the Notes shall
be automatically annulled if the holders of any Indebtedness described in
clause (v) of the preceding paragraph have rescinded the declaration of
acceleration in respect of such Indebtedness within 30 days of the date of
such declaration and if (a) the annulment of the acceleration of Notes
would not conflict with any judgment or decree of a court of competent
jurisdiction and (b) all existing Events of Default, except nonpayment of
principal or interest on the Notes that became due solely because of the
acceleration of the Notes, have been cured or waived.
13. Trustee Dealings with Holding. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform
services for Holding or its Affiliates, and may otherwise deal with Holding
or its Affiliates, as if it were not the Trustee.
14. No Recourse Against Others. No director, officer, employee, incorporator or
stockholder, of Holding, as such, shall have any liability for any
obligations of Holding under the Notes or the Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes by accepting a Note waives and releases all
such liability. The waiver and release are part of the consideration for
the issuance of the Notes.
15. Authentication. This Note shall not be valid until authenticated by the
manual signature of the Trustee or an authenticating agent.
A-1-8
<PAGE>
16. Abbreviations. Customary abbreviations may be used in the name of a Holder
or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants
by the entireties), JT TEN (= joint tenants with right of survivorship and
not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. Additional Rights of Holders of Transfer Restricted Securities. In addition
to the rights provided to Holders of the Notes under the Indenture, Holders
of Transfer Restricted Securities (as defined in the Registration Rights
Agreement) shall have all the rights set forth in the Registration Rights
Agreement, dated as of the date hereof, among Holding and the Initial
Purchasers (the "Registration Rights Agreement").
18. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, Holding has caused CUSIP
numbers to be printed on the Notes and the Trustee may use CUSIP numbers in
notices of redemption as a convenience to the Holders. No representation is
made as to the accuracy of such numbers either as printed on the Notes or
as contained in any notice of redemption and reliance may be placed only on
the other identification numbers placed thereon.
Holding shall furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Advance Holding Corporation
5673 Airport Road
Roanoke, Virginia 24012
Telecopier: 540.561.1699
Attention: Chief Financial Officer
A-1-9
<PAGE>
Assignment Form
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
to transfer this Note on the books of Holding. The agent may substitute another
to act for him.
________________________________________________________________________________
Date: __________________
Your Signature: ______________________________
(Sign exactly as your name appears on
the face of this Note)
Signature Guarantee:
A-1-10
<PAGE>
Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by Holding pursuant
to Section 4.10 or 4.13 of the Indenture, check the box below:
[_] Section 4.10 [_] Section 4.13
If you want to elect to have only part of the Note purchased by
Holding pursuant to Section 4.10 or Section 4.13 of the Indenture, state the
principal amount at maturity which you elect to have purchased (which must be
$1,000 at Stated Maturity or integral multiples thereof): $___________
Date: __________________ Your Signature: ________________________
(Sign exactly as your name appears
on the Note)
Tax Identification No.:____________________
Signature Guarantee.
A-1-11
<PAGE>
SCHEDULE OF EXCHANGES OF NOTES/3/
THE FOLLOWING EXCHANGES OF A PART OF THIS GLOBAL NOTE FOR OTHER NOTES HAVE BEEN
MADE:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Amount of this Signature of
Amount of decrease in Amount of increase in Global Note following authorized
Principal Amount of this Principal Amount of this such decrease (or officer of Trustee or
Date of Exchange Global Note Global Note increase) Note Custodian
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
- -------------------------
/3/ This should be included only if the Note is issued in global form.
A-1-12
<PAGE>
Exhibit A-2
-----------
(Face of Regulation S Temporary Global Note)
12.875% Senior Discount Debentures due 2009
No. $[_______________]
CUSIP NO. [___]
ADVANCE HOLDING CORPORATION
promises to pay to _________________ or registered assigns, the principal sum of
___________ Dollars ($___________) on April 15, 2009.
Interest Payment Dates: April 15 and October 15
Record Dates: April 1 and October 1
Cash payments of interest commence: October 15, 2003
ADVANCE HOLDING CORPORATION
By:______________________________
Name:
Title:
This is one of the 12.875% Senior Discount Debentures
referred to in the within-mentioned Indenture:
Dated: ____________________
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
By:__________________________________
Authorized Signatory
A-2-1
<PAGE>
(Back of Regulation S Temporary Global Note)
12.875% Senior Discount Debentures due 2009
[UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO
THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"),
TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN]./1/
[THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS, EXCEPT AS SET FORTH IN THE THIRD SENTENCE HEREOF. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS ACQUIRING THIS
NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(A) (1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT (AN "IAI")), (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO HOLDING OR ANY OF ITS SUBSIDIARIES, (B) TO
A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN
IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER
OF THIS NOTE (THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF
SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS
THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO HOLDING THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
(AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO HOLDING) OR (G)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
- -----------------------------
/1/ This paragraph should be included only if the Note is issued in global
form.
A-2-2
<PAGE>
THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED
STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER
THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE
TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING.]/2/
[THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR DEFINITIVE NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN).
NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY
GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON PRIOR TO THE
EXCHANGE OF THIS NOTE FOR A REGULATION S PERMANENT GLOBAL NOTE AS CONTEMPLATED
BY THE INDENTURE.]
Until this Regulation S Temporary Global Note is exchanged for Regulation S
Permanent Global Notes, the Holder hereof shall not be entitled to receive
payments of interest or Liquidated Damages, if any, hereon although interest and
Liquidated Damages, if any, will continue to accrue; until so exchanged in full,
this Regulation S Temporary Global Note shall in all other respects be entitled
to the same benefits as other Notes under the Indenture.
This Regulation S Temporary Global Note is exchangeable in whole or in part
for one or more Regulation S Permanent Global Notes or Rule 144A Global Notes
only (i) on or after the termination of the 40-day restricted period (as defined
in Regulation S) and (ii) upon presentation of certificates (accompanied by an
Opinion of Counsel, if applicable) required by Article 2 of the Indenture. Upon
exchange of this Regulation S Temporary Global Note for one or more Regulation S
Permanent Global Notes or Rule 144A Global Notes, the Trustee shall cancel this
Regulation S Temporary Global Note.
This Regulation S Temporary Global Note shall not become valid or
obligatory until the certificate of authentication hereon shall have been duly
manually signed by the Trustee in accordance with the Indenture. This
Regulation S Temporary Global Note shall be governed by and construed in
accordance with the laws of the State of the New York. All references to "$,"
"Dollars," "dollars" or "U.S. $" are to such coin or currency of the United
States of America as at the time shall be legal tender for the payment of public
and private debts therein.
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. Principal and Interest. If all of the Notes issuable under the Indenture
are issued, such Notes will accrete in value in the manner specified in
the Indenture to an aggregate principal amount of $112,000,000 by April
15, 2003. The principal amount at Stated Maturity of this Note is set
forth on the face hereof. Advance Holding Corporation or its successor
("Holding"), promises to pay interest as and to the extent provided
below in this paragraph 1 on the principal amount of this Note at the
rate of 12.875% per annum commencing to accrue on April 15, 2003 and
shall pay the Liquidated Damages, if any, payable pursuant to Section 5
of the Registration Rights Agreement referred to below.
- -------------------
/2/ This paragraph should be removed upon the exchange of Notes for Exchange
Senior Discount Notes in the Exchange Offer or upon the registration of the
Notes pursuant to the terms of the Registration Rights Agreement.
A-2-3
<PAGE>
Holding will pay interest and Liquidated Damages, if any, in United
States dollars (except as otherwise provided herein) semi-annually in
arrears on April 15 and October 15, commencing on October 15, 2003, or
if any such day is not a Business Day, on the next succeeding Business
Day (each an "Interest Payment Date"). Interest on the Notes shall
accrue from the most recent date to which interest has been paid or, if
no interest has been paid, from April 15, 2003; provided that if there
is no existing Default or Event of Default in the payment of interest,
and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest
shall accrue from such next succeeding Interest Payment Date, except in
the case of the original issuance of Notes, in which case interest shall
accrue from April 15, 2003. Holding shall pay interest (including, to
the extent permitted by applicable law, post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal (or Accreted
Value, if applicable) at the rate equal to 1% per annum in excess of the
then applicable interest rate on the Notes to the extent lawful; it
shall pay interest (including, to the extent permitted by applicable
law, post-petition interest in any proceeding under any Bankruptcy Law)
on overdue installments of interest and Liquidated Damages (without
regard to any applicable grace period) at the same rate to the extent
lawful. Interest shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
2. Method of Payment. Holding will pay interest on the Notes and Liquidated
Damages, if any, on the applicable Interest Payment Date to the Persons who
are registered Holders of Notes at the close of business on the April 1 or
October 1 next preceding the Interest Payment Date, even if such Notes are
cancelled after such record date and on or before such Interest Payment
Date, provided that defaulted interest shall be paid in accordance with
Section 2.12 of the Indenture. The Notes shall be payable as to principal,
premium and Liquidated Damages, if any, and interest at the office or
agency of Holding maintained for such purpose within or without the City
and State of New York, or, at the option of Holding, payment of interest
and Liquidated Damages, if any, may be made by check mailed to the Holders
at their addresses set forth in the register of Holders; provided that
payment by wire transfer of immediately available funds shall be required
with respect to principal of, premium and Liquidated Damages, if any, and
interest on, all Global Notes. Such payment shall be in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.
3. Paying Agent and Registrar. Initially, United States Trust Company of New
York, the Trustee under the Indenture, shall act as Paying Agent and
Registrar. Holding may change any Paying Agent or Registrar without notice
to any Holder. Holding or any of its Subsidiaries may act in any such
capacity.
4. Indenture. Holding issued the Notes under an Indenture dated as of April
15, 1998 ("Indenture") between Holding and the Trustee. The terms of the
Notes include those stated in the Indenture and those made a part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (15
U.S. Code (S)(S) 77aaa-77bbbb) (the "TIA"). The Notes are subject to all
such terms, and Holders are referred to the Indenture and such Act for a
statement of such terms. The Notes are general unsecured Obligations of
Holding limited to $112 million in aggregate principal amount at maturity.
A-2-4
<PAGE>
5. Optional Redemption.
Except as set forth in the next paragraph, the Notes shall not be
redeemable at Holding's option prior to April 15, 2003. Thereafter, the
Notes shall be subject to redemption at the option of Holding, in whole or
in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth
below together with accrued and unpaid interest and any Liquidated Damages,
if any, thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on April 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003.......................................... 106.438%
2004.......................................... 104.292%
2005.......................................... 102.146%
2006 and thereafter........................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to April 15,
2001, Holding may (but shall not have the obligation to) redeem, on one or
more occasions, up to an aggregate of 35% of the principal amount at
maturity of the Notes originally issued at a redemption price of 112.875%
of the Accreted Value thereof, plus accrued and unpaid Liquidated Damages
thereon, if any, to the redemption date, with the net proceeds of one or
more Equity Offerings; provided that, in each case, at least 65% of the
aggregate principal amount at maturity of the Notes originally issued
remains outstanding immediately after the occurrence of such redemption;
and provided, further, that such redemption shall occur within 90 days of
the date of the closing of such Equity Offering.
6. Mandatory Redemption.
Except as set forth in paragraph 7 below, Holding shall not be
required to make mandatory redemption or sinking fund payments with respect
to the Notes.
7. Repurchase at Option of Holder.
(a) Upon the occurrence of a Change of Control, each Holder of Notes
will have the right to require Holding to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant
to the offer described below (the "Change of Control Offer") at an offer
price in cash equal to 101% of the aggregate principal amount thereof at
maturity plus accrued and unpaid interest and Liquidated Damages, if any,
thereon, to the date of purchase or, in the case of repurchases prior to
April 15, 2003 at a purchase price equal to 101% of the Accreted Value
thereof plus Liquidated Damages, if any, on the date of purchase plus
accrued and unpaid Liquidated Damages, if any, thereon to the date of
repurchase. Within 30 days following any Change of Control, Holding will
mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control setting forth the procedures
governing the Change of Control Offer required by the Indenture.
(b) In connection with any Asset Sale, when the aggregate amount of
Excess Proceeds exceeds $10.0 million, Holding will be required to make an
offer to all Holders of Notes
A-2-5
<PAGE>
and, to the extent required by the terms of any Pari Passu Indebtedness to
all holders of such Pari Passu Indebtedness (an "Asset Sale Offer") to
purchase the maximum principal amount of Notes and any such Pari Passu
Indebtedness that may be purchased out of the Excess Proceeds, at an offer
price in cash in an amount equal to 100% of the Accreted Value thereof plus
accrued and unpaid Liquidated Damages, if any, thereon on the date of
purchase (if such purchase is prior to April 15, 2003) or 100% of the
principal amount at maturity thereof plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date of purchase (if such date
is on or after April 15, 2003), in each case, in accordance with the
procedures set forth in the Indenture or such Pari Passu Indebtedness, as
applicable. To the extent that the aggregate principal amount at maturity
of (or Accreted Value, as the case may be) and any such Pari Passu
Indebtedness tendered pursuant to an Asset Sale Offer is less than the
Excess Proceeds, Holding or its Restricted Subsidiaries may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount at maturity (or Accreted Value, as the case may be) of the
Notes and any such Pari Passu Indebtedness surrendered by holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Notes
to be purchased on a pro rata basis. Upon completion of such offer to
purchase, the amount of Excess Proceeds shall be reset at zero.
(c) Holders of the Notes that are the subject of an offer to purchase
will receive a Change of Control Offer or Asset Sale Offer from Holding
prior to any related purchase date and may elect to have such Notes
purchased by completing the form titled "Option of Holder to Elect
Purchase" appearing below.
8. Notice of Redemption or Repurchase. Notice of redemption or repurchase
shall be mailed at least 30 days but not more than 60 days before the
redemption date or the repurchase date to each Holder whose Notes are to be
redeemed or repurchased at its registered address. Notes in denominations
larger than $1,000 may be redeemed or repurchased in part but only in whole
multiples of $1,000 principal amount at maturity, unless all of the Notes
held by a Holder are to be redeemed or repurchased. On and after the
redemption date or repurchase date, as the case may be, interest and
Liquidated Damages, if any, ceases to accrue on the Notes or portions
thereof called for redemption or repurchase, as the case may be, or the
Notes will cease to accrete in value, if applicable, unless Holding
defaults in making the redemption payment or repurchase payment, as the
case may be.
9. Denominations, Transfer, Exchange. The Notes are in registered form without
coupons in initial denominations of $1,000 and integral multiples of
$1,000. The transfer of the Notes may be registered and the Notes may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements
and transfer documents and Holding may require a Holder to pay any taxes
and fees required by law or permitted by the Indenture. Holding need not
exchange or register the transfer of any Note or portion of a Note selected
for redemption, except for the unredeemed portion of any Note being
redeemed in part. Also, it need not exchange or register the transfer of
any Notes for a period of 15 days before a selection of Notes to be
redeemed or during the period between a record date and the corresponding
Interest Payment Date.
A-2-6
<PAGE>
10. Persons Deemed Owners. The registered Holder of a Note may be treated as
its owner for all purposes.
11. Amendment, Supplement and Waiver. Subject to the following paragraphs
and to the provisions of the Indenture, the Indenture and the Notes may be
amended or supplemented with the consent of the Holders of at least a
majority in aggregate principal amount of the Notes then outstanding
(including, without limitation, consents obtained in connection with a
purchase of, or tender offer or exchange offer for, Notes), and any
existing default or compliance with any provision of the Indenture or the
Notes may be waived with the consent of the Holders of a majority in
aggregate principal amount of the then outstanding Notes (including
consents obtained in connection a purchase of, or with a tender offer or
exchange offer for, Notes).
Without the consent of any Holder of Notes, Holding and the Trustee may
amend or supplement the Indenture or the Notes to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Notes in addition to
or in place of certificated Notes, to provide for the assumption of
Holding's obligations to Holders of Notes in the case of a merger or
consolidation, to make any change that would provide any additional rights
or benefits to the Holders of Notes or that does not materially adversely
affect the legal rights under the Indenture of any such Holder, to comply
with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act or to allow
any Subsidiary to guarantee the Notes.
12. Defaults and Remedies. Events of Default include: (i) default for 30 days
in the payment when due of interest on, or Liquidated Damages, if any, with
respect to, the Notes (whether or not prohibited by the subordination
provisions of the Indenture); (ii) default in payment when due of the
principal of or premium, if any, on the Notes (whether or not prohibited by
the subordination provisions of the Indenture); (iii) failure by Holding or
any of its Restricted Subsidiaries for 30 days after notice from the
Trustee or at least 25% in aggregate principal amount of the Notes then
outstanding to comply with the provisions described in Sections 4.07, 4.09,
4.10 and 4.13 of the Indenture; (iv) failure by Holding or any of its
Restricted Subsidiaries for 60 days after notice from the Trustee or the
Holders of at least 25% in aggregate principal amount of the Notes then
outstanding to comply with its other agreements in the Indenture or the
Notes; (v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by Holding or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by Holding or any of
its Restricted Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the Indenture, which default (a) is
caused by a failure to pay principal of or premium, if any, or interest on
such Indebtedness at final maturity (a "Payment Default") or (b) results in
the acceleration of such Indebtedness prior to its Stated Maturity and, in
each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been
a Payment Default or the maturity of which has been so accelerated,
aggregates $20.0 million or more in the case of clause (a) or (b); (vi)
failure by Holding or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $20.0 million (net of any amounts with
respect to which a reputable and creditworthy insurance company has
acknowledged liability in writing), which judgments are not paid,
discharged or stayed for a period of 60
A-2-7
<PAGE>
days; and (vii) certain events of bankruptcy or insolvency with respect to
Holding or any of its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or
the Holders of at least 25% in principal amount of the then outstanding
Notes may declare all the Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising
from certain events of bankruptcy or insolvency, with respect to Holding,
all outstanding Notes will become due and payable without further action or
notice. Upon any acceleration of maturity of the Notes, all principal of
and accrued interest and Liquidated Damages, if any, on (if on or after
April 15, 2003), or Accreted Value of and Liquidated Damages, if any, on
(if April 15, 2003), the Notes shall be due and payable immediately.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold
from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest. In the event of a declaration of acceleration of the Notes
because an Event of Default has occurred and is continuing as a result of
the acceleration of any Indebtedness described in clause (v) of the
preceding paragraph, the declaration of acceleration of the Notes shall be
automatically annulled if the holders of any Indebtedness described in
clause (v) of the preceding paragraph have rescinded the declaration of
acceleration in respect of such Indebtedness within 30 days of the date of
such declaration and if (a) the annulment of the acceleration of Notes
would not conflict with any judgment or decree of a court of competent
jurisdiction and (b) all existing Events of Default, except nonpayment of
principal or interest on the Notes that became due solely because of the
acceleration of the Notes, have been cured or waived.
13. Trustee Dealings with Holding. The Trustee, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for
Holding or its Affiliates, and may otherwise deal with Holding or its
Affiliates, as if it were not the Trustee.
14. No Recourse Against Others. No director, officer, employee, incorporator or
stockholder, of Holding, as such, shall have any liability for any
obligations of Holding under the Notes or the Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes by accepting a Note waives and releases all
such liability. The waiver and release are part of the consideration for
the issuance of the Notes.
15. Authentication. This Note shall not be valid until authenticated by the
manual signature of the Trustee or an authenticating agent.
16. Abbreviations. Customary abbreviations may be used in the name of a Holder
or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants
by the entireties), JT TEN (= joint tenants with right of survivorship and
not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
A-2-8
<PAGE>
17. Additional Rights of Holders of Transfer Restricted Securities. In addition
to the rights provided to Holders of the Notes under the Indenture, Holders
of Transfer Restricted Securities (as defined in the Registration Rights
Agreement) shall have all the rights set forth in the Registration Rights
Agreement, dated as of the date hereof, among Holding and the Initial
Purchasers (the "Registration Rights Agreement").
18. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, Holding has caused CUSIP
numbers to be printed on the Notes and the Trustee may use CUSIP numbers in
notices of redemption as a convenience to the Holders. No representation is
made as to the accuracy of such numbers either as printed on the Notes or
as contained in any notice of redemption and reliance may be placed only on
the other identification numbers placed thereon.
A-2-9
<PAGE>
Holding shall furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Advance Holding Corporation
5673 Airport Road
Roanoke, Virginia 24012
Telecopier: 540.561.1699
Attention: Chief Financial Officer
A-2-10
<PAGE>
Exhibit B-1
-----------
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM RULE 144A GLOBAL NOTE TO REGULATION S GLOBAL NOTE
(Pursuant to Section 2.06(a)(1) of the Indenture)
United States Trust Company of New York
114 West 47th Street, 25th Floor
New York, New York 10036
Re: 12.875% Senior Discount Debentures due 2009 of Advance Holding
Corporation
Reference is hereby made to the Indenture, dated as of April 15, 1998 (the
"Indenture") between Holding and United States Trust Company of New York as
trustee (the "Trustee"). Capitalized terms used but not defined herein shall
have the meanings given to them in the Indenture.
This letter relates to $ _______________ principal amount at maturity of
Notes which are evidenced by one or more Rule 144A Global Notes and held with
the Depositary in the name of ________________ (the "Transferor"). The
Transferor has requested a transfer of such beneficial interest in the Notes to
a Person who will take delivery thereof in the form of an equal principal amount
of Notes evidenced by one or more Regulation S Global Notes, which amount,
immediately after such transfer, is to be held with the Depositary through
Euroclear or Cedel or both.
In connection with such request and in respect of such Notes, the
Transferor hereby certifies that such transfer has been effected in compliance
with the transfer restrictions applicable to the Global Notes and pursuant to
and in accordance with Rule 903 or Rule 904 under the United States Securities
Act of 1933, as amended (the "Securities Act"), and accordingly the Transferor
hereby further certifies that:
(1) The offer of the Notes was not made to a person in the United States;
(2) either:
(a) at the time the buy order was originated, the transferee was outside
the United States or the Transferor and any person acting on its behalf
reasonably believed and believes that the transferee was outside the
United States;
(b) the transaction was executed in, on or through the facilities of a
designated offshore securities market and neither the Transferor nor
any person acting on its behalf knows that the transaction was
prearranged with a buyer in the United States;
(3) no directed selling efforts have been made in contravention of the
requirements of Rule 904(b) of Regulation S;
(4) the transaction is not part of a plan or scheme to evade the
registration provisions of the Securities Act; or
B-1-1
<PAGE>
(5) upon completion of the transaction, the beneficial interest being
transferred as described above is to be held with the Depositary through
Euroclear or Cedel or both.
Upon giving effect to this request to exchange a beneficial interest in a
Rule 144A Global Note for a beneficial interest in a Regulation S Global Note,
the resulting beneficial interest shall be subject to the restrictions on
transfer applicable to Regulation S Global Notes pursuant to the Indenture and
the Securities Act and, if such transfer occurs prior to the end of the 40-day
restricted period associated with the initial offering of Notes, the additional
restrictions applicable to transfers of interest in the Regulation S Temporary
Global Note.
This certificate and the statements contained herein are made for your
benefit and the benefit of Holding and Donaldson, Lufkin & Jenrette Securities
Corporation and Chase Securities Inc., the initial purchasers of such Notes
being transferred. Terms used in this certificate and not otherwise defined in
the Indenture have the meanings set forth in Regulation S under the Securities
Act.
[Insert Name of Transferor]
By: __________________________
Name:
Title:
Dated:
cc: Advance Holding Corporation
Donaldson, Lufkin & Jenrette Securities Corporation
Chase Securities Inc.
B-1-2
<PAGE>
Exhibit B-2
-----------
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM REGULATION S GLOBAL NOTE TO RULE 144A GLOBAL NOTE
(Pursuant to Section 2.06(a)(ii) of the Indenture)
United States Trust Company of New York
114 West 47th Street, 25th Floor
New York, New York 10036
Re: 12.875% Senior Discount Debentures due 2009 of Advance Holding
Corporation
Reference is hereby made to the Indenture, dated as of April 15, 1998 (the
"Indenture") between Holding and United States Trust Company of New York as
trustee (the "Trustee"). Capitalized terms used but not defined herein shall
have the meanings given to them in the Indenture.
This letter relates to $_________ principal amount at maturity of Notes
which are evidenced by one or more Regulation S Global Notes and held with the
Depositary through Euroclear or Cedel in the name of ______________ (the
"Transferor"). The Transferor has requested a transfer of such beneficial
interest in the Notes to a Person who will take delivery thereof in the form of
an equal principal amount of the Notes evidenced by one or more Rule 144A Global
Notes, to be held with the Depositary.
In connection with such request and in respect of such Notes, the
Transferor hereby certifies that:
[CHECK ONE]
[_] such transfer is being effected pursuant to and in accordance with Rule
144A under the United States Securities Act of 1933, as amended (the
"Securities Act"), and, accordingly, the Transferor hereby further
certifies that the Notes are being transferred to a Person that the
Transferor reasonably believes is purchasing the Notes for its own account,
or for one or more accounts with respect to which such Person exercises
sole investment discretion, and such Person and each such account is a
"qualified institutional buyer" within the meaning of Rule 144A in a
transaction meeting the requirements of Rule 144A;
or
[_] such transfer is being effected pursuant to and in accordance with Rule 144
under the Securities Act;
or
[_] such transfer is being effected pursuant to an exemption under the
Securities Act other than Rule 144A, Rule 144 or Rule 904 and the
Transferor further certifies that the Transfer complies with the transfer
restrictions applicable to beneficial interests in Global Notes and
Definitive Notes bearing the Private Placement Legend and the requirements
of the exemption claimed, which
B-2-1
<PAGE>
certification is supported by (x) if such transfer is in respect of a
principal amount at maturity of Notes at the time of Transfer of $250,000
or more, a certificate executed by the Transferee in the form of Exhibit C
---------
to the Indenture, or (y) if such Transfer is in respect of a principal
amount at maturity of Notes at the time of transfer of less than $250,000,
(1) a certificate executed in the form of Exhibit C to the Indenture and
---------
(2) an Opinion of Counsel provided by the Transferor or the Transferee (a
copy of which the Transferor has attached to this certification), to the
effect that (1) such Transfer is in compliance with the Securities Act and
(2) such Transfer complies with any applicable blue sky securities laws of
any state of the United States;
or
[_] such transfer is being effected pursuant to an effective registration
statement under the Securities Act;
or
[_] such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A or
Rule 144, and the Transferor hereby further certifies that the Notes are
being transferred in compliance with the transfer restrictions applicable
to the Global Notes and in accordance with the requirements of the
exemption claimed, which certification is supported by an Opinion of
Counsel, provided by the transferor or the transferee (a copy of which the
Transferor has attached to this certification) in form reasonably
acceptable to Holding and to the Registrar, to the effect that such
transfer is in compliance with the Securities Act;
and such Notes are being transferred in compliance with any applicable blue sky
securities laws of any state of the United States.
Upon giving effect to this request to exchange a beneficial interest in
Regulation S Global Notes for a beneficial interest in 144A Global Notes, the
resulting beneficial interest shall be subject to the restrictions on transfer
applicable to Rule 144A Global Notes pursuant to the Indenture and the
Securities Act.
B-2-2
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of Holding and Donaldson, Lufkin & Jenrette Securities
Corporation and Chase Securities Inc., collectively the initial purchasers of
such Notes being transferred. Terms used in this certificate and not otherwise
defined in the Indenture have the meanings set forth in Regulation S under the
Securities Act.
[Insert Name of Transferor]
By: __________________________________
Name:
Title:
Dated: ________________
cc: Advance Holding Corporation
Donaldson, Lufkin & Jenrette Securities Corporation
Chase Securities Inc.
B-2-3
<PAGE>
Exhibit B-3
-----------
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
OF DEFINITIVE SENIOR DISCOUNT DEBENTURES
(Pursuant to Section 2.06(b) of the Indenture)
United States Trust Company of New York
114 West 47th Street, 25th Floor
New York, New York 10036
Re: 12.875% Senior Discount Debentures due 2009 of Advance Holding
Corporation
Reference is hereby made to the Indenture, dated as of April 15, 1998 (the
"Indenture") between Holding and United States Trust Company of New York, as
trustee (the "Trustee"). Capitalized terms used but not defined herein shall
have the meanings given to them in the Indenture.
This relates to $ ___________ principal amount at maturity of Notes which
are evidenced by one or more Definitive Notes in the name of __________________
(the "Transferor"). The Transferor has requested an exchange or transfer of
such Definitive Note(s) in the form of an equal principal amount of Notes
evidenced by one or more Definitive Notes, to be delivered to the Transferor or,
in the case of a transfer of such Notes, to such Person as the Transferor
instructs the Trustee.
In connection with such request and in respect of the Definitive Notes
surrendered to the Trustee herewith for exchange (the "Surrendered Notes"), the
Holder of such Surrendered Notes hereby certifies that:
[CHECK ONE]
[_] the Surrendered Notes are being acquired for the Transferor's own account,
without transfer;
or
[_] the Surrendered Notes are being transferred to Holding;
or
[_] the Surrendered Notes are being transferred pursuant to and in accordance
with Rule 144A under the United States Securities Act of 1933, as amended
(the "Securities Act"), and, accordingly, the Transferor hereby further
certifies that the Surrendered Notes are being transferred to a Person that
the Transferor reasonably believes is purchasing the Surrendered Notes for
its own account, or for one or more accounts with respect to which such
Person exercises sole investment discretion, and such Person and each such
account is a "qualified institutional buyer" within the meaning of Rule
144A, in each case in a transaction meeting the requirements of Rule 144A;
or
B-3-1
<PAGE>
[_] the Surrendered Notes are being transferred in a transaction permitted by
Rule 144 under the Securities Act;
or
[_] the Surrendered Notes are being transferred pursuant to an exemption under
the Securities Act other than Rule 144A, Rule 144 or Rule 904 and the
Transferor further certifies that the Transfer complies with the transfer
restrictions applicable to beneficial interests in Global Notes and
Definitive Notes bearing the Private Placement Legend and the requirements
of the exemption claimed, which certification is supported by (x) if such
transfer is in respect of a principal amount of Notes at the time of
Transfer of $250,000 at maturity or more, a certificate executed by the
Transferee in the form of Exhibit C to the Indenture, or (y) if such
---------
Transfer is in respect of a principal amount of Notes at the time of
transfer of less than $250,000 at maturity, (1) a certificate executed in
the form of Exhibit C to the Indenture and (2) an Opinion of Counsel
---------
provided by the Transferor or the Transferee (a copy of which the
Transferor has attached to this certification), to the effect that (1) such
Transfer is in compliance with the Securities Act and (2) such Transfer
complies with any applicable blue sky securities laws of any state of the
United States;
or
[_] the Surrendered Notes are being transferred pursuant to an effective
registration statement under the Securities Act;
or
[_] such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A or
Rule 144, and the Transferor hereby further certifies that the Surrendered
Notes are being transferred in compliance with the transfer restrictions
applicable to the Global Notes and in accordance with the requirements of
the exemption claimed, which certification is supported by an Opinion of
Counsel, provided by the transferor or the transferee (a copy of which the
Transferor has attached to this certification) in form reasonably
acceptable to Holding and to the Registrar, to the effect that such
transfer is in compliance with the Securities Act;
and the Surrendered Notes are being transferred in compliance with any
applicable blue sky securities laws of any state of the United States.
B-3-2
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of Holding, Donaldson, Lufkin & Jenrette Securities
Corporation and Chase Securities Inc., the initial purchasers of such
Surrendered Notes. Terms used in this certificate and not otherwise defined in
the Indenture have the meanings set forth in Regulation S under the Securities
Act.
[Insert Name of Transferor]
By: ________________________________
Name:
Title:
Dated: ________________
cc: Advance Holding Corporation
Donaldson, Lufkin & Jenrette Securities Corporation
Chase Securities Inc.
B-3-3
<PAGE>
Exhibit B-4
-----------
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM RULE 144A GLOBAL NOTE OR REGULATION S
PERMANENT GLOBAL NOTE
TO DEFINITIVE SENIOR DISCOUNT NOTE
(Pursuant to Section 2.06(c) of the Indenture)
United States Trust Company of New York
114 West 47th Street, 25th Floor
New York, New York 10036
Re: 12.875% Senior Discount Debentures due 2009 of Advance Holding
Corporation
Reference is hereby made to the Indenture, dated as of April 15, 1998 (the
"Indenture") between Holding and United States Trust Company of New York, as
trustee (the "Trustee"). Capitalized terms used but not defined herein shall
have the meanings given to them in the Indenture.
This letter relates to $__________ principal amount at maturity of Notes
which are evidenced by a beneficial interest in one or more Rule 144A Global
Notes or Regulation S Permanent Global Notes in the name of ____________________
(the "Transferor"). The Transferor has requested an exchange or transfer of
such beneficial interest in the form of an equal principal amount of Notes
evidenced by one or more Definitive Notes, to be delivered to the Transferor or,
in the case of a transfer of such Notes, to such Person as the Transferor
instructs the Trustee.
In connection with such request and in respect of the Notes surrendered to
the Trustee herewith for exchange (the "Surrendered Notes"), the Holder of such
Surrendered Notes hereby certifies that:
[CHECK ONE]
[_] the Surrendered Notes are being transferred to the beneficial owner of such
Notes;
or
[_] the Surrendered Notes are being transferred pursuant to and in accordance
with Rule 144A under the United States Securities Act of 1933, as amended
(the "Securities Act"), and, accordingly, the Transferor hereby further
certifies that the Surrendered Notes are being transferred to a Person that
the Transferor reasonably believes is purchasing the Surrendered Notes for
its own account, or for one or more accounts with respect to which such
Person exercises sole investment discretion, and such Person and each such
account is a "qualified institutional buyer" within the meaning of Rule
144A, in each case in a transaction meeting they requirements of Rule 144A;
or
B-4-1
<PAGE>
[_] the Surrendered Notes are being transferred in a transaction permitted by
Rule 144 under the Securities Act;
or
[_] the Surrendered Notes are being transferred pursuant to an effective
registration statement under the Securities Act;
or
[_] the Surrendered Notes are being transferred pursuant to an exemption under
the Securities Act other than Rule 144A, Rule 144 or Rule 904 and the
Transferor further certifies that the Transfer complies with the transfer
restrictions applicable to beneficial interests in Global Notes and
Definitive Notes bearing the Private Placement Legend and the requirements
of the exemption claimed, which certification is supported by (x) if such
transfer is in respect of a principal amount of Notes at the time of
Transfer of $250,000 at maturity or more, a certificate executed by the
Transferee in the form of Exhibit C to the Indenture, or (y) if such
---------
Transfer is in respect of a principal amount of Notes at the time of
transfer of less than $250,000 at maturity, (1) a certificate executed in
the form of Exhibit C to the Indenture and (2) an Opinion of Counsel
---------
provided by the Transferor or the Transferee (a copy of which the
Transferor has attached to this certification), to the effect that (1) such
Transfer is in compliance with the Securities Act and (2) such Transfer
complies with any applicable blue sky securities laws of any state of the
United States;
or
[_] such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A or
Rule 144, and the Transferor hereby further certifies that the Surrendered
Notes are being transferred in compliance with the transfer restrictions
applicable to the Global Notes and in accordance with the requirements of
the exemption claimed, which certification is supported by an Opinion of
Counsel, provided by the transferor or the transferee (a copy of which the
Transferor has attached to this certification) in form reasonably
acceptable to Holding and to the Registrar, to the effect that such
transfer is in compliance with the Securities Act;
and the Surrendered Notes are being transferred in compliance with any
applicable blue sky securities laws of any state of the United States.
B-4-2
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of Holding, Donaldson, Lufkin & Jenrette Securities
Corporation and Chase Securities Inc. the initial purchasers of Surrendered
Notes being transferred. Terms used in this certificate and not otherwise
defined in the Indenture have the meanings set forth in Regulation S under the
Securities Act.
[Insert Name of Transferor]
By: ______________________________
Name:
Title:
Dated: ________________
cc: Advance Holding Corporation
Donaldson, Lufkin & Jenrette Securities Corporation
Chase Securities Inc.
B-4-3
<PAGE>
Exhibit C
---------
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
United States Trust Company of New York
114 West 47th Street, 25th Floor
New York, New York 10036
Re: 12.875% Senior Discount Debentures due 2009 of Advance Holding
Corporation
Reference is hereby made to the Indenture, dated as of April 15, 1998 (the
"Indenture") between Holding and United States Trust Company of New York, as
trustee (the "Trustee"). Capitalized terms used but not defined herein shall
have the meanings given to them in the Indenture.
In connection with our proposed purchase of $__________ aggregate
principal amount of:
(a) [_] Beneficial interests, or
(b) [_] Definitive Notes,
we confirm that:
1. We understand that any subsequent transfer of the Notes or any
interest therein is subject to certain restrictions and conditions set forth in
the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the Securities Act of
1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes and any interest therein
may not be offered or sold except as permitted in the following sentence. We
agree, on our own behalf and on behalf of any accounts for which we are acting
as hereinafter stated, that if we should sell the Notes or any interest therein,
(A) we will do so only (1)(a) to a person who we reasonably believe is a
qualified institutional buyer (as defined in Rule 144A under the Securities Act)
in a transaction meeting the requirements of 144A, (b) in a transaction meeting
the requirements of Rule 144 under the Securities Act, (c) outside the United
States to a foreign person in a transaction meeting the requirements of Rule 904
of the Securities Act, or (d) in accordance with another exemption from the
registration requirements of the Securities Act (and based upon an opinion of
counsel), (2) to Holding or any of its subsidiaries or (3) pursuant to an
effective registration statement and, in each case, in accordance with any
applicable securities laws of any State of the United States or any other
applicable jurisdiction and (B) we will, and each subsequent holder will be
required to, notify any purchaser from it of the security evidenced hereby of
the resale restrictions set forth in (A) above."
C-1
<PAGE>
3. We understand that, on any proposed resale of the Notes or
beneficial interests, we will be required to furnish to you and Holding such
certifications, legal opinions and other information as you and Holding may
reasonably require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Notes purchased by us will bear a
legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment.
5. We are acquiring the Notes or beneficial interests therein
purchased by us for our own account or for one or more accounts (each of which
is an institutional "accredited investor") as to each of which we exercise sole
investment discretion.
6. We are not acquiring the Notes with a view to any distribution
thereof that would violate the Securities Act or the securities laws of any
State of the United States.
C-2
<PAGE>
You and Holding are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
______________________________
[Insert Name of Accredited
Investor]
By:___________________________
Name:
Title:
Dated: ______________, ____
C-3
<PAGE>
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
DATED AS OF APRIL 15, 1998
BY AND AMONG
ADVANCE HOLDING CORPORATION
AND
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
CHASE SECURITIES INC.
<PAGE>
This Registration Rights Agreement (this "AGREEMENT") is made and entered
into as of April 15, 1998, by and among Advance Holding Corporation, a Virginia
corporation (the "COMPANY"), and Donaldson, Lufkin & Jenrette Securities
Corporation and Chase Securities Inc. (each, an "INITIAL PURCHASER" and,
collectively, the "INITIAL PURCHASERS"), each of whom has agreed to purchase the
Company's 12.875% Series A Senior Discount Debentures due 2009 (the "SERIES A
DEBENTURES") pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated April 7,
1998 (the "PURCHASE AGREEMENT"), by and between the Company and the Initial
Purchasers. In order to induce the Initial Purchasers to purchase the Series A
Debentures, the Company has agreed to provide the registration rights set forth
in this Agreement. The execution and delivery of this Agreement is a condition
to the obligations of the Initial Purchasers set forth in Section 3 of the
Purchase Agreement. Capitalized terms used herein and not otherwise defined
shall have the meaning assigned to them in the Indenture, dated April 15, 1998,
between the Company and United States Trust Company of New York, as Trustee,
relating to the Series A Debentures and the Series B Debentures (the
"INDENTURE").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS. As used in this Agreement, the following
capitalized terms shall have the following meanings:
"ACT": The Securities Act of 1933, as amended.
"AFFILIATE": As defined in Rule 144 of the Act.
"BROKER-DEALER": Any broker or dealer registered under the Exchange
Act.
"BUSINESS DAY": Any day except a Saturday, Sunday or other day in the
City of New York on which banks are authorized to close.
"CERTIFICATED SECURITIES": As defined in the Indenture.
"CLOSING DATE": The date hereof.
"COMMISSION": The Securities and Exchange Commission.
"CONSUMMATE": An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Debentures to be issued in the Exchange Offer, (b)
the maintenance of such Exchange Offer Registration Statement continuously
effective and the keeping of the Exchange Offer open for a period not less
than the period required pursuant to Section 3(b) hereof and (c) the
delivery by the Company to the Registrar under the Indenture of Series B
Debentures in
<PAGE>
2
the same aggregate principal amount as the aggregate principal amount of
Series A Debentures tendered by Holders thereof pursuant to the Exchange
Offer.
"CONSUMMATION DEADLINE": As defined in Section 3(b) hereof.
"DEBENTURE" means a Series A Debenture or a Series B Debenture.
"EFFECTIVENESS DEADLINE": As defined in Sections 3(a) and 4(a)
hereof.
"EXCHANGE ACT": The Securities Exchange Act of 1934, as amended.
"EXCHANGE OFFER": The exchange and issuance by the Company of a
principal amount of Series B Debentures (which shall be registered pursuant
to the Exchange Offer Registration Statement) equal to the outstanding
principal amount of Series A Debentures that are tendered by the Holders in
connection with such exchange and issuance.
"EXCHANGE OFFER REGISTRATION STATEMENT": The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
"EXEMPT RESALES": The transactions in which the Initial Purchasers
propose to sell the Series A Debentures to certain "qualified institutional
buyers," as such term is defined in Rule 144A under the Act, and outside
the United States pursuant to Regulation S under the Act.
"FILING DEADLINE": As defined in Sections 3(a) and 4(a) hereof.
"HOLDERS": As defined in Section 2 hereof.
"PROSPECTUS": The prospectus included in a Registration Statement at
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated
by reference into such Prospectus.
"RECOMMENCEMENT DATE": As defined in Section 6(d) hereof.
"REGISTRATION DEFAULT": As defined in Section 5 hereof.
"REGISTRATION STATEMENT": Any registration statement of the Company
relating to (a) an offering of Series B Debentures pursuant to an Exchange
Offer or (b) the registration for resale of Transfer Restricted Securities
pursuant to the Shelf Registration Statement, in each case, (i) that is
filed pursuant to the provisions of this Agreement and (ii) including the
Prospectus included therein.
<PAGE>
3
"REGULATION S": Regulation S promulgated under the Act.
"RULE 144": Rule 144 promulgated under the Act.
"SERIES B DEBENTURES": The Company's 12.875% Series B Senior Discount
Debentures due 2009 to be issued pursuant to the Indenture (i) in the
Exchange Offer or (ii) as contemplated by Section 4 hereof.
"SHELF REGISTRATION STATEMENT": As defined in Section 4 hereof.
"SUSPENSION NOTICE": As defined in Section 6(d) hereof.
"TIA": The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-
77bbbb) as in effect on the date of the Indenture.
"TRANSFER RESTRICTED SECURITIES": Each Series A Note, until the
earliest to occur of (a) the date on which such Series A Note is exchanged
in the Exchange Offer for a Series B Note which is entitled to be resold to
the public by the Holder thereof without complying with the prospectus
delivery requirements of the Act, (b) the date on which such Series A Note
has been disposed of in accordance with a Shelf Registration Statement (and
the purchasers thereof have been issued Series B Debentures), or (c) the
date on which such Series A Note is distributed to the public pursuant to
Rule 144 under the Act (and purchasers thereof have been issued Series B
Debentures) and each Series B Note until the date on which such Series B
Note is disposed of by a Broker-Dealer pursuant to the "Plan of
Distribution" contemplated by the Exchange Offer Registration Statement
(including the delivery of the Prospectus contained therein).
SECTION 2. HOLDERS. A Person is deemed to be a holder of Transfer
Restricted Securities (each, a "HOLDER") whenever such Person owns Transfer
Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER. (a) Unless the Exchange Offer
shall not be permitted by applicable federal law, the Company shall (i) cause
the Exchange Offer Registration Statement to be filed with the Commission as
soon as practicable after the Closing Date, but in no event later than 60 days
after the Closing Date (such 60th day being the "FILING DEADLINE"), (ii) use its
best efforts to cause such Exchange Offer Registration Statement to become
effective as soon as reasonably practicable, but in no event later than 150 days
after the Closing Date (such 150th day being the "EFFECTIVENESS DEADLINE"),
(iii) in connection with the foregoing, (A) file all pre-effective amendments to
such Exchange Offer Registration Statement as may be necessary in order to cause
it to become effective, (B) file, if applicable, a post-effective amendment to
such Exchange Offer Registration Statement pursuant to Rule 430A under the Act
and (C) cause all necessary filings, if any, in connection with the registration
and qualification of the Series B Debentures to be made under the Blue Sky laws
of such jurisdictions as are necessary to permit Consummation of the Exchange
Offer, and (iv) upon the effectiveness
<PAGE>
4
of such Exchange Offer Registration Statement, commence and Consummate the
Exchange Offer. The Exchange Offer shall be on the appropriate form permitting
(i) registration of the Series B Debentures to be offered in exchange for the
Series A Debentures that are Transfer Restricted Securities and (ii) resales of
Series B Debentures by Broker-Dealers that tendered into the Exchange Offer
Series A Debentures that such Broker-Dealer acquired for its own account as a
result of market making activities or other trading activities (other than
Series A Debentures acquired directly from the Company or any of its Affiliates)
as contemplated by Section 3(c) below.
(b) The Company shall use its best efforts to cause the Exchange Offer
Registration Statement to be effective continuously, and shall keep the Exchange
Offer open for a period of not less than the minimum period required under
applicable federal and state securities laws to Consummate the Exchange Offer;
provided, however, that in no event shall such period be less than 20 Business
Days. The Company shall cause the Exchange Offer to comply with all applicable
federal and state securities laws. No securities other than the Series B
Debentures shall be included in the Exchange Offer Registration Statement. The
Company shall use its best efforts to cause the Exchange Offer to be Consummated
on the earliest practicable date after the Exchange Offer Registration Statement
has become effective, but in no event later than 30 Business Days thereafter
(such 30/th/ day being the "CONSUMMATION DEADLINE").
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Transfer Restricted Securities that
were acquired for the account of such Broker-Dealer as a result of market-making
activities or other trading activities (other than Series A Debentures acquired
directly from the Company or any Affiliate of the Company), may exchange such
Transfer Restricted Securities pursuant to the Exchange Offer. Such "Plan of
Distribution" section shall also contain all other information with respect to
such sales by such Broker-Dealers that the Commission may require in order to
permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Transfer Restricted
Securities held by any such Broker-Dealer, except to the extent required by the
Commission. See the Commission's no-action letter to Shearman & Sterling
(available July 2, 1993).
Because such Broker-Dealer may be deemed to be an "underwriter" within the
meaning of the Act and must, therefore, deliver a prospectus meeting the
requirements of the Act in connection with its initial sale of any Series B
Debentures received by such Broker-Dealer in the Exchange Offer, the Company
shall permit the use of the Prospectus contained in the Exchange Offer
Registration Statement by such Broker-Dealer to satisfy such prospectus delivery
requirement. To the extent necessary to ensure that the prospectus contained in
the Exchange Offer Registration Statement is available for sales of Series B
Debentures by Broker-Dealers, the Company agrees to use its best efforts to keep
the Exchange Offer Registration Statement continuously effective, supplemented,
amended and current as required by and subject to the provisions of Sections
6(a) and (c) hereof and in conformity with the requirements of this
<PAGE>
5
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period of 180 days from the Consummation
Deadline or such shorter period as will terminate when all Transfer Restricted
Securities covered by such Registration Statement have been sold pursuant
thereto. The Company shall provide sufficient copies of the latest version of
such Prospectus to such Broker-Dealers, promptly upon request, and in no event
later than two Business Days after such request, at any time during such period.
SECTION 4. SHELF REGISTRATION. (a) SHELF REGISTRATION. If (i) the
Exchange Offer is not permitted by applicable law or (ii) if any Holder of
Transfer Restricted Securities shall notify the Company within 20 Business Days
following the Consummation Deadline (and confirm such notice in writing within
two Business Days) that based upon advice of counsel, (A) such Holder was
prohibited by law or Commission policy from participating in the Exchange Offer
or (B) such Holder may not resell the Series B Debentures acquired by it in the
Exchange Offer to the public without delivering a prospectus and the Prospectus
contained in the Exchange Offer Registration Statement is not appropriate or
available for such resales by such Holder or (C) such Holder is a Broker-Dealer
and holds Series A Debentures acquired directly from the Company or any of its
Affiliates, then the Company shall:
(x) cause to be filed, on or prior to 30 days after the earlier of
(i) the date on which the Company determines that the Exchange Offer
Registration Statement cannot be filed as a result of clause (a)(i) above
and (ii) the date on which the Company receives the notice specified in
clause (a)(ii) above, (such earlier date, the "FILING DEADLINE"), a shelf
registration statement pursuant to Rule 415 under the Act (which may be an
amendment to the Exchange Offer Registration Statement (the "SHELF
REGISTRATION STATEMENT")), relating to all Transfer Restricted Securities
the Holders of which shall have provided the information required pursuant
to Section 4(b), and
(y) shall use its best efforts to cause such Shelf Registration
Statement to become effective on or prior to 120 days after the Filing
Deadline for the Shelf Registration Statement (such 120th day the
"EFFECTIVENESS DEADLINE").
If, after the Company has filed an Exchange Offer Registration Statement
that satisfies the requirements of Section 3(a) above, the Company is required
to file and make effective a Shelf Registration Statement solely because the
Exchange Offer is not permitted under applicable federal law (i.e., clause
(a)(i) above), then the filing of the Exchange Offer Registration Statement
shall be deemed to satisfy the requirements of clause (x) above; provided that,
in such event, the Company shall remain obligated to meet the Effectiveness
Deadline set forth in clause (y).
To the extent necessary to ensure that the Shelf Registration Statement is
available for sales of Transfer Restricted Securities by the Holders thereof
entitled to the benefit of this Section 4(a) and the other securities required
to be registered therein pursuant to Section 6(b)(ii) hereof, the Company shall
use its best efforts to keep any Shelf Registration Statement required by this
Section 4(a) continuously effective, supplemented, amended and current as
required by and subject
<PAGE>
6
to the provisions of Sections 6(b) and (c) hereof and in conformity with the
requirements of this Agreement, the Act and the policies, rules and regulations
of the Commission as announced from time to time, for a period of at least two
years in the case of clause 4(a)(i) and 180 days in the case of clause 4(a)(ii)
(as extended pursuant to Section 6(d)) following the Closing Date, or such
shorter period as will terminate when all Transfer Restricted Securities covered
by such Shelf Registration Statement have been sold pursuant thereto.
(b) PROVISION BY HOLDERS OF CERTAIN INFORMATION IN CONNECTION WITH THE
SHELF REGISTRATION STATEMENT. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, such
information as the Company may reasonably request, including, without
limitation, the information specified in Item 507 or 508 of Regulation S-K, as
applicable, of the Act for use in connection with any Shelf Registration
Statement or Prospectus or preliminary Prospectus included therein. No Holder
of Transfer Restricted Securities shall be entitled to liquidated damages
pursuant to Section 5 hereof unless and until such Holder shall have provided
all such information. Each Holder as to which any Shelf Registration Statement
is being effected agrees to promptly furnish to the Company additional
information required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES. If (i) any Registration Statement required
by this Agreement is not filed with the Commission on or prior to the applicable
Filing Deadline, (ii) any such Registration Statement has not been declared
effective by the Commission on or prior to the applicable Effectiveness
Deadline, (iii) the Exchange Offer has not been Consummated on or prior to the
Consummation Deadline or (iv) any Registration Statement required by this
Agreement is filed and declared effective but shall thereafter cease to be
effective or fail to be usable for its intended purpose without being succeeded
within 2 days by a post-effective amendment to such Registration Statement that
cures such failure and that is itself declared effective within 5 days of filing
such post-effective amendment to such Registration Statement (each such event
referred to in clauses (i) through (iv), a "REGISTRATION DEFAULT"), then the
Company hereby agrees to pay to each Holder of Transfer Restricted Securities
affected thereby liquidated damages in an amount equal to $.05 per week per
$1,000 in principal amount of Transfer Restricted Securities held by such Holder
for each week or portion thereof that the Registration Default continues for the
first 150-day period immediately following the occurrence of such Registration
Default. The amount of the liquidated damages shall increase by an additional
$.05 per week per $1,000 in principal amount of Transfer Restricted Securities
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of liquidated damages of $.25 per week
per $1,000 in principal amount of Transfer Restricted Securities; provided that
the Company shall in no event be required to pay liquidated damages for more
than one Registration Default at any given time. Notwithstanding anything to the
contrary set forth herein, (1) upon filing of the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement), in the case
of (i) above,
<PAGE>
7
(2) upon the effectiveness of the Exchange Offer Registration Statement (and/or,
if applicable, the Shelf Registration Statement), in the case of (ii) above, (3)
upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon
the filing of a post-effective amendment to the Registration Statement or an
additional Registration Statement that causes the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement) to again be
declared effective or made usable in the case of (iv) above, the liquidated
damages payable with respect to the Transfer Restricted Securities as a result
of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Series A Debentures. Notwithstanding the fact that any securities for which
liquidated damages are due cease to be Transfer Restricted Securities, all
obligations of the Company to pay liquidated damages with respect such
securities shall survive until such time as such liquidated damages with respect
to such securities shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES. (a) EXCHANGE OFFER REGISTRATION
STATEMENT. In connection with the Exchange Offer, the Company shall (x) comply
with all applicable provisions of Section 6(c) below, (y) use its best efforts
to effect such exchange and to permit the resale of Series B Debentures by
Broker-Dealers that tendered in the Exchange Offer Series A Debentures that such
Broker-Dealer acquired for its own account as a result of its market making
activities or other trading activities (other than Series A Debentures acquired
directly from the Company or any of its Affiliates) being sold in accordance
with the intended method or methods of distribution thereof, and (z) comply with
all of the following provisions:
(i) As a condition to its participation in the Exchange Offer, each
Holder of Transfer Restricted Securities (including, without limitation,
any Holder who is a Broker Dealer) shall furnish, upon the request of the
Company, prior to the Consummation of the Exchange Offer, a written
representation to the Company (which may be contained in the letter of
transmittal contemplated by the Exchange Offer Registration Statement) to
the effect that (A) it is not an Affiliate of the Company, (B) it is not
engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the
Series B Debentures to be issued in the Exchange Offer and (C) it is
acquiring the Series B Debentures in its ordinary course of business. Each
Holder using the Exchange Offer to participate in a distribution of the
Series B Debentures will acknowledge and agree that, if the resales are of
Series B Debentures obtained by such Holder in exchange for Series A
Debentures acquired directly from the Company or an Affiliate thereof, it
(1) could not, under Commission policy as in effect on the date of this
Agreement, rely on the position of the Commission enunciated in Morgan
Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings
Corporation (available May 13, 1988), as interpreted in the Commission's
letter to Shearman & Sterling (available July 2, 1993), and similar no-
action letters, and (2) must comply with the
<PAGE>
8
registration and prospectus delivery requirements of the Act in connection
with a secondary resale transaction and that such a secondary resale
transaction must be covered by an effective registration statement
containing the selling security holder information required by Item 507 or
508, as applicable, of Regulation S-K.
(ii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company shall provide a supplemental letter to the
Commission (A) stating that the Company is registering the Exchange Offer
in reliance on the position of the Commission enunciated in Exxon Capital
Holdings Corporation (available May 13, 1988), Morgan Stanley and Co., Inc.
(available June 5, 1991) as interpreted in the Commission's letter to
Shearman & Sterling (available July 2, 1993) and (B) including a
representation that the Company has not entered into any arrangement or
understanding with any Person to distribute the Series B Debentures to be
received in the Exchange Offer and that, to the best of the Company's
information and belief, each Holder participating in the Exchange Offer is
acquiring the Series B Debentures in its ordinary course of business and
has no arrangement or understanding with any Person to participate in the
distribution of the Series B Debentures received in the Exchange Offer.
(b) SHELF REGISTRATION STATEMENT. In connection with the Shelf
Registration Statement, the Company shall:
(i) (x) comply with all the provisions of Section 6(c) below and (y)
use its best efforts to effect such registration to permit the sale of the
Transfer Restricted Securities being sold in accordance with the intended
method or methods of distribution thereof (as indicated in the information
furnished to the Company pursuant to Section 4(b) hereof), and pursuant
thereto the Company will as expeditiously as possible prepare and file with
the Commission a Shelf Registration Statement relating to the registration
on any appropriate form under the Act, which form shall be available for
the sale of the Transfer Restricted Securities in accordance with the
intended method or methods of distribution thereof within the time periods
and otherwise in accordance with the provisions hereof;
(ii) issue, upon the request of any purchaser of Series A Debentures
covered by any Shelf Registration Statement contemplated by this Agreement,
Series B Debentures having an aggregate principal amount equal to the
aggregate principal amount of Series A Debentures sold pursuant to the
Shelf Registration Statement and surrendered to the Company for
cancellation in exchange for such Series B Debentures; the Company shall
register Series B Debentures on the Shelf Registration Statement for this
purpose and issue the Series B Debentures to the purchaser(s) of securities
subject to the Shelf Registration Statement in the names as such
purchaser(s) shall designate;
(iii) furnish to each participating Holder, before filing with the
Commission, copies (in the form in which it is proposed to be filed) of any
Shelf Registration Statement or any Prospectus included therein or any
amendments or supplements to any such
<PAGE>
9
Registration Statement or Prospectus (including all documents incorporated
by reference after the initial filing of such Registration Statement),
which documents will be subject to the review and comment of such Holders
in connection with such sale, if any, for a period of at least five
Business Days, and the Company will not file any such Registration
Statement or Prospectus or any amendment or supplement to any such
Registration Statement or Prospectus (including all such documents
incorporated by reference) to which such Holders shall reasonably object
within five Business Days after the receipt thereof; and
(iv) promptly prior to the filing of any document that is to be
incorporated by reference into a Shelf Registration Statement or
Prospectus, provide copies of such document to each Holder, make the
Company's and the Guarantor's representatives available for discussion of
such document and other customary due diligence matters, and include such
information in such document prior to the filing thereof as such Holders
may reasonably request.
(c) GENERAL PROVISIONS. In connection with any Registration Statement and
any related Prospectus required by this Agreement, the Company shall:
(i) use its best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements for
the period specified in Section 3 or 4 of this Agreement, as applicable.
Upon the occurrence of any event that would cause any such Registration
Statement or the Prospectus contained therein (A) to contain an untrue
statement of material fact or omit to state any material fact necessary to
make the statements therein not misleading or (B) not to be effective and
usable for resale of Transfer Restricted Securities during the period
required by this Agreement, the Company shall file promptly an appropriate
amendment to such Registration Statement curing such defect, and, if
Commission review is required, use its best efforts to cause such amendment
to be declared effective as soon as practicable;
(ii) prepare and file with the Commission such amendments and post-
effective amendments to the applicable Registration Statement as may be
necessary to keep such Registration Statement effective for the applicable
period set forth in Section 3 or 4 hereof, as the case may be; cause the
Prospectus to be supplemented by any required Prospectus supplement, and as
so supplemented to be filed pursuant to Rule 424 under the Act, and to
comply fully with Rules 424, 430A and 462, as applicable, under the Act in
a timely manner; and comply with the provisions of the Act with respect to
the disposition of all securities covered by such Registration Statement
during the applicable period in accordance with the intended method or
methods of distribution by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus;
(iii) advise each selling Holder promptly and, if requested by such
Holder, confirm such advice in writing, (A) when the Prospectus or any
Prospectus supplement or
<PAGE>
10
post-effective amendment has been filed, and, with respect to any
applicable Registration Statement or any post-effective amendment thereto,
when the same has become effective, (B) of any request by the Commission
for amendments to the Registration Statement or amendments or supplements
to the Prospectus or for additional information relating thereto, (C) of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement under the Act or of the
suspension by any state securities commission of the qualification of the
Transfer Restricted Securities for offering or sale in any jurisdiction, or
the initiation of any proceeding for any of the preceding purposes, and (D)
of the existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto or any document
incorporated by reference therein untrue, or that requires the making of
any additions to or changes in the Registration Statement in order to make
the statements therein not misleading, or that requires the making of any
additions to or changes in the Prospectus in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the
Transfer Restricted Securities under state securities or Blue Sky laws, the
Company shall use its best efforts to obtain the withdrawal or lifting of
such order at the earliest possible time;
(iv) if any fact or event contemplated by Section 6(c)(iii)(D) above
shall exist or have occurred, prepare a supplement or post-effective
amendment to the Registration Statement or related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of Transfer
Restricted Securities, the Prospectus will not contain an untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading;
(v) make available, at reasonable times, for inspection by each
selling Holder and any attorney or accountant retained by such selling
Holders, all financial and other records, pertinent corporate documents of
the Company and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such selling Holder,
attorney or accountant in connection with such Registration Statement or
any post-effective amendment thereto subsequent to the filing thereof and
prior to its effectiveness; provided, however, that each such person shall
be required to maintain in confidence and not to disclose to any other
person any information or records reasonably designated by the Company or
the Guarantor in writing as being confidential, until such time as (A) such
information becomes a matter of public record (whether by virtue of its
inclusion in such Registration Statement or otherwise) or (B) such person
shall be required so to disclose such information pursuant to the subpoena
or order of any court or other governmental agency or body having
jurisdiction over the matter (subject to the requirements of such
<PAGE>
11
order, and only after such person shall have given the Company or the
Guarantor, as the case may be, prompt prior written notice of such
requirement).
(vi) if requested by any selling Holders in connection with such
exchange or sale, promptly include in any Registration Statement or
Prospectus, pursuant to a supplement or post-effective amendment if
necessary, such information as such selling Holders may reasonably request
to have included therein, including, without limitation, information
relating to the "Plan of Distribution" of the Transfer Restricted
Securities; and make all required filings of such Prospectus supplement or
post-effective amendment as soon as practicable after the Company is
notified of the matters to be included in such Prospectus supplement or
post-effective amendment;
(vii) furnish to each selling Holder in connection with such exchange
or sale, without charge, at least one copy of the Registration Statement,
as first filed with the Commission, and of each amendment thereto,
including all documents incorporated by reference therein and all exhibits
(including exhibits incorporated therein by reference);
(viii) deliver to each selling Holder, without charge, as many copies
of the Prospectus (including each preliminary prospectus) and any amendment
or supplement thereto as such Holders reasonably may request; the Company
hereby consents to the use (in accordance with law) of the Prospectus and
any amendment or supplement thereto by each selling Holder in connection
with the offering and the sale of the Transfer Restricted Securities
covered by the Prospectus or any amendment or supplement thereto;
(ix) upon the request of any Holder, enter into such agreements
(including underwriting agreements) and make such representations and
warranties and take all such other actions in connection therewith in order
to expedite or facilitate the disposition of the Transfer Restricted
Securities pursuant to any applicable Registration Statement contemplated
by this Agreement as may be reasonably requested by any Holder in
connection with any sale or resale pursuant to any applicable Registration
Statement in connection with an underwritten offering. In connection with
an underwritten offering or upon the request of Holders of a majority of
the aggregate principal amount of Debentures being registered, the Company
shall:
(A) furnish (or in the case of paragraphs (2) and (3), use its
best efforts to cause to be furnished) to each such Holder, upon the
effectiveness of the Shelf Registration Statement:
(1) a certificate, dated such date, signed on behalf of the
Company by (x) the President or any Vice President and (y) a
principal financial or accounting officer of the Company,
confirming, as of the date thereof, the matters set forth in
Sections 6(w), 9(a) and 9(b) of the Purchase
<PAGE>
12
Agreement and such other similar matters as such Holders may
reasonably request;
(2) one or more opinions, dated the date of effectiveness
of the Shelf Registration Statement, of counsel for the Company
covering matters similar to those set forth in Sections 9(e), (f)
and (g) of the Purchase Agreement and such other matter as such
Holder may reasonably request, and in any event including a
statement to the effect that although such counsel had not
undertaken to investigate or verify independently, and did not
pass upon and or assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the
applicable Registration Statement, that such counsel has
participated in conferences with officers and other
representatives of the Company and representatives of the
independent public accountants for the Company at which the
contents of such Registration Statement were discussed; and that
such counsel advises that, on the basis of the foregoing (relying
as to materiality to the extent such counsel deems appropriate
upon the statements of officers and other representatives of the
Company), no facts came to such counsel's attention which caused
such counsel to believe that the applicable Registration
Statement, at the time such Registration Statement or any post-
effective amendment thereto became effective, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus contained in such
Registration Statement as of its date, contained an untrue
statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
Without limiting the foregoing, such counsel may state further
that such counsel assumes no responsibility for, and has not
independently verified, the accuracy, completeness or fairness of
the financial statements, notes and schedules and other financial
data included in any Registration Statement contemplated by this
Agreement or the related Prospectus; and
(3) a customary "comfort letter," dated as of the date of
effectiveness of the Shelf Registration Statement, from the
Company's independent accountants, in the customary form and
covering matters of the type customarily covered in comfort
letters to underwriters in connection with underwritten
offerings, and affirming the matters set forth in the comfort
letters delivered pursuant to Section 9(i) of the Purchase
Agreement; and
(B) deliver such other documents and certificates as may be
reasonably requested by the selling Holders to evidence compliance
with the matters covered
<PAGE>
13
in clause (A) above and with any customary conditions contained in any
agreement entered into by the Company pursuant to this clause (ix);
(x) prior to any public offering of Transfer Restricted Securities,
cooperate with the selling Holders and their counsel in connection with the
registration and qualification of the Transfer Restricted Securities under
the securities or Blue Sky laws of such jurisdictions as the selling
Holders may request and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Transfer
Restricted Securities covered by the applicable Registration Statement;
provided, however, that the Company shall not be required to register or
qualify as a foreign corporation where it is not now so qualified or to
take any action that would subject it to the service of process in suits or
to taxation, other than as to matters and transactions relating to the
Registration Statement, in any jurisdiction where it is not now so subject;
(xi) in connection with any sale of Transfer Restricted Securities
that will result in such securities no longer being Transfer Restricted
Securities, cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Transfer Restricted Securities to
be sold and not bearing any restrictive legends; and to register such
Transfer Restricted Securities in such denominations and such names as the
selling Holders may reasonably request at least two Business Days prior to
such sale of Transfer Restricted Securities;
(xii) use its best efforts to cause the disposition of the Transfer
Restricted Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof to
consummate the disposition of such Transfer Restricted Securities, subject
to the proviso contained in clause (xii) above;
(xiii) provide a CUSIP number for all Transfer Restricted Securities
not later than the effective date of a Registration Statement covering such
Transfer Restricted Securities and provide the Trustee under the Indenture
with printed certificates for the Transfer Restricted Securities which are
in a form eligible for deposit with the Depository Trust Company;
(xiv) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make generally available to
its security holders with regard to any applicable Registration Statement,
as soon as practicable, a consolidated earnings statement meeting the
requirements of Rule 158 (which need not be audited) covering a twelve-
month period beginning after the effective date of the Registration
Statement (as such term is defined in paragraph (c) of Rule 158 under the
Act);
(xv) cause the Indenture to be qualified under the TIA not later than
the effective date of the first Registration Statement required by this
Agreement and, in connection
<PAGE>
14
therewith, cooperate with the Trustee and the Holders to effect such
changes to the Indenture as may be required for such Indenture to be so
qualified in accordance with the terms of the TIA; and execute and use its
best efforts to cause the Trustee to execute, all documents that may be
required to effect such changes and all other forms and documents required
to be filed with the Commission to enable such Indenture to be so qualified
in a timely manner; and
(xvi) provide promptly to each Holder, upon request, each document
filed with the Commission pursuant to the requirements of Section 13 or
Section 15(d) of the Exchange Act.
(d) RESTRICTIONS ON HOLDERS. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(iii)(C) or any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(D) hereof (in each case, a
"SUSPENSION NOTICE"), such Holder will forthwith discontinue disposition of
Transfer Restricted Securities pursuant to the applicable Registration Statement
until (i) such Holder has received copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is
advised in writing by the Company that the use of the Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus (in each case, the "RECOMMENCEMENT
DATE"). Each Holder receiving a Suspension Notice hereby agrees that it will
either (i) destroy any Prospectuses, other than permanent file copies, then in
such Holder's possession which have been replaced by the Company with more
recently dated Prospectuses or (ii) deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such Holder's
possession of the Prospectus covering such Transfer Restricted Securities that
was current at the time of receipt of the Suspension Notice. The time period
regarding the effectiveness of such Registration Statement set forth in Section
3 or 4 hereof, as applicable, shall be extended by a number of days equal to the
number of days in the period from and including the date of delivery of the
Suspension Notice to the date of delivery of the Recommencement Date.
SECTION 7. REGISTRATION EXPENSES. (a) All expenses incident to the
Company's performance of or compliance with this Agreement will be borne by the
Company, regardless of whether a Registration Statement becomes effective,
including without limitation: (i) all registration and filing fees and expenses;
(ii) all fees and expenses of compliance with federal securities and state Blue
Sky or securities laws; (iii) all expenses of printing (including printing
certificates for the Series B Debentures to be issued in the Exchange Offer and
printing of Prospectuses), messenger and delivery services and telephone; (iv)
all fees and disbursements of counsel for the Company; (v) all application and
filing fees in connection with listing the Series B Debentures on a national
securities exchange or automated quotation system pursuant to the requirements
hereof; and (vi) all fees and disbursements of independent certified public
accountants of the Company (including the expenses of any special audit and
comfort letters required by or incident to such performance).
<PAGE>
15
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with any Shelf Registration Statement required by this
Agreement, the Company will reimburse the Initial Purchasers and the Holders of
Transfer Restricted Securities who are selling or reselling Series A Debentures
or Series B Debentures pursuant to the "Plan of Distribution" contained in the
Shelf Registration Statement for the reasonable fees and disbursements of not
more than one counsel, who shall be King & Spalding, unless another firm shall
be chosen by the Holders of a majority in principal amount of the Transfer
Restricted Securities for whose benefit such Registration Statement is being
prepared.
SECTION 8. INDEMNIFICATION. (a) The Company agrees to indemnify and hold
harmless each Holder, its directors, officers and each Person, if any, who
controls such Holder (within the meaning of Section 15 of the Act or Section 20
of the Exchange Act), from and against any and all losses, claims, damages,
liabilities, judgments, (including without limitation, any reasonable legal or
other expenses incurred in connection with investigating or defending any
matter, including any action that could give rise to any such losses, claims,
damages, liabilities or judgments) caused by any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement,
preliminary prospectus or Prospectus (or any amendment or supplement thereto)
provided by the Company to any Holder or any prospective purchaser of Series B
Debentures or registered Series A Debentures, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein in light of the circumstances in
which such statements were made not misleading, except insofar as such losses,
claims, damages, liabilities or judgments are caused by an untrue statement or
omission or alleged untrue statement or omission that is based upon information
relating to any of the Holders furnished in writing to the Company by any of the
Holders.
(b) Each Holder of Transfer Restricted Securities agrees, severally and
not jointly, to indemnify and hold harmless the Company, its directors and
officers and each person, if any, who controls (within the meaning of Section 15
of the Act or Section 20 of the Exchange Act) the Company, to the same extent as
the foregoing indemnity from the Company set forth in Section 8(a) above, but
only with reference to information relating to such Holder furnished in writing
to the Company by such Holder expressly for use in any Registration Statement.
In no event shall any Holder, its directors, officers or any Person who controls
such Holder be liable or responsible for any amount in excess of the amount by
which the total amount received by such Holder with respect to its sale of
Transfer Restricted Securities pursuant to a Registration Statement exceeds the
amount paid by such Holder for such Transfer Restricted Securities.
(c) In case any action or proceeding shall be commenced involving any
person in respect of which indemnity may be sought pursuant to Section 8(a) or
8(b) (the "INDEMNIFIED
<PAGE>
16
PARTY"), the indemnified party notify the person against whom such indemnity may
be sought (the "INDEMNIFYING PARTY") in writing and the indemnifying party shall
assume the defense of such action, including the employment of counsel
reasonably satisfactory to the indemnified party and the payment of all fees and
expenses of such counsel, as incurred (except that in the case of any action in
respect of which indemnity may be sought pursuant to both Sections 8(a) and
8(b), a Holder shall not be required to assume the defense of such action
pursuant to this Section 8(c), but may employ separate counsel and participate
in the defense thereof, but the fees and expenses of such counsel, except as
provided below, shall be at the expense of the Holder). Any indemnified party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the indemnified party unless (i) the employment of
such counsel shall have been specifically authorized in writing by the
indemnifying party, (ii) the indemnifying party shall have failed to assume the
defense of such action or employ counsel reasonably satisfactory to the
indemnified party or (iii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been advised by such counsel that
either (i) there may be one or more legal defenses available to it which are
different from or additional to those available to the indemnifying party or
(ii) a conflict may exist between such indemnifying party and the indemnified
party (in which case the indemnifying party shall not have the right to assume
the defense of such action on behalf of the indemnified party). In any such
case, the indemnifying party shall not, in connection with any one action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys (in addition to
any local counsel) for all indemnified parties and all such reasonable fees and
expenses shall be reimbursed as they are incurred. Such firm shall be designated
in writing by a majority of the Holders, in the case of the parties indemnified
pursuant to Section 8(a), and by the Company, in the case of parties indemnified
pursuant to Section 8(b). The indemnifying party shall indemnify and hold
harmless the indemnified party from and against any and all losses, claims,
damages, liabilities and judgments by reason of any settlement of any action (i)
effected with its written consent or (ii) effected without its written consent
if the settlement is entered into more than twenty Business Days after the
indemnifying party shall have received a request from the indemnified party for
reimbursement for the fees and expenses of counsel (in any case where such fees
and expenses are at the expense of the indemnifying party) and, prior to the
date of such settlement, the indemnifying party shall have failed to comply with
such reimbursement request. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement or compromise
of, or consent to the entry of judgment with respect to, any pending or
threatened action in respect of which the indemnified party is or could have
been a party and indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of the indemnified party.
<PAGE>
17
(d) To the extent that the indemnification provided for in this Section 8
is unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or judgments referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company, on the one
hand, and the Holders, on the other hand, from their sale of Transfer Restricted
Securities or (ii) if the allocation provided by clause 8(d)(i) is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 8(d)(i) above but also the relative
fault of the Company, on the one hand, and of the Holder, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative fault of the Company, on the one hand,
and of the Holder, on the other hand, shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company, on the one hand, or by the Holder, on the
other hand, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and each Holder agree that it would not be just and equitable
if contribution pursuant to this Section 8(d) were determined by pro rata
allocation (even if the Holders were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities or judgments referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any matter, including any action
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 8, no Holder, its
directors, its officers or any Person, if any, who controls such Holder shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the total received by such Holder with respect to the sale of Transfer
Restricted Securities pursuant to a Registration Statement exceeds the amount
paid by such Holder for such Transfer Restricted Securities. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Holders' obligations to contribute pursuant
to this Section 8(d) are several in proportion to the respective principal
amount of Transfer Restricted Securities held by each Holder hereunder and not
joint.
SECTION 9. RULE 144A AND RULE 144. The Company agrees with each Holder,
for so long as any Transfer Restricted Securities remain outstanding and during
any period in which the Company (i) is not subject to Section 13 or 15(d) of the
Exchange Act, to make available, upon request of any Holder, to such Holder or
beneficial owner of Transfer Restricted Securities in connection with any sale
thereof and any prospective purchaser of such Transfer Restricted Securities
designated by such Holder or beneficial owner, the information required by Rule
<PAGE>
18
144A(d)(4) under the Act in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144A, and (ii) is subject to Section 13 or 15 (d) of
the Exchange Act, to use its reasonable best efforts to make all filings
required thereby in a timely manner in order to permit resales of such Transfer
Restricted Securities pursuant to Rule 144.
SECTION 10. MISCELLANEOUS. (a) REMEDIES. Each Holder, in addition to
being entitled to exercise all rights provided herein, in the Indenture, the
Purchase Agreement or granted by law, including recovery of liquidated or other
damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by them of the
provisions of this Agreement and hereby agree to waive the defense in any action
for specific performance that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. The Company will not, on or after the date
of this Agreement, enter into any agreement with respect to its securities that
is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of the Company's securities under any
agreement in effect on the date hereof.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 10(c)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities (excluding Transfer Restricted Securities held by the
Company or its Affiliates). Notwithstanding the foregoing, a waiver or consent
to departure from the provisions hereof that relates exclusively to the rights
of Holders whose Transfer Restricted Securities are being tendered pursuant to
the Exchange Offer, and that does not affect directly or indirectly the rights
of other Holders whose Transfer Restricted Securities are not being tendered
pursuant to such Exchange Offer, may be given by the Holders of a majority of
the outstanding principal amount of Transfer Restricted Securities subject to
such Exchange Offer.
(d) THIRD PARTY BENEFICIARY. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right to
enforce such agreements directly to the extent they may deem such enforcement
necessary or advisable to protect its rights or the rights of Holders hereunder.
(e) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
<PAGE>
19
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company:
Advance Holding Corporation
5673 Airport Road
Roanoke, Virginia 24012
Telecopier No.: (540) 561-1699
Attention: Chief Financial Officer
With a copy to:
Riordan & McKinzie
300 South Central Avenue
29th Floor
Los Angeles, California 90071
Telecopier No.: (213) 229-8550
Attention: Cynthia M. Dunnett
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next Business Day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders of Transfer Restricted Securities; provided, that nothing herein shall
be deemed to permit any assignment, transfer or other disposition of Transfer
Restricted Securities in violation of the terms hereof or of the Purchase
Agreement or the Indenture. If any transferee of any Holder shall acquire
Transfer Restricted Securities in any manner, whether by operation of law or
otherwise, such Transfer Restricted Securities shall be held subject to all of
the terms of this Agreement, and by taking and holding such Transfer Restricted
Securities such Person shall be conclusively deemed to have agreed to be bound
by and to perform all of the terms and provisions of this Agreement, including
the restrictions on resale set forth in this Agreement and, if applicable, the
Purchase Agreement, and such Person shall be entitled to receive the benefits
hereof; provided that this Agreement shall not enure to the benefit of or be
binding upon a successor or assign of a Holder unless and to the extent such
successor or assign of a Holder acquired Transfer Restricted Securities from
such Holder.
<PAGE>
20
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
ADVANCE HOLDING CORPORATION
By: /s/ J. O'Neil Leftwich
----------------------------------------
Name: J. O'Neil Leftwich
Title: Senior Vice President and Chief Financial
Officer, Secretary and Treasurer
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ William S. Oglesby
---------------------------
Name: William S. Oglesby
Title: Managing Director
CHASE SECURITIES INC.
By: /s/ Jeffrey Blumin
---------------------------
Name: Jeffrey Blumin
Title: Vice President
<PAGE>
EXHIBIT A
NOTICE OF FILING OF
A/B EXCHANGE OFFER REGISTRATION STATEMENT
To: Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Attention: Louise Guarneri (Compliance Department)
Fax: (212) 892-7272
From: Advance Holding Corporation
12.875% Series A Senior Discount Debentures due 2009
Date: ____________, 199_
For your information only (NO ACTION REQUIRED):
Today, ______, 199_, we filed [an A/B Exchange Registration Statement/a
Shelf Registration Statement] with the Securities and Exchange Commission. We
currently expect this registration statement to be declared effective within __
business days of the date hereof.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF RIORDAN & McKINZIE]
June 4, 1998
6-848-003
Advance Holding Corporation
5673 Airport Road
Roanoke, Virginia 24012
Re: Advance Holding Corporation -- 12.875% Series B Senior Discount
Debentures due April 15, 2009 -- Registration Statement on Form S-4
-------------------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Advance Holding Corporation, a Virginia
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended (the "Securities Act") of, and the offer to
exchange, the Company's 12.875% Series B Senior Discount Debentures due April
15, 2009 to be registered with the Securities and Exchange Commission (the
"Commission") (the "Series B Debentures"), for its outstanding 12.875% Series A
Senior Discount Debentures due April 15, 2009. This opinion is delivered to you
in connection with the Registration Statement on Form S-4 (the "Registration
Statement") for the aforementioned Series B Debentures and exchange offer, filed
as of the date hereof with the Commission under the Securities Act. Capitalized
terms used herein without definition shall have the meanings given to them in
the Registration Statement.
In rendering this opinion, we have examined copies identified to our
satisfaction as being copies of the Indenture, attached as an exhibit to the
Registration Statement, and originals, counterparts or copies identified to our
satisfaction as being true copies of such other documents as we have deemed
necessary or appropriate to render the opinions given below. We have assumed
the authenticity of all documents submitted to us as originals and the
conformity to authentic original documents of all documents submitted to us as
certified, conformed or photostatic copies.
<PAGE>
Advance Holding Company
June 4, 1998
Page 2
We have investigated such questions of law for the purpose of
rendering this opinion as we have deemed necessary. We express no opinion with
respect to compliance with state securities laws or with respect to any state or
federal fraudulent conveyance statutes.
Based upon the foregoing and subject to the qualifications, exceptions
and limitations set forth herein, we are of the opinion that, when the Indenture
shall become qualified under the Trust Indenture Act of 1939, as amended, and
when the Series B Debentures shall have been duly executed, authenticated and
delivered in accordance with the Indenture and the exchange offer contemplated
by the Registration Statement, the Series B Debentures will be legally issued
and fully paid and constitute the legally valid and binding obligations of the
Company, respectively.
To the extent that the obligations of the Company under the Indenture
may be dependent upon such matters, we assume for purposes of this opinion that
the Trustee is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization; that the Trustee is duly qualified to
engage in the activities contemplated by the Indenture; that the Indenture has
been duly authorized, executed and delivered by the Trustee and constitutes the
valid, binding and enforceable obligation of the Trustee; that the Trustee is in
compliance, generally and with respect to acting as a trustee under the
Indenture, with all applicable laws and regulations; and that the Trustee has
the requisite corporate and legal power and authority to perform its obligations
under the Indenture.
We advise you that certain members of this firm own interests,
directly or indirectly, in a partnership which owns a majority of the stock of
the Company.
<PAGE>
Advance Holding Company
June 4, 1998
Page 3
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus which is a part of the Registration Statement.
Very truly yours,
/s/ Riordan & McKinzie
<PAGE>
EXHIBIT 10.29
12.875% Senior Discount Debentures due 2009
No. R1 $112,000,000
CUSIP NO. 007451 A B 3
ADVANCE HOLDING CORPORATION
promises to pay to Cede & Co. or registered assigns, the principal sum of One
Hundred Twelve Million Dollars ($112,000,000) on April 15, 2009.
Interest Payment Dates: April 15 and October 15
Record Dates: April 1 and October 1
Cash payments of interest commence: October 15, 2003
ADVANCE HOLDING CORPORATION
By:_______________________________________
Name: J. O'Neil Leftwich
Title: Senior Vice President and Chief
Financial Officer, Secretary and Treasurer
This is one of the 12.875% Senior
Discount Debentures referred to in the
within-mentioned Indenture:
Dated: ____________________
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
By:__________________________________
Authorized Signatory
1
<PAGE>
12.875% Senior Discount Debentures due 2009
Unless and until it is exchanged in whole or in part for Debentures in
definitive form, this Debenture may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) ("DTC"), to the issuer or its agent for registration of transfer, exchange
or payment, and any certificate issued is registered in the name of Cede & Co.
or such other name as may be requested by an authorized representative of DTC
(and any payment is made to Cede & Co. or such other entity as may be requested
by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL in as much as the
registered owner hereof, Cede & Co., has an interest herein.
FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED, THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE
DISCOUNT; FOR EACH $1,000 PRINCIPAL AMOUNT OF THIS SECURITY, THE ISSUE
PRICE IS $535.86, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $1,236.64, THE
ISSUE DATE IS APRIL 15, 1998 AND THE YIELD TO MATURITY IS 12.875% PER
ANNUM.
2
<PAGE>
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. PRINCIPAL AND INTEREST. If all of the Debentures issuable under the
Indenture are issued, such Debentures will accrete in value in the
manner specified in the Indenture to an aggregate principal amount of
$112,000,000 by April 15, 2003. The principal amount at Stated
Maturity of this Debenture is set forth on the face hereof. Advance
Holding Corporation or its successor ("Holding"), promises to pay
interest as and to the extent provided below in this paragraph 1 on
the principal amount of this Debenture at the rate of 12.875% per
annum, commencing to accrue on April 15, 2003, and shall pay the
Liquidated Damages, if any, payable pursuant to Section 5 of the
Registration Rights Agreement referred to below. Holding will pay
interest and Liquidated Damages, if any, in United States dollars
(except as otherwise provided herein) semi-annually in arrears on
April 15 and October 15, commencing on October 15, 2003, or if any
such day is not a Business Day, on the next succeeding Business Day
(each an "Interest Payment Date"). Interest on the Debentures shall
accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from April 15, 2003; provided that if
there is no existing Default or Event of Default in the payment of
interest, and if this Debenture is authenticated between a record date
referred to on the face hereof and the next succeeding Interest
Payment Date, interest shall accrue from such next succeeding Interest
Payment Date, except in the case of the original issuance of
Debentures, in which case interest shall accrue from April 15, 2003.
Holding shall pay interest (including, to the extent permitted by
applicable law, post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal (or Accreted Value, if
applicable) at the rate equal to 1% per annum in excess of the then
applicable interest rate on the Debentures to the extent lawful; it
shall pay interest (including, to the extent permitted by applicable
law, post-petition interest in any proceeding under any Bankruptcy
Law) on overdue installments of interest and Liquidated Damages
(without regard to any applicable grace period) at the same rate to
the extent lawful. Interest shall be computed on the basis of a 360-
day year comprised of twelve 30-day months.
2. METHOD OF PAYMENT. Holding will pay interest on the Debentures and
Liquidated Damages, if any, on the applicable Interest Payment Date to
the Persons who are registered Holders of Debentures at the close of
business on the April 1 or October 1 next preceding the Interest
Payment Date, even if such Debentures are cancelled after such record
date and on or before such Interest Payment Date, provided that
defaulted interest shall be paid in accordance with Section 2.12 of
the Indenture. The Debentures shall be payable as to principal,
premium and Liquidated Damages, if any, and interest at the office or
agency of Holding maintained for such purpose within or without the
City and State of New York, or, at the option of Holding, payment of
interest and Liquidated Damages, if any, may be made by check mailed
to the Holders at their addresses set forth in the register of
Holders; provided that payment by wire transfer of immediately
available funds shall be required with respect to principal of,
premium and Liquidated Damages, if any, and interest on, all Global
Debentures. Such payment shall be in such coin or currency of the
United States of America as at the time of payment is legal tender for
payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, United States Trust Company of
New York, the Trustee under the Indenture, shall act as Paying Agent
and Registrar. Holding may change
3
<PAGE>
any Paying Agent or Registrar without notice to any Holder. Holding or
any of its Subsidiaries may act in any such capacity.
4. INDENTURE. Holding issued the Debentures under an Indenture dated as
of April 15, 1998 ("Indenture") between Holding and the Trustee. The
terms of the Debentures include those stated in the Indenture and
those made a part of the Indenture by reference to the Trust Indenture
Act of 1939, as amended (15 U.S. Code (S)(S) 77aaa-77bbbb) (the
"TIA"). The Debentures are subject to all such terms, and Holders are
referred to the Indenture and such TIA for a statement of such terms.
The Debentures are general unsecured Obligations of Holding limited to
$112 million in aggregate principal amount at maturity.
5. OPTIONAL REDEMPTION.
Except as set forth in the next paragraph, the Debentures shall
not be redeemable at Holding's option prior to April 15, 2003.
Thereafter, the Debentures shall be subject to redemption at any time
at the option of Holding, in whole or in part, upon not less than 30
nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below together with accrued
and unpaid interest and any Liquidated Damages, if any, thereon to the
applicable redemption date, if redeemed during the twelve-month period
beginning on April 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003............................................ 106.438%
2004............................................ 104.292%
2005............................................ 102.146%
2006 and thereafter............................. 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to April
15, 2001, Holding may (but shall not have the obligation to) redeem,
on one or more occasions, up to an aggregate of 35% of the principal
amount at maturity of the Debentures originally issued at a redemption
price equal to 112.875% of the Accreted Value thereof, plus accrued
and unpaid Liquidated Damages thereon, if any, to the redemption date,
with the net proceeds of one or more Equity Offerings; provided that,
in each case, at least 65% of the aggregate principal amount at
maturity of the Debentures originally issued remains outstanding
immediately after the occurrence of such redemption; and provided,
further, that such redemption shall occur within 90 days of the date
of the closing of such Equity Offering.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, Holding shall not be
required to make mandatory redemption or sinking fund payments with
respect to the Debentures.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, each Holder of
Debentures will have the right to require Holding to repurchase all or
any part (equal to $1,000 or an integral multiple
4
<PAGE>
thereof) of such Holder's Debentures pursuant to the offer described
below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof at maturity plus
accrued and unpaid interest and Liquidated Damages, if any, thereon,
to the date of purchase or, in the case of repurchases prior to April
15, 2003 at a purchase price equal to 101% of the Accreted Value
thereof on the date of purchase plus accrued and unpaid Liquidated
Damages, if any, thereon to the date of repurchase. Within 30 days
following any Change of Control, Holding will mail a notice to each
Holder describing the transaction or transactions that constitute the
Change of Control setting forth the procedures governing the Change of
Control Offer required by the Indenture.
(b) In connection with any Asset Sale, when the aggregate amount of
Excess Proceeds exceeds $10.0 million, Holding will be required to
make an offer to all Holders of Debentures and, to the extent required
by the terms of any Pari Passu Indebtedness to all holders of such
Pari Passu Indebtedness (an "Asset Sale Offer") to purchase the
maximum principal amount of Debentures and any such Pari Passu
Indebtedness that may be purchased out of the Excess Proceeds, at an
offer price in cash in an amount equal to 100% of the Accreted Value
thereof plus accrued and unpaid Liquidated Damages, if any, thereon on
the date of purchase (if such date of purchase is prior to April 15,
2003) or 100% of the principal amount thereof at maturity plus accrued
and unpaid interest and Liquidated Damages thereon, if any, to the
date of purchase (if such date of purchase is on or after April 15,
2003), in accordance with the procedures set forth in the Indenture or
such Pari Passu Indebtedness, as applicable. To the extent that the
aggregate principal amount at maturity of (or Accreted Value, as the
case may be) and any such Pari Passu Indebtedness tendered pursuant to
an Asset Sale Offer is less than the Excess Proceeds, Holding or its
Restricted Subsidiaries may use any remaining Excess Proceeds for
general corporate purposes. If the aggregate principal amount at
maturity (or Accreted Value, as the case may be) of the Debentures and
any such Pari Passu Indebtedness surrendered by holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the
Debentures to be purchased on a pro rata basis. Upon completion of
such offer to purchase, the amount of Excess Proceeds shall be reset
at zero.
(c) Holders of the Debentures that are the subject of an offer to
purchase will receive a Change of Control Offer or Asset Sale Offer
from Holding prior to any related purchase date and may elect to have
such Debentures purchased by completing the form titled "Option of
Holder to Elect Purchase" appearing below.
8. NOTICE OF REDEMPTION OR REPURCHASE. Notice of redemption or
repurchase shall be mailed at least 30 days but not more than 60 days
before the redemption date or the repurchase date to each Holder whose
Debentures are to be redeemed or repurchased at its registered
address. Debentures in denominations larger than $1,000 may be
redeemed or repurchased in part but only in whole multiples of $1,000
principal amount at maturity, unless all of the Debentures held by a
Holder are to be redeemed or repurchase. On and after the redemption
date or repurchase date, as the case may be, interest and Liquidated
Damages, if any, ceases to accrue on the Debentures or portions
thereof called for redemption or repurchase, as the case may be, or
the Debentures will cease to accrete in value, if applicable, unless
Holding defaults in making the redemption payment or repurchase
payment, as the case may be.
5
<PAGE>
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Debentures are in registered
form without coupons in initial denominations of $1,000 and integral
multiples of $1,000. The transfer of the Debentures may be registered
and the Debentures may be exchanged as provided in the Indenture. The
Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and Holding
may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. Holding need not exchange or register the
transfer of any Debenture or portion of a Debenture selected for
redemption, except for the unredeemed portion of any Debenture being
redeemed in part. Also, it need not exchange or register the transfer
of any Debentures for a period of 15 days before a selection of
Debentures to be redeemed or during the period between a record date
and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Debenture may be
treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to the following paragraphs
and to the provisions of the Indenture, the Indenture and the
Debentures may be amended or supplemented with the consent of the
Holders of at least a majority in aggregate principal amount of the
Debentures then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange
offer for, Debentures), and any existing default or compliance with
any provision of the Indenture or the Debentures may be waived with
the consent of the Holders of a majority in aggregate principal amount
of the then outstanding Debentures (including consents obtained in
connection with a purchase of, or a tender offer or exchange offer
for, Debentures).
Without the consent of any Holder of Debentures, Holding and the
Trustee may amend or supplement the Indenture or the Debentures to
cure any ambiguity, defect or inconsistency, to provide for
uncertificated Debentures in addition to or in place of certificated
Debentures, to provide for the assumption of Holding's obligations to
Holders of Debentures in the case of a merger or consolidation, to
make any change that would provide any additional rights or benefits
to the Holders of Debentures or that does not materially adversely
affect the legal rights under the Indenture of any such Holder, to
comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture
Act or to allow any Subsidiary to guarantee the Debentures.
12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30
days in the payment when due of interest on, or Liquidated Damages, if
any, with respect to, the Debentures (whether or not prohibited by the
subordination provisions of the Indenture); (ii) default in payment
when due of the principal of or premium, if any, on the Debentures
(whether or not prohibited by the subordination provisions of the
Indenture); (iii) failure by Holding or any of its Restricted
Subsidiaries for 30 days after notice from the Trustee or at least 25%
in aggregate principal amount of the Debentures then outstanding to
comply with the provisions described in Sections 4.07, 4.09, 4.10 and
4.13 of the Indenture; (iv) failure by Holding or any of its
Restricted Subsidiaries for 60 days after notice from the Trustee or
the Holders of at least 25% in aggregate principal amount of the
Debentures then outstanding to comply with its other agreements in the
Indenture or the Debentures; (v) default under any mortgage, indenture
or instrument under which there may be issued or by which there may be
secured
6
<PAGE>
or evidenced any Indebtedness for money borrowed by Holding or any of
its Restricted Subsidiaries (or the payment of which is guaranteed by
Holding or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of
the Indenture, which default (a) is caused by a failure to pay
principal of or premium, if any, or interest on such Indebtedness at
final maturity (a "Payment Default") or (b) results in the
acceleration of such Indebtedness prior to its Stated Maturity and, in
each case, the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $20.0 million or more in the case of clause
(a) or (b); (vi) failure by Holding or any of its Restricted
Subsidiaries to pay final judgments aggregating in excess of $20.0
million (net of any amounts with respect to which a reputable and
creditworthy insurance company has acknowledged liability in writing),
which judgments are not paid, discharged or stayed for a period of 60
days; and (vii) certain events of bankruptcy or insolvency with
respect to Holding or any of its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or
the Holders of at least 25% in principal amount of the then
outstanding Debentures may declare all the Debentures to be due and
payable immediately. Notwithstanding the foregoing, in the case of an
Event of Default arising from certain events of bankruptcy or
insolvency, with respect to Holding, all outstanding Debentures will
become due and payable without further action or notice. Upon any
acceleration of maturity of the Debentures, all principal of and
accrued and unpaid interest and Liquidated Damages, if any, on (if on
or after April 15, 2003), or Accreted Value of and Liquidated Damages,
if any, on (if prior to April 15, 2003), the Debentures shall be due
and payable immediately. Holders of the Debentures may not enforce the
Indenture or the Debentures except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Debentures may direct the Trustee in
its exercise of any trust or power. The Trustee may withhold from
Holders of the Debentures notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment
of principal or interest) if it determines that withholding notice is
in their interest. In the event of a declaration of acceleration of
the Debentures because an Event of Default has occurred and is
continuing as a result of the acceleration of any Indebtedness
described in clause (v) of the preceding paragraph, the declaration of
acceleration of the Debentures shall be automatically annulled if the
holders of any Indebtedness described in clause (v) of the preceding
paragraph have rescinded the declaration of acceleration in respect of
such Indebtedness within 30 days of the date of such declaration and
if (a) the annulment of the acceleration of Debentures would not
conflict with any judgment or decree of a court of competent
jurisdiction and (b) all existing Events of Default, except nonpayment
of principal or interest on the Debentures that became due solely
because of the acceleration of the Debentures, have been cured or
waived.
13. TRUSTEE DEALINGS WITH HOLDING. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform
services for Holding or its Affiliates, and may otherwise deal with
Holding or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator or stockholder, of Holding, as such, shall have any
liability for any obligations of Holding under the Debentures or the
Indenture or for any claim based on, in respect of, or by reason of,
such
7
<PAGE>
obligations or their creation. Each Holder of Debentures by
accepting a Debenture waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of
the Debentures.
15. AUTHENTICATION. This Debenture shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SECURITIES. In
addition to the rights provided to Holders of the Debentures under the
Indenture, Holders of Transfer Restricted Securities (as defined in
the Registration Rights Agreement) shall have all the rights set forth
in the Registration Rights Agreement, dated as of the date hereof,
among Holding and the Initial Purchasers (the "Registration Rights
Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, Holding has
caused CUSIP numbers to be printed on the Debentures and the Trustee
may use CUSIP numbers in notices of redemption as a convenience to the
Holders. No representation is made as to the accuracy of such numbers
either as printed on the Debentures or as contained in any notice of
redemption and reliance may be placed only on the other identification
numbers placed thereon.
Holding shall furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Advance Holding Corporation
5673 Airport Road
Roanoke, Virginia 24012
Telecopier: 540.561.1699
Attention: Chief Financial Officer
8
<PAGE>
ASSIGNMENT FORM
To assign this Debenture, fill in the form below: (I) or (we) assign and
transfer this Debenture to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this Debenture on the books of Holding. The agent may substitute
another to act for him.
________________________________________________________________________________
Date:___________________
Your Signature:_______________________________
(Sign exactly as your name appears on the face
of this Debenture)
Signature Guarantee:
9
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Debenture purchased by Holding
pursuant to Section 4.10 or 4.13 of the Indenture, check the box below:
[_] Section 4.10 [_] Section 4.13
If you want to elect to have only part of the Debenture purchased by
Holding pursuant to Section 4.10 or Section 4.13 of the Indenture, state the
principal amount at maturity which you elect to have purchased (which must be
$1,000 at Stated Maturity or integral multiples thereof): $___________
Date:__________________ Your Signature:__________________________
(Sign exactly as your name appears on the
Debenture)
Tax Identification No.:__________________
Signature Guarantee.
10
<PAGE>
EXHIBIT 12.1
ADVANCE HOLDING CORPORATION
SCHEDULE OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Historical
--------------------------------------------------------------
Fiscal Year
--------------------------------------------------------------
1993 1994 1995 1996 1997
--------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Income (loss) before income taxes $18,647 $37,232 $30,125 $35,438 $36,020
--------------------------------------------------------------
Fixed charges:
Interest expense 1,304 2,797 5,028 4,891 6,086
Interest portion of rentals 5,280 7,400 10,395 12,868 16,103
--------------------------------------------------------------
Total fixed charges 6,584 10,197 15,423 17,760 22,189
--------------------------------------------------------------
Earnings before income taxes and fixed charges $25,231 $47,429 $45,548 $53,198 $58,209
==============================================================
Ratio of earnings to fixed charges (2) 3.83 4.65 2.95 3.00 2.62
==============================================================
</TABLE>
<TABLE>
<CAPTION>
Proforma (1)
------------------------------------------
Sixteen Sixteen
Weeks Weeks
Ended Ended
April 25, Fiscal April 25,
1998 1997 1998
------------------------------------------
<S> <C> <C> <C>
Income (loss) before income taxes ($4,050) $ 2,822 $ 574
------------------------------------------
Fixed charges:
Interest expense 3,341 42,562 13,629
Interest portion of rentals 5,806 16,099 5,806
------------------------------------------
Total fixed charges 9,147 58,661 19,435
------------------------------------------
Earnings before income taxes and fixed charges $5,097 $61,483 $20,009
==========================================
Ratio of earnings to fixed charges (2) -- 1.05 1.03
==========================================
</TABLE>
(1) Adjusted to reflect impact of recapitalization.
(2) Ratio of earnings to fixed charges has not been computed since earnings were
not sufficient to cover fixed charges. The coverage deficiency was $4,050
for the sixteen weeks ended April 25, 1998.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
------------
Advance Stores Company, Incorporated, a Virginia corporation
LARALEV, INC., a Delaware corporation
Advance Trucking Corporation, a Virginia corporation
<PAGE>
Exhibit 23.2
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Greensboro, North Carolina
June 4, 1998
<PAGE>
EXHIBIT 25.1
FORM T-1
==============================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
__________________
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) _______
__________________
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. employer
if not a U.S. national bank) identification No.)
114 West 47th Street 10036-1532
New York, NY (Zip Code)
(Address of principal
executive offices)
__________________
ADVANCE HOLDING CORPORATION
(Exact name of obligors as specified in its charter)
Virginia 54-1622754
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
5673 Airport Road
Roanoke, Virginia 24012
(Address of principal executive offices) (Zip Code)
__________________
12.875% Senior Discount Debentures due 2009
(Title of the indenture securities)
==============================================
<PAGE>
- 2 -
GENERAL
1. GENERAL INFORMATION
-------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
-----------------------------
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
Advance Holding Corporation currently is not in default under any of its
outstanding securities for which United States Trust Company of New York is
Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12,
13, 14 and 15 of Form T-1 are not required under General Instruction B.
16. LIST OF EXHIBITS
----------------
T-1.1 -- Organization Certificate, as amended, issued by the State of
New York Banking Department to transact business as a Trust
Company, is incorporated by reference to Exhibit T-1.1 to Form
T-1 filed on September 15, 1995 with the Commission pursuant to
the Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990 (Registration No. 33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
- 3 -
16. LIST OF EXHIBITS
----------------
(cont'd)
T-1.4 -- The By-Laws of United States Trust Company of New York, as
amended, is incorporated by reference to Exhibit T-1.4 to Form T-
1 filed on September 15, 1995 with the Commission pursuant to the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990 (Registration No. 33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee pursuant
to law or the requirements of its supervising or examining
authority.
NOTE
====
As of May 26, 1998, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
__________________
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 27th day
of May, 1998.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/ Louis P. Young
-------------------------
Louis P. Young
Vice President
<PAGE>
Exhibit T-1.6
-------------
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
January 7, 1997
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
/s/Gerard F. Ganey
------------------
By: Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
MARCH 31, 1998
--------------
($ IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Cash and Due from Banks $ 303,692
Short-Term Investments 325,044
Securities, Available for Sale 650,954
Loans 1,717,101
Less: Allowance for Credit Losses 16,546
----------
Net Loans 1,700,555
Premises and Equipment 58,868
Other Assets 120,865
----------
Total Assets $3,159,978
==========
LIABILITIES
- -----------
Deposits:
Non-Interest Bearing $ 602,769
Interest Bearing 1,955,571
----------
Total Deposits 2,558,340
Short-Term Credit Facilities 293,185
Accounts Payable and Accrued Liabilities 136,396
----------
Total Liabilities $2,987,921
==========
STOCKHOLDER'S EQUITY
- --------------------
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 105,214
Unrealized Gains on Securities
Available for Sale (Net of Taxes) 2,307
----------
Total Stockholder's Equity 172,057
----------
Total Liabilities and
STOCKHOLDER'S EQUITY $3,159,978
==========
</TABLE>
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
May 6, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ADVANCE HOLDING CORPORATION AS OF APRIL 25,
1998, JANUARY 3, 1998, AND DECEMBER 28, 1996 AND FOR THE SIXTEEN WEEK PERIOD
ENDED APRIL 25, 1998, AND THE FISCAL YEARS ENDED JANUARY 3, 1998 (53 WKS),
DECEMBER 28, 1996 (52 WKS) AND DECEMBER 30, 1995 (52 WKS), AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> OTHER YEAR YEAR YEAR
<FISCAL-YEAR-END> JAN-02-1999 JAN-03-1998 DEC-28-1996 DEC-30-1995
<PERIOD-START> JAN-04-1998 DEC-29-1996 DEC-31-1995 JAN-01-1995
<PERIOD-END> APR-25-1998 JAN-03-1998 DEC-28-1996 DEC-30-1995
<CASH> 47,175 15,463 14,833 19,888
<SECURITIES> 0 2,025 1,833 1,749
<RECEIVABLES> 4,857 3,359 0 0
<ALLOWANCES> 0 0 0 0
<INVENTORY> 333,083 280,267 252,544 179,899
<CURRENT-ASSETS> 414,492 324,882 285,554 211,904
<PP&E> 223,226 212,836 166,256 122,933
<DEPRECIATION> (84,170) (77,940) (57,804) (41,006)
<TOTAL-ASSETS> 575,357 461,832 394,395 295,088
<CURRENT-LIABILITIES> 268,845 203,742 175,474 109,196
<BONDS> 395,249 104,126 91,703 79,727
0 0 0 0
0 773 773 773
<COMMON> 126 194 194 194
<OTHER-SE> (104,797) 142,581 121,356 100,154
<TOTAL-LIABILITY-AND-EQUITY> 575,357 461,832 394,395 295,088
<SALES> 288,963 848,108 705,983 602,559
<TOTAL-REVENUES> 288,963 848,108 705,983 602,559
<CGS> 176,377 524,586 437,615 369,962
<TOTAL-COSTS> 176,377 524,586 437,615 369,962
<OTHER-EXPENSES> 113,291 281,095 228,226 196,289
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 3,341 6,086 4,891 5,028
<INCOME-PRETAX> (4,050) 36,020 35,438 30,125
<INCOME-TAX> (1,698) 14,733 14,174 12,122
<INCOME-CONTINUING> (2,352) 21,287 21,264 18,003
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (2,352) 21,287 21,264 18,003
<EPS-PRIMARY> 0 0 0 0
<EPS-DILUTED> 0 0 0 0
</TABLE>
<PAGE>
EXHIBIT 99.1
- --------------------------------------------------------------------------------
LETTER OF TRANSMITTAL
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ________,
1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
- --------------------------------------------------------------------------------
ADVANCE HOLDING CORPORATION
LETTER OF TRANSMITTAL
12.875% SENIOR DISCOUNT DEBENTURES DUE 2009
To: U.S. Trust Company of New York, The Exchange Agent
<TABLE>
<S> <C>
By Mail: By Overnight Courier:
United States Trust Company of New York United States Trust Company of New York
P.O. Box 844 770 Broadway, 13th Floor
Cooper Station New York, New York 10003
New York, New York 10276-0844 Attention: Corporate Trust Operations Department
(registered or certified mail recommended)
By Hand: By Facsimile:
United States Trust Company of New York (212) 780-0592
111 Broadway, Lower Level (For Eligible Institutions Only)
New York, New York 10006
Attention: Corporate Trust Services Confirm by telephone:
(800) 548-6565
</TABLE>
Delivery of this instrument to an address other than as set forth above or
transmission of instructions via a facsimile transmission to a number other than
as set forth above will not constitute a valid delivery. The instructions
accompanying this Letter of Transmittal should be read carefully before this
Letter of Transmittal is completed.
The undersigned acknowledges that he or she has received the Prospectus
dated ___________, 1998, (the "Prospectus") of Advance Holding Corporation (the
"Company") and this Letter of Transmittal (the "Letter of Transmittal"), which
together constitute the Company's offer (the "Exchange Offer") to exchange
$1,000 principal amount at maturity of its 12.875% Series B Senior Discount
Debentures due 2009 (the "Series B Debentures") which have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which the Prospectus is a part, for each $1,000
principal amount at maturity of its outstanding 12.875% Series A Senior Discount
Debentures due 2009 (the "Series A Debentures"), of which $112,000,000 principal
amount at maturity is outstanding. Other capitalized terms used but not defined
herein have the meaning given to them in the Prospectus.
The Letter of Transmittal is to be used by Holders of Series A Debentures
(i) if certificates representing the Series A Debentures are to be physically
delivered herewith; or (ii) if tender of Series A Debentures is to be made by
book-entry transfer to the Exchange Agent's account at The Depository Trust
Company ("DTC"), pursuant to the procedures set forth in the Prospectus under
"The Exchange Offer - Procedures for Tendering" by any financial institution
that is a participant in DTC and whose name appears on a security position
listing as the owner of Series A Debentures; or (iii) if tender of Series A
Debentures is to be made according to the guaranteed delivery procedures set
forth in the Prospectus under "The Exchange Offer - Guaranteed Delivery
Procedures." Delivery of documents to DTC does not constitute delivery to the
Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person (i)
in whose name Series A Debentures are registered on the books of the Company or
any other person who has obtained a properly completed bond power from the
registered holder; or (ii) whose Series A Debentures are held of record by DTC
who desires to deliver such Series A Debentures by book-entry transfer at DTC.
The undersigned has completed, executed and delivered this Letter of Transmittal
to indicate the action the undersigned desires to take with respect to the
Exchange Offer. Holders who wish to tender their Series A Debentures must
complete this letter in its entirety.
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE CHECKING ANY BOX BELOW
- -------------------------------------------------------------------------------
DESCRIPTION OF 12.875% SERIES A SENIOR DISCOUNT DEBENTURES DUE 2009
("SERIES A DEBENTURES"):
<TABLE>
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
NAME(S) AND ADDRESS(ES) OF AGGREGATE PRINCIPAL AMOUNT PRINCIPAL AMOUNT AT MATURITY
REGISTERED HOLDER(S) AT MATURITY REPRESENTED BY TENDERED (MUST BE IN INTEGRAL
(PLEASE FILL IN, IF BLANK) CERTIFICATE(S) MULTIPLE OF $1,000)*
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Total
- -----------------------------------------------------------------------------------------------
</TABLE>
* Unless indicated in the column labeled "Principal Amount at
Maturity Tendered," any tendering Holder of Series A Debentures will
be deemed to have tendered the entire aggregate principal amount at
maturity represented by the column labeled "Aggregate Principal
Amount at Maturity Represented by Certificate(s)."
If the space provided above is inadequate, list the principal
amounts at maturity on a separate signed schedule and affix the
list to this Letter of Transmittal.
The minimum permitted tender is $1,000 in principal amount at
maturity of Series A Debentures. All other tenders must be in
integral multiples of $1,000.
- --------------------------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Series A Debentures in a principal
amount at maturity not tendered or not accepted for exchange, or Series B
Debentures issued in exchange for Series A Debentures accepted for exchange,
are to be issued in the name of someone other than the undersigned, or if the
Series A Debentures tendered by book-entry transfer that are not accepted for
exchange are to be credited to an account maintained by DTC.
ISSUE CERTIFICATE(S) TO:
Name_____________________________________
(Please Print)
Address___________________________________
__________________________________________
(Include Zip Code)
__________________________________________
(Tax Identification or Social Security No.)
- -------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE EXCHANGE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Series A Debentures in a principal
amount at maturity not tendered or not accepted for exchange, or Series B
Debentures issued in exchange for Series A Debentures accepted for exchange,
are to be sent to someone other than the undersigned, or to the undersigned at
an address other than that shown above.
MAIL TO:
Name_____________________________________
(Please Print)
Address___________________________________
__________________________________________
(Include Zip Code)
__________________________________________
(Tax Identification or Social Security No.)
- -------------------------------------------------------------------------------
[_] CHECK HERE IF TENDERED SERIES A DEBENTURES ARE BEING DELIVERED BY DTC TO
THE EXCHANGE AGENT'S ACCOUNT AT DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _____________________________________
DTC Book-Entry Account No.: _____________________________________
Transaction Code No.: _________________________________________
[_] CHECK HERE IF YOU ARE A BROKER-DEALER.
Name: _______________________________________________________
Address: _______________________________________________________
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND ANY OF THE SERIES A DEBENTURES
YOU ARE TENDERING WERE ACQUIRED DIRECTLY FROM THE COMPANY.
Principal Amount at Maturity of Tendered Series A Debentures Acquired from the
Company: $_____________________
2
<PAGE>
LADIES AND GENTLEMEN:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company the principal amount at maturity of Series A
Debentures indicated above. Subject to and effective upon the acceptance for
exchange of the principal amount at maturity of Series A Debentures tendered in
accordance with this Letter of Transmittal, the undersigned sells, assigns and
transfers to, or upon the order of, the Company all right, title and interest in
and to the Series A Debentures tendered hereby. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent its agent and attorney-
in-fact (with full knowledge that the Exchange Agent also acts as the agent of
the Company) with respect to the tendered Series A Debentures with full power of
substitution to (i) deliver certificates for such Series A Debentures to the
Company, or transfer ownership of such Series A Debentures on the account books
maintained by DTC, and deliver all accompanying evidences of transfer and
authenticity to, or upon the order of, the Company; and (ii) present such Series
A Debentures for transfer on the books of the Company and receive all benefits
and otherwise exercise all rights of beneficial ownership of such Series A
Debentures, all in accordance with the terms of the Exchange Offer. The power
of attorney granted in this paragraph shall be deemed irrevocable and coupled
with an interest.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, sell, assign and transfer the Series A Debentures
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim, when the same are acquired by the Company.
THE UNDERSIGNED HEREBY FURTHER REPRESENTS THAT ANY SERIES B DEBENTURES ACQUIRED
IN EXCHANGE FOR SERIES A DEBENTURES TENDERED HEREBY WILL HAVE BEEN ACQUIRED IN
THE ORDINARY COURSE OF BUSINESS OF THE HOLDER RECEIVING SUCH SERIES B
DEBENTURES, WHETHER OR NOT THE UNDERSIGNED, THAT NEITHER THE HOLDER NOR ANY SUCH
OTHER PERSON HAS AN ARRANGEMENT WITH ANY PERSON TO PARTICIPATE IN THE
DISTRIBUTION OF SUCH SERIES B DEBENTURES AND THAT NEITHER THE HOLDER NOR ANY
SUCH OTHER PERSON IS AN "AFFILIATE," AS DEFINED UNDER RULE 405 OF THE SECURITIES
ACT, OF THE COMPANY OR ANY OF ITS SUBSIDIARIES. If the undersigned is not a
broker-dealer, the undersigned represents that it is not engaged in, and does
not intend to engage in, a distribution of Series B Debentures. If the
undersigned is a broker-dealer that will receive Series B Debentures, it
represents that, except to the extent indicated at the bottom of the preceding
page, the Series A Debentures to be exchanged for Series B Debentures were
acquired as a result of market-making activities or other trading activities and
not acquired directly from the Company, and it acknowledges that it will deliver
a prospectus in connection with any resale of such Series B Debentures; however,
by so acknowledging and by delivering a prospectus, the undersigned will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. IF THE UNDERSIGNED IS A BROKER-DEALER, IT ACKNOWLEDGES THAT IT MAY NOT USE
THE PROSPECTUS IN CONNECTION WITH RESALES OF SERIES B DEBENTURES RECEIVED IN
EXCHANGE FOR SERIES A DEBENTURES THAT WERE ACQUIRED DIRECTLY FROM THE COMPANY.
The undersigned will, upon request, execute and deliver any additional documents
deemed by the Exchange Agent or the Company to be necessary or desirable to
complete the assignment, transfer and purchase of the Series A Debentures
tendered hereby.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Series A Debentures when, as and if the Company has
given oral or written notice thereof to the Exchange Agent.
If any tendered Series A Debentures are not accepted for exchange pursuant
to the Exchange Offer for any reason, certificates for any such unaccepted
Series A Debentures will be returned (except as noted below with respect to
tenders through DTC), without expense, to the undersigned at the address shown
below or at a different address as may be indicated herein under "Special
Payment Instructions" as promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned understands that tenders of Series A Debentures pursuant to
the procedures described under the caption "The Exchange Offer - Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer.
Unless otherwise indicated under "Special Payment Instructions," please
issue the certificates representing the Series B Debentures issued in exchange
for the Series A Debentures accepted for exchange and return any Series A
Debentures not tendered or not exchanged, in the name(s) of the undersigned (or
in either such event in the case of Series A Debentures tendered by DTC, by
credit to the undersigned's account at DTC). Similarly, unless otherwise
indicated under "Special Delivery Instructions," please send the certificates
representing the Series B Debentures issued in exchange for the Series A
Debentures accepted for exchange and any certificates for Series A Debentures
not tendered or not exchanged (and accompanying documents, as appropriate) to
the undersigned at the address shown below the
3
<PAGE>
undersigned's signature(s), unless, in either event, tender is being made
through DTC. In the event that both "Special Payment Instructions" and "Special
Delivery Instructions" are completed, please issue the certificates representing
the Series B Debentures issued in exchange for the Series A Debentures accepted
for exchange and return any Series A Debentures not tendered or not exchanged in
the name(s) of, and send said certificates to, the person(s) so indicated. The
undersigned recognizes that the Company has no obligation pursuant to the
"Special Payment Instructions" and "Special Delivery Instructions" to transfer
any Series A Debentures from the name of the registered holder(s) thereof if the
Company does not accept for exchange any of the Series A Debentures so tendered.
Holders of Series A Debentures who wish to tender their Series A Debentures
and (i) whose Series A Debentures are not immediately available, or (ii) who
cannot deliver their Series A Debentures, this Letter of Transmittal or any
other documents required hereby to the Exchange Agent, or cannot complete the
procedure for book-entry transfer, prior to the Expiration Date, may tender
their Series A Debentures according to the guaranteed delivery procedures set
forth in the Prospectus under the caption "The Exchange Offer - Guaranteed
Delivery Procedures". See Instruction 1 regarding the completion of the Letter
of Transmittal printed below.
PLEASE SIGN HERE WHETHER OR NOT
SERIES A DEBENTURES ARE BEING PHYSICALLY TENDERED HEREBY
X
- ------------------------------------------- ------------
DATE
X
- ------------------------------------------- ------------
SIGNATURE(S) OF REGISTERED HOLDER(S) DATE
OR AUTHORIZED SIGNATORY
AREA CODE AND TELEPHONE NUMBER:
__________________
THE ABOVE LINES MUST BE SIGNED BY THE REGISTERED HOLDER(S) OF SERIES A
DEBENTURES AS THEIR NAME(S) APPEAR(S) ON THE SERIES A DEBENTURES OR, IF THE
SERIES A DEBENTURES ARE TENDERED BY A PARTICIPANT IN DTC, AS SUCH PARTICIPANT'S
NAME APPEARS ON A SECURITY POSITION LISTING AS THE OWNER OF THE SERIES A
DEBENTURES, OR BY PERSON(S) AUTHORIZED TO BECOME REGISTERED HOLDER(S) BY A
PROPERLY COMPLETED BOND POWER FROM THE REGISTERED HOLDER(S), A COPY OF WHICH
MUST BE TRANSMITTED WITH THIS LETTER OF TRANSMITTAL. IF SERIES A DEBENTURES TO
WHICH THIS LETTER OF TRANSMITTAL RELATES ARE HELD OF RECORD BY TWO OR MORE JOINT
HOLDERS, THEN ALL SUCH HOLDERS MUST SIGN THIS LETTER OF TRANSMITTAL. IF
SIGNATURE IS BY A TRUSTEE, EXECUTOR, ADMINISTRATOR, GUARDIAN, ATTORNEY-IN-FACT,
OFFICER OF A CORPORATION OR OTHER PERSON ACTING IN A FIDUCIARY OR REPRESENTATIVE
CAPACITY, SUCH PERSON MUST (I) SET FORTH HIS OR HER FULL TITLE BELOW AND (II)
UNLESS WAIVED BY THE COMPANY, SUBMIT EVIDENCE SATISFACTORY TO THE COMPANY OF
SUCH PERSON'S AUTHORITY SO TO ACT. SEE INSTRUCTION 4 REGARDING THE COMPLETION
OF THIS LETTER OF TRANSMITTAL PRINTED BELOW.
NAME(S): ____________________________________________________________________
____________________________________________________________________
(PLEASE PRINT)
CAPACITY: ____________________________________________________________________
ADDRESS: ____________________________________________________________________
____________________________________________________________________
(INCLUDE ZIP CODE)
SIGNATURE(S) GUARANTEED BY AN ELIGIBLE INSTITUTION:
(IF REQUIRED BY INSTRUCTION 4)
_____________________________________________________________________
(AUTHORIZED SIGNATURE)
_____________________________________________________________________
(TITLE)
_____________________________________________________________________
(NAME OF FIRM)
DATED:___________________________________, 199_
4
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND SERIES A DEBENTURES. The
tendered Series A Debentures (or a confirmation of a book-entry transfer into
the Exchange Agent's account at DTC of all Series A Debentures delivered
electronically), as well as a properly completed and duly executed copy of this
Letter of Transmittal or facsimile hereof and any other documents required by
this Letter of Transmittal, must be received by the Exchange Agent at its
address set forth herein prior to 5:00 P.M., New York City time, on the
Expiration Date. The method of delivery of the tendered Series A Debentures,
this Letter of Transmittal and all other required documents to the Exchange
Agent is at the election and risk of the Holder and, except as otherwise
provided below, the delivery will be deemed made only when actually received by
the Exchange Agent. Instead of delivery by mail, it is recommended that the
Holder use an overnight or hand delivery service. In all cases, sufficient time
should be allowed to assure timely delivery. No Letter of Transmittal or Series
A Debentures should be sent to the Company.
Holders who wish to tender their Series A Debentures and (i) whose Series A
Debentures are not immediately available; or (ii) who cannot deliver their
Series A Debentures, this Letter of Transmittal or any other documents required
hereby to the Exchange Agent, or cannot complete the procedure for book-entry
transfer, prior to 5:00 P.M., New York City time, on the Expiration Date must
tender their Series A Debentures according to the guaranteed delivery procedures
set forth in the Prospectus. Pursuant to such procedures: (i) such tender must
be made by or through a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., or a commercial bank
or trust company having an office or correspondent in the United States or an
institution which falls within the definition of "Eligible Guarantor
Institution" contained in Regulation 17Ad-15 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended (each,
an "Eligible Institution"); (ii) prior to the Expiration Date, the Exchange
Agent must have received from the Eligible Institution a properly completed and
duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or
hand delivery) setting forth the name and address of the Holder of the Series A
Debentures and the principal amount at maturity of Series A Debentures tendered,
stating that the tender is being made thereby and guaranteeing that, within five
New York Stock Exchange trading days after the Expiration Date, this Letter of
Transmittal (or facsimile hereof) together with the certificate(s) representing
the Series A Debentures (or a confirmation of electronic delivery of book-entry
delivery into the Exchange Agent's account at DTC) and any other required
documents will be deposited by the Eligible Institution with the Exchange Agent;
and (iii) such properly completed and executed Letter of Transmittal (or
facsimile hereof), as well as all other documents required by this Letter of
Transmittal and the certificate(s) representing all tendered Series A Debentures
in proper form for transfer (or a confirmation of electronic delivery of book-
entry delivery into the Exchange Agent's account at DTC), must be received by
the Exchange Agent within five New York Stock Exchange trading days after the
Expiration Date, all as provided in the Prospectus under the caption "Exchange
Offer - Guaranteed Delivery Procedures." Any Holder of Series A Debentures who
wishes to tender his or her Series A Debentures pursuant to the guaranteed
delivery procedures described above must ensure that the Exchange Agent receives
the Notice of Guaranteed Delivery prior to 5:00 P.M., New York City time, on the
Expiration Date. Upon request of the Exchange Agent, a Notice of Guaranteed
Delivery will be sent to Holders who wish to tender their Series A Debentures
according to the guaranteed delivery procedures set forth above.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Series A Debentures and withdrawal of
tendered Series A Debentures will be determined by the Company in its sole
discretion, which determination will be final and binding. The Company reserves
the absolute right to reject any and all Series A Debentures not properly
tendered or any Series A Debentures the Company's acceptance of which would, in
the opinion of counsel for the Company, be unlawful. The Company also reserves
the right to waive any defects or irregularities or conditions of tender as to
the Exchange Offer and/or particular Series A Debentures. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in this Letter of Transmittal) shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with
tenders of Series A Debentures must be cured within such time as the Company
shall determine. Neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notification of defects or irregularities with
respect to tenders of Series A Debentures, nor shall any of them incur any
liability for failure to give such notification. Tenders of Series
5
<PAGE>
A Debentures will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Series A Debentures received by
the Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holders of Series A Debentures, unless otherwise provided
in this Letter of Transmittal, as soon as practicable following the Expiration
Date.
2. TENDER BY HOLDER. Only a Holder of Series A Debentures may tender
such Series A Debentures in the Exchange Offer. Any beneficial holder of Series
A Debentures who is not the registered holder and who wishes to tender should
arrange with the registered holder to execute and deliver this Letter of
Transmittal on his or her behalf or must, prior to completing and executing this
Letter of Transmittal and delivering his or her Series A Debentures, either make
appropriate arrangements to register ownership of the Series A Debentures in
such Holder's name or obtain a properly completed bond power from the registered
holder.
3. PARTIAL TENDERS. Tenders of Series A Debentures will be accepted only
in integral multiples of $1,000 principal amount at maturity. If less than the
entire principal amount at maturity of any Series A Debentures is tendered, the
tendering Holder should fill in the principal amount at maturity tendered in the
third column of the box entitled "Description of 12.875% Series A Senior
Discount Debentures due 2009 ("Series A Debentures")" above. The entire
principal amount at maturity of Series A Debentures delivered to the Exchange
Agent will be deemed to have been tendered unless otherwise indicated. If the
entire principal amount at maturity of all Series A Debentures is not tendered,
then Series A Debentures for the principal amount at maturity of Series A
Debentures not tendered and a certificate or certificates representing Series B
Debentures issued in exchange for any Series A Debentures accepted will be sent
to the Holder at his or her registered address, unless a different address is
provided in the appropriate box on this Letter of Transmittal, promptly after
the Series A Debentures are accepted for exchange.
4. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal (or facsimile hereof) is
signed by the record Holder(s) of the Series A Debentures tendered hereby, the
signature must correspond with the name(s) as written on the face of the Series
A Debentures or, if the Series A Debentures are tendered by a participant in
DTC, as such participant's name appears on a security position listing as the
owner of the Series A Debentures, without alteration, enlargement or any change
whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders of Series A Debentures tendered and the certificate
or certificates for Series B Debentures issued in exchange therefor are to be
issued (or any untendered principal amount of Series A Debentures is to be
reissued) to the registered Holder, the said Holder need not and should not
endorse any tendered Series A Debentures, nor provide a separate bond power. In
any other case, such Holder must either properly endorse the Series A Debentures
tendered or transmit a properly completed separate bond power with this Letter
of Transmittal, with the signatures on the endorsement or bond power guaranteed
by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered Holder or Holders of any Series A Debentures listed,
such Series A Debentures must be endorsed or accompanied by appropriate bond
powers signed as the name of the registered Holder or Holders appears on the
Series A Debentures.
If this Letter of Transmittal (or facsimile hereof) or any Series A
Debentures or bond powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact or officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and unless waived by the Company, evidence satisfactory to the Company
of their authority so to act must be submitted with this Letter of Transmittal.
Endorsements on Series A Debentures or signatures on bond powers required
by this Instruction 4 must be guaranteed by an Eligible Institution.
Except as otherwise provided below, all signatures on this Letter of
Transmittal (or facsimile hereof) must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal need not be guaranteed if (i) this
Letter of Transmittal is signed by the registered Holder(s) of the Series A
Debentures tendered herewith and such Holder(s)
6
<PAGE>
have not completed the box set forth herein entitled "Special Payment
Instructions" or the box entitled "Special Delivery Instructions;" or (ii) such
Series A Debentures are tendered for the account of an Eligible Institution.
5. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. Tendering Holders should
indicate, in the applicable box or boxes, the name and address to which Series B
Debentures or substitute Series A Debentures for principal amounts at maturity
not tendered or not accepted for exchange are to be issued or sent, if different
from the name and address of the person signing this Letter of Transmittal (or
in the case of tender of Series A Debentures through DTC, if different from
DTC). In the case of issuance in a different name, the taxpayer identification
or social security number of the person named must also be indicated.
6. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a
Holder whose offered Series A Debentures are accepted for exchange must provide
the Company (as payor) with his, her or its correct Taxpayer Identification
Number ("TIN"), which, in the case of an exchanging Holder who is an individual,
is his or her social security number. If the Company is not provided with the
correct TIN or an adequate basis for exemption, such Holder may be subject to a
$50 penalty imposed by the Internal Revenue Service (the "IRS"). In addition,
delivery to such Holder of Series B Debentures may be subject to backup
withholding in an amount equal to 31% of the gross proceeds resulting from the
Exchange Offer. If withholding results in an overpayment of taxes, a refund may
be obtained from the IRS by the Holder. Exempt Holders (including, among
others, all corporations and certain foreign individuals) are not subject to
these backup withholding and reporting requirements. See instructions to the
enclosed Form W-9.
To prevent backup withholding, each exchanging Holder must provide his, her
or its correct TIN by completing the Form W-9 enclosed herewith, certifying that
the TIN provided is correct (or that such Holder is awaiting a TIN) and that (i)
the Holder is exempt from backup withholding; (ii) the Holder has not been
notified by the IRS that he, she or it is subject to backup withholding as a
result of a failure to report all interest or dividends; or (iii) the IRS has
notified the Holder that he, she or it is no longer subject to backup
withholding. In order to satisfy the Exchange Agent that a foreign individual
qualifies as an exempt recipient, such Holder must submit a statement signed
under penalty of perjury attesting to such exempt status. Such statements may
be obtained from the Exchange Agent. If the Series A Debentures are in more
than one name or are not in the name of the actual owner, consult the Form W-9
for information on which TIN to report. If you do not provide your TIN to the
Company within 60 days, backup withholding will begin and continue until you
furnish your TIN to the Company.
7. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Series A Debentures pursuant to the Exchange
Offer. If, however, certificates representing Series B Debentures or Series A
Debentures for principal amounts at maturity not tendered or accepted for
exchange are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered Holder of the Series A Debentures
tendered hereby, or if tendered Series A Debentures are registered in the name
of any person other than the person signing this Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Series A
Debentures pursuant to the Exchange Offer, then the amount of any such transfer
taxes (whether imposed on the registered Holder or on any other persons) will be
payable by the tendering Holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with this Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
Holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Series A Debentures listed in this
Letter of Transmittal.
8. WAIVER OF CONDITIONS. The Company reserves the absolute right to
amend, waive or modify specified conditions in the Exchange Offer in the case of
any Series A Debentures tendered.
9. MUTILATED, LOST, STOLEN OR DESTROYED SERIES A DEBENTURES. Any
tendering Holder whose Series A Debentures have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated herein for
further instructions.
7
<PAGE>
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address
specified in the Prospectus. Holders may also contact their broker, dealer,
commercial bank, trust company or other nominee for assistance concerning the
Exchange Offer.
(DO NOT WRITE IN SPACE BELOW)
----------------------------------------------------------
CERTIFICATE SERIES A DEBENTURES SERIES A DEBENTURES
SURRENDERED TENDERED ACCEPTED
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
Delivery Prepared by_______________________ Checked By__________ Date _________
8
<PAGE>
Name (If joint names, see attached guidelines)
- --------------------------------------------------------------------------------
Business name (Sole proprietors, see attached guidelines)
- --------------------------------------------------------------------------------
Please check appropriate box: [ ] Individual/Sole Proprietor [ ] Corporation
[ ] Partnership [ ] Other
- --------------------------------------------------------------------------------
Address (number, street, and apt. or suite no.)
- --------------------------------------------------------------------------------
City, state, and ZIP code
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SUBSTITUTE
Form W-9
Department of the Treasury
Internal Revenue Service
Payer's Request for Taxpayer Identification Number (TIN)
- --------------------------------------------------------------------------------
PART I -- TAXPAYER IDENTIFICATION NO.
Enter your taxpayer identification
number in the appropriate box. For most individuals, this is your social
security number. If you do not have a number, see How to Obtain a "TIN" in the
enclosed Guidelines.
___________________ ______________________________
Social Security Number Employer Identification Number
Note: If the account is more than one name, see the chart in enclosed
Guidelines to determine what number to give.
- --------------------------------------------------------------------------------
PART II -- FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING
(SEE ENCLOSED GUIDELINES)
- --------------------------------------------------------------------------------
PART III -- CERTIFICATION -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding because (a) I am exempt from
backup withholding, or (b) I have not been notified by the Internal
Revenue Service ("IRS") that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to backup withholding.
Certification Instructions. -- You must cross out item (2) above if you have
been notified by the IRS that you are subject to backup withholding because of
under-reporting interest or dividends on your tax return. However, if after
being notified by the IRS that you are subject to backup withholding, you
received another notification from the IRS that you are no longer subject to
backup withholding, do not cross out item (2).
- -------------------------------------------------------------------------------
SIGNATURE ____________________________ DATE ____________ , 1998
- -------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF
ANY PAYMENTS MADE TO YOU. PLEASE REVIEW ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
WHAT IS BACKUP WITHHOLDING? -- Persons making certain payments to you are
required to withhold and pay to IRS 31% of such payments under certain
conditions. This is called "backup withholding." Payments that could be
subject to backup withholding include interest, dividends, broker and barter
exchange transactions, rents, royalties, nonemployee compensation, and certain
payments from fishing boat operators, but do not include real estate
transactions.
If you give the requester your correct TIN, make the appropriate
certifications, and report all your taxable interest and dividends on your tax
return, your payments will not be subject to backup withholding. Payments you
receive will be subject to backup withholding if:
(1) You do not furnish your TIN to the requester, or
(2) IRS notifies the requester that you furnished an incorrect TIN, or
(3) You are notified by IRS that you are subject to backup withholding
because you failed to report all your interest and dividends on your tax return
(for interest and dividend accounts only), or
(4) You fail to certify to the requester that you are not subject to
backup withholding under (3) above (for interest and dividend accounts opened
after 1983 only), or
(5) You fail to certify your TIN. This applies only to interest,
dividend, broker or barter exchange accounts opened after 1983, or broker
accounts considered inactive in 1983.
For other payments, you are subject to backup withholding only if (1) or
(2) above applies.
Certain Payees and payments are exempt from backup withholding and
information reporting. See payees and Payments Exempt From Backup Withholding,
below, and Exempt Payees and Payments under Specific Instructions below if you
are an exempt payee.
PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING. -- The following is a list
of payees exempt from backup withholding and for which no information reporting
is required. For interest and dividends, all listed payees are exempt except
item (9). For broker transactions, payees listed in (1) through (13), and a
person registered under the Investment Advisers Act of 1940 who regularly acts
as a broker are exempt. Payments subject to reporting under sections 6041 and
6041A are generally exempt from backup withholding only if made to payees
described in items (1) through (7), except that a corporation that provides
medical and health care services or bills and collects payments for such
services is not exempt from backup withholding or information reporting. Only
payees described in items (2) through (6) are exempt from backup withholding for
barter exchange transactions, patronage dividends, and payments by certain
fishing boat operators.
11. A corporation.
12. An organization exempt from tax under section 501(a), or an
individual retirement plan (IRA), or a custodial account under 403(b)(7).
13. The United States or any of its agencies or instrumentalities.
14. A state, the District of Columbia, a possession of the United States,
or any of their political subdivisions or instrumentalities.
15. A foreign government or any of its political subdivisions, agencies
or instrumentalities.
16. An international organization or any of its agencies or
instrumentalities.
17. A foreign central bank of issue.
18. A dealer in securities or commodities required to register in the
U.S. or a possession of the U.S.
19. A futures commission merchant registered with the Commodity Futures
Trading Commission.
20. A real estate investment trust.
21. An entity registered at all times during the tax year under the
Investment Company Act of 1940.
22. A common trust fund operated by a bank under section 584(a).
23. A financial institution.
24. A middleman known in the investment community as a nominee or listed
in the most recent publication of the American Society of Corporate Securities,
Inc., Nominee List.
25. A trust exempt from tax under section 664 or described in section
4947.
Payments of dividends and patronage dividends generally not subject to
backup withholding also include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S. and
that have at least one nonresident partner.
Payments of interest generally not subject to backup withholding include
the following:
. Payments of interest on obligations issued by individuals.
NOTE: You may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you have not
provided your correct TIN to the payer.
Payments that are not subject to information reporting are also not
subject to backup withholding. For details, see sections 6041, 6041A(a), 6042,
6044, 6045, 6049, 6050A, and 6050N, and the regulations under such sections.
PENALTIES
FAILURE TO FURNISH TIN. -- If you fail to furnish your TIN to a requester, you
are subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
MISUSE OF TINS. -- If the requester discloses or uses TINs in violation of
Federal laws, the requester may be subject to civil and criminal penalties.
CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you make
a false statement with no reasonable basis that results in no imposition of
backup withholding, you are subject to a penalty of $500.
CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
SPECIFIC INSTRUCTIONS
NAME. -- If you are an individual, generally provide the name shown on your
social security cared. However, if you have changed your last name, for
instance, due to marriage, without informing the Social Security Administration
of the name change, please enter your first name and both the last name shown on
your social security card and your new last name.
SIGNING THE CERTIFICATION. --
(1) INTEREST, DIVIDEND, AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984 AND
BROKER ACCOUNTS THAT WERE CONSIDERED ACTIVE DURING 1983. -- You are not required
to sign the certification; however, you may do so. You are required to provide
your correct TIN.
(2) INTEREST, DIVIDEND, BROKER AND BARTER EXCHANGE ACCOUNTS OPENED AFTER 1983
AND BROKER ACCOUNTS THAT WERE CONSIDERED INACTIVE DURING 1983. -- You must sign
the certification or backup withholding will apply. If you are subject to
backup withholding and you are merely providing your correct TIN to the
requester, you must cross out item (2) in the certification before signing the
form.
(3) OTHER PAYMENTS. -- You are required to furnish your correct TIN, but you
are not required to sign the certification unless you have been notified of an
incorrect TIN. Other payments include payments made in the course of the
requestor's trade or business for rents, royalties, goods (other than bills for
merchandise), medical and health care services, payments to a nonemployee for
services (including attorney and accounting fees), and payments to certain
fishing boat crew members.
(4) EXEMPT PAYEES AND PAYMENTS -- If you are exempt from backup withholding,
you should complete this form to avoid possible erroneous backup withholding.
Enter your correct TIN in Part I, write "EXEMPT" in the block in Part II, sign
and date the form. If you are a nonresident alien or foreign entity not subject
to backup withholding, give the requester a completed FORM W-8, Certificate of
Foreign Status.
(5) TIN "APPLIED FOR." -- Follow the instructions under How To Obtain a TIN, on
page 1, sign and date this form.
SIGNATURE.-- For a joint account, only the person whose TIN is shown in Part I
should sign the form.
PRIVACY ACT NOTICE. -- Section 6109 requires you to furnish your correct
taxpayer identification number (TIN) to persons who must file information
returns with IRS to report interest, dividends, and certain other income paid to
you, mortgage interest you paid, the acquisition or abandonment of secured
property, or contributions you made to an individual retirement arrangement
(IRA). IRS uses the numbers for identification purposes and to help verify the
accuracy of your tax return. You must provide your TIN whether or not you are
required to file a tax return. Payers must generally withhold 20% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
TIN to a payer. Certain penalties may also apply.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER (TIN) ON SUBSTITUTE FORM W-9
(SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE)
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER. -
- - Social Security numbers have nine digits separated by two hyphens: i.e. 000-
00-0000. Employer identification numbers have nine digits separated by only one
hyphen: i.e. 00-0000000. The table below will help determine the number to give
the payer.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE
SOCIAL SECURITY
NUMBER OF --
- --------------------------------------------------------------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds, any one of the
individuals (1)
3. Custodian account of a minor The minor (2)
(Uniform Gift to Minors Act)
4.a. The usual revocable savings trust The grantor-trustee (1)
account (grantor is also trustee)
b. So-called trust account that is not The actual owner (1)
a legal or valid trust under State
law
5. Sole proprietorship account The owner (3)
6. Sole Proprietorship The owner (3)
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE
EMPLOYER
IDENTIFICATION
NUMBER OF --
- --------------------------------------------------------------------------------
<S> <C>
7. A valid trust, estate, or pension The legal entity (5)
trust
8. Corporate account The corporation
9. Association, club, religious, The organization
charitable, educational or other
tax-exempt organization account
10. Partnership account held in the The partnership
name of the business
11. A broker or registered nominee The broker or nominee
12. Account with the Department of The public entity
Agriculture in the name of a public
entity (such as a State or local
government, school district, or
prison) that receives agricultural
program payments
</TABLE>
- --------------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show the name of the owner.
(5) List first and circle the name of the valid trust, estate, or pension trust.
(Do not furnish the identifying number of the personal representative or
trustee unless the legal entity itself is not designated in the account
title)
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
12.875% SERIES A SENIOR DISCOUNT DEBENTURES DUE 2009
OF
ADVANCE HOLDING CORPORATION
This form, or one substantially equivalent hereto, must be used to accept
the Exchange Offer of Advance Holding Corporation (the "Company") made pursuant
to the Prospectus dated ____________________, 1998 (the "Prospectus"), if
certificates for the 12.875% Series A Senior Discount Debentures due 2009 (the
"Series A Debentures") of the Company are not immediately available or if the
Series A Debentures, the Letter of Transmittal or any other documents required
thereby cannot be delivered to the Exchange Agent or the procedure for book-
entry transfer cannot be completed, prior to 5:00 P.M., New York City time, on
the Expiration Date (as defined in the Prospectus). Such form may be delivered
by hand or transmitted by facsimile transmission, overnight courier or mail to
the Exchange Agent. Capitalized terms used but not defined herein have the
meaning given to them in the Prospectus.
<TABLE>
<CAPTION>
TO: U.S. TRUST COMPANY OF NEW YORK, THE EXCHANGE AGENT
<S> <C>
By Mail: By Overnight Courier:
United States Trust Company of New York United States Trust Company of New York
P.O. Box 844 770 Broadway, 13th Floor
Cooper Station New York, New York 10003
New York, New York 10276-0844 Attention: Corporate Trust Operations Department
(registered or certified mail recommended)
By Hand: By Facsimile:
United States Trust Company of New York (212) 780-0592
111 Broadway, Lower Level (For Eligible Institutions Only)
New York, New York 10006
Attention: Corporate Trust Services Confirm by telephone:
(800) 548-6565
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS
VIA FACSIMILE, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID
DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal to be used to tender Series A Debentures is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the Letter
of Transmittal.
LADIES AND GENTLEMEN:
The undersigned hereby tenders to Advance Holding Corporation, a Virginia
corporation (the "Company"), upon the terms and subject to the conditions set
forth in the Prospectus and the Letter of Transmittal (which together constitute
the "Exchange Offer"), receipt of which is hereby acknowledged,
__________________________ Series A
(principal amount of Series A Debentures)
Debentures pursuant to the guaranteed delivery procedures set forth in
Instruction 1 of the Letter of Transmittal.
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW.
Principal Amount(s) of Series A Name(s) of Record Holder(s)
Debentures
____________________________________ ____________________________________
____________________________________ ____________________________________
PLEASE PRINT OR TYPE
Address_____________________________
ZIP CODE
Area Code and Tel. No.______________
Signature(s)________________________
____________________________________
Dated:______________________________
If Series A Debentures will be
delivered by book-entry transfer at
The Depository Trust Company ("DTC"),
Depository Account No:
This Notice of Guaranteed Delivery must be signed by the registered
Holder(s) of Series A Debentures exactly as its (their) name(s) appear on
certificates for Series A Debentures or on a security position listing as the
owner of Series A Debentures, or by person(s) authorized to become registered
Holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
Please print name(s) and address(es)
Name(s): _________________________________________________________________
_________________________________________________________________
Capacity: _________________________________________________________________
Address(es): _________________________________________________________________
_________________________________________________________________
2
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., or a commercial bank
or trust company having an office or correspondent in the United States or a
commercial bank or trust company having an office or correspondent in the United
States or an "Eligible Guarantor Institution" within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
hereby (a) represents that the above named person(s) "own(s)" the Series A
Debentures tendered hereby within the meaning of Rule 10b-4 under the Exchange
Act, (b) represents that such tender of Series A Debentures complies with Rule
10b-4 and (c) guarantees that delivery to the Exchange Agent of certificates for
the Series A Debentures tendered hereby, in proper form for transfer (or
confirmation of the book-entry transfer of such Series A Debentures into the
Exchange Agent's Account at DTC, pursuant to the procedures for book-entry
transfer set forth in the Prospectus), with delivery of a properly completed and
duly executed Letter of Transmittal (or manually signed facsimile thereof) with
any required signature and any other required documents, will be received by the
Exchange Agent at one of its addresses set forth above within five New York
Stock Exchange trading days after the Expiration Date.
THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVER THE LETTER OF TRANSMITTAL
AND SERIES A DEBENTURES TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN THE TIME
PERIOD SET FORTH ABOVE AND THAT FAILURE TO DO SO COULD RESULT IN FINANCIAL LOSS
TO THE UNDERSIGNED.
Name of Firm ______________________________ ________________________________
AUTHORIZED SIGNATURE
Address ___________________________________ Name ___________________________
PLEASE PRINT OR TYPE
___________________________________________
ZIP CODE Title __________________________
Area Code and Tel. No. ____________________
Date ___________________________
Dated: _____________________, 1998
NOTE: DO NOT SEND SERIES A DEBENTURES WITH THIS FORM; SERIES A DEBENTURES
SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL SO THAT THEY ARE RECEIVED
BY THE EXCHANGE AGENT WITHIN FIVE NEW YORK STOCK EXCHANGE TRADING DAYS
AFTER THE EXPIRATION DATE.
3
